BlackRock, the world’s largest asset manager with almost $8 trillion in AUM, is allowing two of its biggest funds to engage in Bitcoin derivatives.
According to ‘additional information’ provided in prospectus documents filed with the SEC, BlackRock has added bitcoin futures to derivatives products that its two funds can invest in. BlackRock Global Allocation Fund Inc. and BlackRock Funds V are cleared to invest in commodities, currencies, interest rates, credit events or indices.
“The only bitcoin futures in which the Funds may invest are cash-settled bitcoin futures traded on commodity exchanges registered with the CFTC,” the asset manager said.
The company cited several risks for its possible involvement in cryptocurrencies including regulatory changes, valuation issues and illiquidity risk as bitcoin futures are not as heavily traded as other futures and its ‘market is relatively new’.
Moreover, BlackRock reminded its investors that Bitcoin exchanges have repeatedly experienced technical and operational issues, making bitcoin prices unavailable at many times. In addition, the asset manager further states that the No-1 cryptocurrency has been the target of fraud and manipulation, which ‘could adversely impact’ the performance of its funds.
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The Chicago Mercantile Exchange (CME) is the only regulated marketplace in the US that offers Bitcoin contracts for cash settlement. This allows investors to take cash instead of physical delivery of Bitcoin upon settlement of the contract. Cboe offered similar derivatives back in 2017 but discontinued the offering of new contracts in 2019.
Although Bakkt, a cryptocurrency platform owned by the New York Stock Exchange owner, is also offering Bitcoin futures on a highly scrutinized US exchange, its product is for physical delivery.
The new development comes barely a month after CEO of BlackRock, Larry Fink, provided a somewhat bullish take on the world’s first cryptocurrency. In a relatively rare endorsement, Fink said Bitcoin has ‘caught the attention’ and could largely replace gold but warned of its growing popularity that has a real impact on the US dollar.
Back then, Fink, who has grown BlackRock into the world’s largest money-management corporation, dismissed bitcoin as nothing more than a vehicle for speculation and money laundering.
Furthermore, BlackRock had been on the lookout for crypto talent in late 2020, having notably posted a job opening for a VP of blockchain.