Dialogue with BlackRock's Chief Investment Officer: Bitcoin will eventually resemble gold more, and 80% of the top 50 tokens make me feel uncertain

Original Title: BlackRock's Crypto Strategy In 2025 With Samara Cohen

Source: Empire

Translation: Deep Tide TechFlow

Key Takeaways

Guest: Samara Cohen, Chief Investment Officer of BlackRock ETF & Index

Host: Jason

Air Date: April 28, 2025

In this episode of the podcast, we invited Samara Cohen to discuss BlackRock's cryptocurrency strategy in 2025. We delved into various topics, including the reasons behind the successful launch of Bitcoin ETPs, investor demand for cryptocurrencies, Samara's optimistic view on tokenization, and how to bring traditional assets onto the blockchain.

Highlights

• Bitcoin is indeed a new asset class, and as a borderless store of value, its ultimate state resembles that of gold.

• Bitcoin tends to rise sharply and fall relatively gently.

• In the Bitcoin ETP space, most buyers are still hedge funds.

• We are currently very focused on tokenized money market funds and tokenized treasury funds, as liquidity in cash and collateral in capital markets is poor, and blockchain technology can clearly improve this issue.

• For L1 and L2 projects in the crypto market, I don't think there's a need to specifically pitch them to BlackRock.

• I don't think Ethereum's positioning is more complex than that of other altcoins. In fact, I believe the entire crypto space has issues with data and standardization.

• Among the top 50 tokens on platforms like CoinGecko or CoinMarketCap, I have no confidence in about 40 of them. I believe there are some opaque operations among market makers, which is completely different from the top 50 companies in the stock market.

• Stablecoins initially brought the dollar onto the blockchain, and then we started bringing treasury bonds and money market funds onto the blockchain. Next, I believe there will be on-chain credit, bringing credit onto the blockchain.

• Finding technological applications that solve real problems is much better than simply turning illiquid assets into liquid assets.

• In the current post-crisis era, the funding capacity of banks and governments is limited, so we need to expand capital markets to drive economic growth.

• The collaboration between digital-native crypto companies and traditional financial firms is crucial. We need to think about what constitutes a suitable portfolio, how to attract investors, how to create solutions, and how to market them; the significance of branding is becoming increasingly important.

Introduction

Jason:

Hello everyone, welcome back to Empire. I'm very excited about today's conversation. I usually don't read guests' resumes at the beginning of the show, but I feel it's necessary this time because this is one of the most impressive resumes we've encountered on Empire.

Our guest today is Samara Cohen, the Chief Investment Officer of BlackRock's ETF and Index Investments, responsible for managing the market quality and investment integrity of approximately $7.8 trillion in BlackRock index funds and iShares ETFs. Before joining BlackRock, Samara was a Managing Director in Goldman Sachs' securities division.

Additionally, Samara has been recognized as one of the Most Influential Women in Banking by American Banker and has been named one of the Most Influential Women in Finance by Barron's for four consecutive years. She is also a board member of SIFMA and the BlackRock Foundation. One interesting point is that she studied drama in college.

I’m curious about your actual role at BlackRock and how you view it. If possible, could you provide some numbers, like the size of your team? Is the $7.8 trillion figure accurate? I’d like to hear your perspective on your role.

Samara Cohen:

I think if you want to know the most important number in my role, it’s the number of global investors accessing the market through iShares ETFs and BlackRock index portfolios, which has surpassed 100 million. Our goal is to add another 100 million investors, hoping to drive people's retirement and financial health. The more people participate in the market, the more they can benefit from global economic growth. ETFs and index investing have been a disruptive technology over the past 50 years, enabling more people to participate in the market.

My responsibility at BlackRock is to oversee how we convert indices into investable portfolios. Half of our assets are in other types of fund forms, which are index portfolios, and the other half are ETFs. Therefore, many ETFs package index portfolios into ETFs, although an increasing number of ETFs are also used for non-index investments.

