Is BlackRock out to control an entire asset class?
BLACKROCK notoriously has some $10 trillion of assets under management (AUM) – a fact that has caught the eye of some politicians on the other side of the pond.
While it’s a lot of cash, it’s not THAT much in the grand scheme of things: the US stock market has a market cap of some $50 trillion and even a single asset like gold is valued at around $13 trillion.
Trying to control either of those – and other assets and markets, for that matter – would not be easy, but what about something that has a very finite supply such as Bitcoin? BlackRock wouldn’t want to mess around with the altcoins – many of which are too small and volatile for the asset manager to consider – but to control Bitcoin could be both possible and potentially enormously profitable.
To that end, the ETF situation is making it easier for BlackRock, helping the company to hoover up more and more Bitcoin through this investment vehicle. But what is the final play? What might BlackRock really want?
With all the talk of ‘digital gold’, it is easy to see that Bitcoin could potentially become another reserve currency. And we all know that controlling a reserve currency is, as the old saying goes, a licence to print money.
If we go back to 2010, the suggestion was that there should be Bitcoin banks. The mere thought that a sustainable level of world transactions could be covered by the Bitcoin blockchain is absurd. Credit cards can do 70,000 transactions per second. Bitcoin would take more than three hours just to do that. Credit cards – each of them – would have done more than a billion in the same amount of time.
But, by holding Bitcoin, a digital bank could use the asset to back its own digital token. Different banks could adopt different policies, none of which would interfere with the Tradfi legacy financial system. These banks will work the way they did before money was nationalised – individual individuals might issue tokens traded at a discount, whilst others might trade at a premium. This existed in America through thousands of banks across the country until Washington imposed fiscal rectitude.
Closer to home, we still have the remnants of the system of note issuance in Royal Bank of Scotland and Bank of Scotland notes, as well as Clydesdale Bank – though I fancy the latter might disappear if Nationwide’s takeover of Virgin Money (the current owner of what was Clydesdale Bank) goes ahead.
Issuing your own notes is massively helpful – it’s effectively free money. As an aside, even I well remember paying 6d (2.5p in today’s money) for every £1 of Scottish notes I paid into my English bank account, courtesy of aunts slipping me some Scottish cash.
So, Bitcoin’s eventual fate may end up being some sort of asset used purely to back certain banks, and a Bitcoin transaction may never be for a cup of coffee or a high-powered car. Rather, it would be an inter-bank transaction settlement in the billions. A personal peer-to-peer transaction using Bitcoin would become as rare as hen’s teeth.
Is BlackRock thinking in those terms, with the ETFs simply being a stepping stone? Who knows. We’ve all scoffed at comic book villains out to dominate the world, and at certain individuals too. But, as I’ve frequently said, if you leave things to the process of economics it will usually sort itself out. In this instance, BlackRock might just be in the right place at the right time.
Temple Melville is CEO of The Scotcoin Project Community Interest Company (CIC)
