IS THIS BLACKROCK'S MASTER PLAN FOR BITCOIN?

BlackRock’s spot Bitcoin ETF (IBIT) has been by far the most successful ETF launch in the firm’s history and with ~22.5 bn USD of AUM already is set to surpass the established iShares IAU Gold ETF (~31bn$ AUM) in the near future. However, why does a firm that manages ~10.6 Trillion USD of assets care so much about such a tiny ETF that is tied to an asset currently worth ~1.24 trillion USD in total? Let’s crunch some numbers.

If Bitcoin price remains stable around the current levels, but IBIT AUM keeps growing at the current pace, by the end of 2025 the firm will control ~4% of the total Bitcoin supply. A huge number in the Bitcoin ecosystem, but in the grand scheme of BlackRock AUMs, this percentage is actually aligned with the shares the firm controls in pretty much every major listed company. To give you an idea, BlackRock controls ~5.5% of Apple shares.
If BlackRock achieves ~50bn USD worth of Bitcoin AUM by the end of 2025, this amount will still remain a drop in the bucket of BlackRock’s total AUM. What if the Bitcoin price doubles? Still, ~100bn USD in IBIT AUMs will be less than 1% of the total AUMs of the giant asset manager.
IBIT management fees are set to 0.25%, which means that the firm will record 125m-250m USD of yearly revenues if Bitcoin trades at a price between the current one or double that. Still a drop in the bucket for a firm that makes ~4.8bn USD in revenues per quarter.

Then why is such a large firm currently putting its full weight behind Bitcoin, as is obvious from the recent stream of news?

First of all, Bitcoin is the perfect asset to engineer a massive “gamma squeeze”. A gamma squeeze occurs when a stock’s price rapidly increases due to the hedging activity of market makers who sold call options. As the stock price rises, market makers are forced to buy more shares to hedge their exposure, especially when many out-of-the-money (OTM) call options move closer to being in the money (ITM). This buying activity drives the stock price even higher, creating a feedback loop that accelerates the price surge. A gamma squeeze can be engineered by purchasing a large number of OTM call options on a stock with high short interest or limited circulating supply, forcing market makers to buy shares as the stock price rises, which further amplifies the upward momentum. According to EY (“Exploring crypto derivatives“) crypto derivatives as a whole reached 1.33 Trillion USD in monthly volumes in September 2023, an amount that is now believed to be more than double that. At first sight, it looks like a huge number, doesn’t it? What about if we compare it to the 2.21 trillion USD of derivatives volumes per day reported by Tradeweb for August 2024 (“Monthly Activity Report“)? Beware, these are volume data only for listed derivatives, not for OTC ones that account for more than ~80% of the total volume of derivatives financial institutions trade.

If we put all information shared so far together, it doesn’t take long to figure BlackRock strongly believes in a spectacular price increase in Bitcoin simply driven by:

Limited supply
Derivative market going mainstream among large financial institutions

Why would major financial institutions be so eager to enter full force into the Bitcoin derivatives market? The answer is very simple: they need a new asset class with high growth potential to support their revenue growth (and compensate for the loss of revenues they are experiencing in other “mature” asset classes). Politicians aren’t blind to this, and as a matter of fact, both US Presidential candidates are currently pledging support to the growth of the cryptocurrency industry if they are elected to office, marking a huge shift from the approach in the recent past.

Bitcoin, similar to gold, is establishing itself as a “safe haven” asset, like it or not, among retail investors who by nature of the assets can still purchase it even if bans are being put in place, as has been shown in China: “Bruised by stock market, Chinese rush into banned bitcoin“. Does BlackRock believe that if the US stock market enters a severe correction, a large number of investors will shift a significant portion of their allocation into Bitcoin? As a matter of fact, the largest asset manager is positioning itself for it, mindful that, similar to physical gold, Bitcoin isn’t still so easy to purchase and to safe keep, as the implosion of Mt.Gox years ago or FTX in 2022 demonstrated. I know that what I am saying will strike a chord with Bitcoin “OGs”, but as a matter of fact, in the same way gold never managed to become a viable means of payment to circumvent the established modern financial system, Bitcoin isn’t structurally in the position to do so either. Consequently, until the current fiat monetary system remains in place, assets like gold, silver, or Bitcoin will only be a viable form of long-term investment and capital preservation if they can be easily converted into the currency everyone needs to settle payments in their day-to-day life; this is when the likes of IBIT become handy. To the two points I mentioned above, we can then add this third one related to a potential demand shift dictated by equity market cycles (that never go up forever even if periodically the crowd ends up believing so).

The third reason why BlackRock became so adamant about supporting the Bitcoin narrative with its full weight is that the cryptocurrency asset class is objectively the only one that can grow in value significantly in the future. Think about that: the whole cryptocurrency industry valuation at the moment is less than that of Apple alone. How much more market share, hence revenue growth, can the largest asset manager in the world meaningfully achieve in saturated and ultracompetitive markets like equity or fixed income? Little, and this growth is so strongly dependent on the amount of money printing global central banks are still willing to deliver to bubbly markets addicted to an endless stream of liquidity. Central Banks are not in a position to print money forever, forget about it, and you can bet BlackRock is very well aware of that. Is there any other class out there with growth potential similar to that of cryptocurrencies? No, there isn’t, hence it is logical for BlackRock to position itself to not miss this train the moment it leaves the station. Do you now understand why back in March this year BlackRock launched its BUIDL ETF (“BlackRock Launches Its First Tokenized Fund, BUIDL“)? Because of the current regulation, this is a restricted fund, but the fact it already reached a size greater than 500m$ USD should not be ignored (Etherscan Address). Furthermore, do you think BlackRock is going to stop here? Of course not, I personally bet to see similar “experiments” popping up in the near future in an effort by the firm to start “planting seeds” within the cryptocurrency industry. Effectively, like it or not, BlackRock is betting on the crypto industry to replicate the same type of spectacular growth achieved by the internet sector in the past twenty years, aiming not to repeat the mistake of dismissing the possibility easily to then regret it, as many people did the last time such an opportunity surfaced for financial institutions.

To conclude, this is perhaps what BlackRock’s master plan is about:

Bitcoin’s potential for a big “gamma squeeze”
Exponential growth in institutional Bitcoin and cryptocurrency derivatives market
Demand shifts from stocks to Bitcoin and cryptocurrencies in the event of a sharp correction in stocks
Exponential growth potential of the whole cryptocurrency asset class.

Is all I said bullish or bearish for Bitcoin and the whole cryptocurrency industry? Feel free to make up your own mind, and if you need help to evaluate what type of opportunities in the space have the right characteristics to appreciate in value a lot in the future, you can refer to this article I wrote a long time ago: “VALUE INVESTING ON CRYPTO BLOCKCHAIN PROJECTS“

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