Jason:

What do you think is BlackRock's role globally? What is your main work?

Samara Cohen:

I have an almost "elder" perspective on this. In fact, it depends on who you ask and how long ago. I think working at BlackRock, but BlackRock is actually my first job after college.

You might be interested in a film about the history of index investing that was released on YouTube a few weeks ago, called "Tune Out the Noise." Interestingly, index investing didn't really mature until commercial microchips became available, as buying thousands of securities simultaneously to form a portfolio required a lot of computing power.

At that time, BlackRock didn't have an ETF or index business. I was a dual-degree graduate in finance and drama, but all my summer experiences were working in local theaters. I wanted to see what I could do with my finance degree, and I was attracted to this company, which was then called BlackRock Financial Management, indicating their mission was to provide better risk management technology for investors in the mortgage-backed securities market, which was BlackRock's expertise at the time. Although I didn't fully understand what that meant back then, I loved the mission of helping ordinary investors manage risk better. So, I ultimately chose this company, BlackRock, and I was employee number 134; now we have over 20,000 employees, but I was number 134. Even though we now have over 20,000 employees, I still believe that the fundamental mission of helping investors manage risk and access the market remains as real today as it was when we started as a company.

Difference Between ETF and ETP

Jason:

Can you explain the difference between an ETF and an ETP? And how has BlackRock's business evolved? How should we view BlackRock as a company?

Samara Cohen:

Let's start with definitions. ETP is a general category that represents Exchange Traded Products, while ETF is a subcategory, specifically Exchange Traded Funds. These two terms are often confused in the industry. I'm glad you asked this question, especially since I didn't give you a heads-up about it. But we think it's helpful to distinguish between the two as more products fall under the ETP umbrella. Certain products may be referred to as ETPs, or even ETCs (Exchange Traded Commodities), but in the U.S., these terms are not widely accepted. An ETC is neither a fund nor a diversified index fund or a passively managed portfolio. Therefore, while these two terms are often used interchangeably in the industry, ETF is more common, while ETP is a broader category.

BlackRock was founded in 1988. In fact, BlackRock acquired Barclays Global Investors in 2009, and since then, iShares became part of BlackRock, and BlackRock began focusing on the ETF and index business. At that time, this was actually controversial in the industry, as many people did not realize that active management and index investing could coexist.

Jason:

As a member of BlackRock's Global Executive Committee, how do you view the company's business? Can you tell me about BlackRock's different business lines and how you view the overall development of the company? I'm particularly interested in how your potential foray into cryptocurrencies and Bitcoin fits into BlackRock's overall profit and loss.

Samara Cohen:

I have been on BlackRock's Global Executive Committee for three years, and I returned to BlackRock ten years ago after working at Goldman Sachs for 16 years. You could say that working as part of an asset management company, especially at BlackRock, is very different from my trading experience at Goldman Sachs. We are very mission-driven; our mission is to help people invest better and help more people achieve financial health. We review the company's long-term goals every five years, write related content, and engage in extensive internal communication to ensure everyone truly understands our direction. So, as you can see, we have made some adjustments in recent years, and we believe we need to make progress in certain areas in the future to help more people achieve financial health.

We know we need to scale further in the private markets, which explains some of the significant transactions we've announced over the past year, including our partnership with GIP and the pending transaction with HPS. Our work in digital assets, tokenization, and more broadly considering retirement and retirement portfolios is all about adapting to the current new macroeconomic environment.

New Market Institutions

Jason:

What is your view on the current macroeconomic environment?

Samara Cohen:

Over the past year, we have gained many new insights into the market; it is indeed a unique market. As a professional with 30 years of market experience, I can recall several instances in my career where such a unique market environment has occurred. In the past five years, I've experienced more of these moments than in the previous 15 years.

I believe that in recent years, especially since the COVID-19 pandemic, market uncertainty has increased. I've been thinking about what this change means for market resilience, adaptability, and how to reposition in the face of rapidly changing information. In fact, we see the development of ETFs, in part due to this growing demand, as ETFs provide a simple and convenient way to access the market. For example, our conversation is taking place just weeks after tariffs were first announced, and we have seen record trading volumes in equity ETFs and fixed income ETFs. For instance, the proportion of ETF trading in the U.S. stock market typically correlates positively with the VIX (Volatility Index). Before April 2, this proportion was around 27% or 28%, while in some days over the past two weeks, it surged to 40%. Because if you want to quickly adjust risk, ETFs provide a transparent and straightforward method. Therefore, I believe the development of ETFs is closely related to how to provide more access and flexibility in a rapidly changing market.

Active vs. Passive Investing

Jason:

Assuming we have entered an era that can be broadly described as high volatility. Now ETFs seem to account for over 50% of the fund complex and between 13% and 20% in the stock market. I think the traditional view might suggest that in a high-volatility era, you might need more active strategies and active managers, while in a lower volatility economic environment, you might lean more towards passive or index investing. How do you see the role of ETFs in a high-volatility market?

Samara Cohen:

I am an index portfolio manager, and my husband is an active manager pursuing alpha. But in reality, managing ETFs or index portfolios is not entirely passive. Moreover, perhaps more importantly, the decision by investors to use ETFs or to allocate them as part of their index strategy is also definitely not passive; I think this point is very important.

Going back to the trajectory of BlackRock since the acquisition of BGI in 2009, active and index investing is actually a spectrum that investors can leverage to build portfolios and decide when they need core beta building blocks and when they need high-conviction single securities. In the post-COVID era, some of the largest institutions adopting ETFs are asset managers like BlackRock using ETFs in their portfolio strategies, particularly in fixed income ETFs.

As for the statistics you mentioned, I think your observation about the current proportion of the stock market in ETF or ETP wrappers is roughly correct, but the proportion in the bond market is much lower. About 1% to 2% of the fixed income market is in ETP wrappers. Of course, for those of us closely watching the market, the proportion of Bitcoin is around 5%, sitting between stocks and bonds.

Launch of BlackRock's Bitcoin ETP

Jason:

Let's talk about Bitcoin. Before 2024, we discussed whether to launch Bitcoin products. Was this decision driven by regulatory factors, investor demand, or market structure? Do you think the market structure is mature enough, and is the transparency of exchanges high enough to have led to this decision?

Samara Cohen:

All three aspects have an impact, but initially, it was primarily based on investment arguments and client demand. Typically, the order of investment arguments, client demand, market structure readiness, and regulatory backdrop is like this. We hope that regulation follows this trajectory, meaning that regulation can only come after the market structure is in place; these factors influence each other.

It's also worth noting that our first Bitcoin product was actually not an ETP, but a private trust we launched in 2022. Although we established a digital assets team in 2020 and did a lot of work on the investment applications of blockchain technology, it wasn't until we launched that institutional product in 2022 that we really began to engage with Bitcoin. This was a key moment for us, allowing us to gain deeper insights into workflows, risk management, and systems, laying the technical foundation for supporting ETPs later on. As you mentioned, we launched and submitted the ETP in 2024, but in 2022, we had already received a lot of client feedback expressing a desire to access Bitcoin and dissatisfaction with existing alternatives, building their investment arguments around this. The shift in demand has been quite significant compared to five years ago.

Regarding ETPs, while you can have the best technology and trading capabilities, you need a market ecosystem for ETPs to operate. In the case of Bitcoin ETPs, this is not only an interesting exercise in assessing the structure of the crypto market but also involves evaluating key interoperability, as Bitcoin ETPs are essentially a bridge connecting the crypto market with the ETP market. Finally, I want to say that this process has indeed been lengthy. Initially, when we discussed Bitcoin ETPs, I was surprised that people in the crypto space considered this very important. ETPs and cryptocurrencies are both seen as disruptive technologies that help people access the market more easily. What impressed me was that the first time I bought Bitcoin, the process of understanding the ecosystem took less than two minutes, so I had to clarify this value proposition. Although the ETP wrapper seems to undermine the commitment to the Bitcoin market structure, I understand that the reality of the crypto market structure is that there are many value-added areas in traditional finance, which is why we see demand for ETPs.

Jason:

How does a company like BlackRock make such decisions? I see there are usually three ways: one is top-down, like the CEO saying, "We're going to do this." The second is bottom-up, where salespeople hear client feedback and report it up the chain. The third possibility is that someone in the executive team is very supportive and believes we must make a move in the crypto space.

Samara Cohen:

Ideally, all three scenarios occur. Our journey into cryptocurrency has unfolded in the public eye. Depending on the company's characteristics, we are students of the market, and our views on certain issues may evolve continuously. The client feedback we heard in 2020 and 2021 has changed significantly compared to a few years ago, as clients began to see cryptocurrencies as potentially playing an important role in diversifying their portfolios. I always remember the birth of Bitcoin because my daughter was born on October 10, 2008, shortly after the Bitcoin white paper was released.

While this asset class is relatively young, when assessing its role in asset allocation strategies, we need top-down market interest, and as client feedback increases, bottom-up interest is also growing. Additionally, there needs to be internal support from educators and advocates who need to be patient. I think our head of digital assets, Robbie, is a prime example of this, and he has done an excellent job.

Reasons for the Success of IBIT Launch

Jason:

Why was the launch of IBIT so successful? It is one of the most successful cases in ETP history.

Samara Cohen:

I learned some practicalities about the utility of ETP wrappers and their role in bridging crypto and traditional finance. In 2024, we found that there was a significant demand from the crypto community for ETP wrappers. Overall, about half of IBIT holders are self-directed investors, while the other half are retail and advisor-type investors.

(Deep Tide TechFlow Note: IBIT refers to The iShares Bitcoin Trust ETF, which provides an investment approach similar to directly holding Bitcoin.)

Jason:

So 50% are self-directed investors, like someone with a TD Ameritrade or Charles Schwab account who just clicks to buy.

Samara Cohen:

Yes, 50%. The other 50% is roughly split between advisor-type and institutional investors. Among self-directed investors, data shows that three-quarters of them have never held iShares before. This indicates that they had not previously purchased iShares ETPs. While we have many products, since iShares is the leader in this space, it can be said that for these individuals, they opened brokerage accounts and purchased their first ETP because they wanted to put Bitcoin into an ETP, possibly because they needed institutional-level custody and trading transparency. Moreover, they might not want to frequently move in and out of the crypto ecosystem, as that can be cumbersome.

Jason:

Yes, there may be a "too big to fail" mentality. Many of my friends who entered the industry early always advised me to self-custody Bitcoin. Later, as Coinbase grew larger and began providing custody services for some institutions, people started to feel that if Coinbase were to fail, we might face bigger problems, so they turned to Coinbase. Now, products like IBIT may be the next iteration because if BlackRock were to fail, it would almost be too big to fail. I'm trying to understand the mindset of those willing to do this.

Transferring Bitcoin to IBIT would be simpler. Investors, especially those managing overall risk, want to do everything on one platform rather than switching between two ecosystems, which complicates matters. If you are a holder of iShares, it’s worth noting that BlackRock is not your counterparty. You are a shareholder of the fund, which has its own governance structure. Our custody is provided by Coinbase, and we disclose all parts of the ecosystem, but we do carefully select partners to provide Bitcoin for IBIT investors.

Investor Demand for Bitcoin

Jason:

BlackRock recommends a 1% to 2% asset allocation for investors interested in Bitcoin. What considerations are behind this allocation advice? Because this will certainly attract a lot of attention. BlackRock suggests allocating 1% or 2% to Bitcoin. What is the reasoning behind this decision?

Samara Cohen:

First of all, we suggest that for those wanting to invest in Bitcoin, allocating 1% to 2% of their assets to Bitcoin is reasonable, and this needs to be considered in the context of the overall portfolio.

Looking back at 2020, we tried to do two things. First, we were educating existing iShares investors about Bitcoin. Second, we realized we were also educating existing Bitcoin investors about ETPs and their wrappers. Therefore, we wanted to achieve both simultaneously. Initially, we primarily focused on raising awareness about Bitcoin.

We discussed what Bitcoin is, how ETPs work, and how to acquire Bitcoin. Then we explored more broadly the potential of Bitcoin as a unique diversification asset, especially in the current macroeconomic environment. We reviewed some past market stress events, such as the COVID-19 pandemic and regional banking crises, observing Bitcoin's performance relative to other risk assets. We explored Bitcoin's diversification potential, and this story will continue to unfold as we gather more data, including the latest events related to geopolitical market volatility we are currently experiencing.

After studying Bitcoin's role as a potential diversification asset, we wanted to explore portfolio allocation issues, but this is indeed challenging with Bitcoin, as it is with gold. Ultimately, when the value of an asset depends on its level of adoption, this analysis becomes complex.

We believe a key point that external investors can understand, and which is recognized internally within our company, is the tolerance for overall portfolio risk. Our view is that considering the concentration of investments in "MAG 7" companies within a broad U.S. equity portfolio, investors have already taken on some concentration risk and are coexisting with it. Therefore, we can set such an allocation: if I am willing to take on the same additional risk contribution in Bitcoin as I would in MAG 7 stocks, this line of thinking is understandable to me, which has led to our proposed 1% to 2% allocation. If it exceeds 2%, the additional contribution to overall portfolio volatility would increase exponentially. So, this is the constructive thinking we believe is helpful.

Bitcoin Trading During Market Sell-Offs

Jason:

Bitcoin trading has always been intriguing. We are recording this in mid-April, and the market has been quite volatile in recent weeks, clearly indicating that the market is still uncertain about how to trade Bitcoin.

I remember one day when the Nasdaq plummeted, gold surged, and Bitcoin remained stable. We discussed this issue a week or two ago. I feel that Santi's view is that investors are uncertain whether Bitcoin should trade like the Nasdaq or like gold. I saw Bitwise's CIO Matt Hogan say on Twitter that Bitcoin trades differently from both; Bitcoin is just Bitcoin, and it is a new asset class. I'm curious about your thoughts.

Samara Cohen:

Bitcoin is indeed a new asset class, and as a borderless store of value, its ultimate state resembles that of gold. But this is difficult to grasp during the adoption process. I heard you or someone on Roundup mention that Bitcoin is 50% like the Nasdaq and 50% like gold. I think that is exactly what we are seeing.

This is a critical moment for how Bitcoin's price performance manifests in this market volatility caused by cross-border tensions and supply chain complexities. Theoretically, this should be Bitcoin's "stage." However, the actual performance has been underwhelming and has not demonstrated the unique diversification we see under other market pressures. Instead, during this event, Bitcoin's correlation with stocks actually increased.

There are some additional observations. We've discussed these before, and I would love to hear your thoughts. First, if we observe Bitcoin and IBIT, we find some discrepancies between the two. IBIT has not experienced the massive outflows that Bitcoin has, which may indicate that the recent market price movements have been primarily driven by retail investors and speculative trading, while many institutional positions were already unwound in the latter half of March. Of course, IBIT cannot leverage like BTC, so we can now see the role of different investor bases, with a more pronounced presence of long-term investors in IBIT.

Another noteworthy point is Bitcoin's volatility. Bitcoin has not shown significant volatility during downturns, and its volatility still maintains a positive skew.

Volatility is evolving. Bitcoin tends to rise sharply and fall relatively gently. This is usually a good thing. By the way, this is also why IBIT options are so important to the ecosystem, as this characteristic of volatility is typically very favorable for options market makers.

Who is Buying Bitcoin ETPs?

Jason:

We just discussed different types of buyers, with 50% being self-directed and the other 50% purchasing through advisors. Among institutional investors, there is another category of buyers. But there is actually a new group of buyers who are non-emotional buyers. These buyers include market makers, or some hedge funds, although they may not be market makers; they just want to make small profits through large-scale trades. What do you think about these new entrants to the market?

Samara Cohen:

I haven't heard him specifically talk about this topic. However, I do believe that among institutional investors, the last segment is neither self-directed nor advisor-guided, but rather institutional investors. While we can see from some documents that sovereign wealth funds, pension funds, and endowment funds are buying Bitcoin, in this space, most buyers are still hedge funds. In many cases, the buying behavior is like this.

I think the non-emotional buyers David mentioned can be seen as investors or traders who only buy specific financial instruments (widget buyers), looking for relative value across different asset classes. One important way they buy Bitcoin is through futures basis trading, which I believe is an important dimension in every market.

Was the Launch of Ethereum ETP Successful?

Jason:

The success of Ethereum is clearly not as pronounced. Why is that?

Samara Cohen:

I have become accustomed to the disappointment of the crypto community regarding ETH, but I think it is not quite appropriate to benchmark it against IBIT.

Clearly, for investors, the investment framework for Bitcoin is very clear, such as its role as a store of value. However, understanding the valuation framework for Ethereum or other tokens is much more complex. I notice that in the investor community, while there may be optimism about the utility of the Ethereum blockchain, there is uncertainty about how to translate that into actual value accumulation for tokens.

Jason:

What do you think are the main issues facing Ethereum right now? If Bitcoin is digital gold, what is Ethereum's positioning? Is that positioning too complex?

Samara Cohen:

I don't think Ethereum's positioning is more complex than that of other altcoins. In fact, I believe the entire crypto space has issues with data and standardization. How to assess these different tokens and applications, understand the sources and destinations of value accumulation, and obtain analytical insights are all very complex. I don't think this is a simple marketing issue.

Investor Demand for Cryptocurrencies

Jason:

What do you think about other crypto products? I know you can't disclose upcoming products, but what new crypto products do you think the market still needs?

Samara Cohen:

Looking back at the development of Bitcoin ETPs, it is essential to clarify its investment logic. Currently, many altcoins lack clear investment logic. One challenge in the crypto space is which applications will become winners? Which problems will be solved, and how? We are currently very focused on tokenized money market funds and tokenized treasury funds, as liquidity in cash and collateral in capital markets is poor, and blockchain technology can clearly improve this issue. As these technologies mature, we will see which protocols, applications, or companies successfully solve real problems, thereby deriving their investment logic. But I believe that we are still in the early stages of technological applications and cannot yet determine who the ultimate winners or losers will be, and investment needs to have a clear view on this.

This reminds me of the question you raised about indices. If you are optimistic about technological applications but are unsure how to choose winners and losers, that is the essence of index investing. It allows investors to access the entire market or a specific sector of the market, defined by what we call index methodology. So what I want to ask you is, how can this market organization technology be applied in the crypto space? Because it relies on data and standards.

Jason:

I think data and standards are key. Currently, the industry is focused on the wrong metrics. In our Block Works, we believe the industry is focusing on the wrong metrics. Therefore, the crux of the issue lies in data and standards. If I look at the top 100, 50, or 500 companies in the stock market, although I may not know their specific businesses, they are all real companies with revenues, cash flows, income statements, and governance structures.

Samara Cohen:

The aspects you just mentioned can be used to build index methodologies. If you consider factors like governance, teams, cash flow, etc., then I'm not sure how many tokens can meet those requirements.

Jason:

I think we need to focus on the fact that if you delve into Block Works' leadership meetings, this is precisely the question we are constantly pondering, because a core issue in the industry is that among the top 50 tokens on platforms like CoinGecko or CoinMarketCap, I have no confidence in about 40 of them. I believe there are some opaque operations among market makers. This is completely different from the top 50 companies in the stock market; although I may not know exactly what they are doing, I can see their income statements, governance structures, and know their management teams, which do not exist in the crypto space.

Samara Cohen:

Exactly, this is foundational for index investing because index investing actually has two steps. The first step is how to build algorithms and create index methodologies to describe the market or different sectors of the market. The second step, which is also a challenge, is how to translate that algorithm into investable portfolios in the real world while minimizing the actual friction associated with investing and rebalancing.

Jason:

Yes, that is the index I would be willing to invest in. For example, it could be the top 50 protocols that generate actual revenue. But we can discuss this later.

BlackRock's Optimism on Tokenization

Jason:

You spent about $15 billion to $30 billion acquiring different companies. Cryptocurrencies are clearly an important asset class and industry that you are focusing on, as well as private markets. Can you tell me how you view the growth of private markets and why this is so interesting? How do data and standards fit into this?

Samara Cohen:

In large-scale operations, data and standards are crucial. Currently, our mission is to expand capital markets to support more people who wish to save and invest, as well as more companies, not just those looking to raise funds for various interesting and exciting investment projects (whether related to AI or infrastructure). We are at a moment where the expansion of capital markets will bring more economic growth.

How to expand capital markets? It almost starts with data and standards. I think indexing is foundational; it will become the basis for cryptocurrencies and private markets. Even before index investing, we need to understand what performance looks like. What is your benchmark? How do you know if you are outperforming or underperforming the market? You need to define the market.

Based on this mission, we need a larger market to support more investors. We are looking for the next 100 million investors. We have our digital asset strategy and have indeed increased our investment in private markets, including the acquisition of Global Infrastructure Partners and HPS (a private credit management firm), although the HPS transaction has not yet been completed.

Finally, there are already completed acquisitions, and Preqin is very important because Preqin is a data and analytics company. I think our transparency and belief in data and standards are evident. This acquisition trajectory will bring transparency, scale, and ultimately provide more opportunities for a broader market.

Jason:

I saw a CNBC headline mentioning how the world's largest asset management company is reshaping itself with nearly $28 billion in acquisitions. I'm not sure if that number is entirely accurate. We refer to the $28 billion acquisition as a push to develop private assets. So will you do the same in the crypto space?

Samara Cohen:

I'm not quite sure. I think we are still in the early stages of our journey in digital assets. As I mentioned, we are optimistic about the potential of tokenization to improve capital markets and make them work better. Therefore, we are very focused on more tokenization in the market and how we can build bridges with investors. Whether it’s through ETPs bringing more cryptocurrencies into traditional finance or the tokenized money market funds we discussed, some of the largest tokenized money fund consumers and investors are crypto-native institutions looking for more sophisticated financial management capabilities. Therefore, we will continue to invest in building these bridge capabilities.

Regarding cryptocurrencies, or rather the broadly defined term of cryptocurrencies, if I say digital capital markets, people need to invest in capital markets. I am very interested in this. At what inflection point do you think more people's investments will shift to on-chain rather than off-chain?

Jason:

At Block Works, we basically see it as creating a new financial market. You have all these assets in traditional old databases, and we are just moving assets to a new, potentially more efficient database.

Samara Cohen:

I love this analogy. I think we must focus on this transition process. Because if you and I sit together and brainstorm a vision for global capital markets on a whiteboard, it will certainly be more tokenized than the current market. But we have a massive functional traditional market. How to get from point A to point B is something we need to spend time thinking about, and I have spent a lot of time considering how these markets can interoperate as much as possible.

How to Bring Assets On-Chain

Jason:

I think one of the most interesting developments in recent months is your collaboration with IBIT to move Bitcoin, a crypto asset, from the crypto track to the traditional financial track. We haven't talked about BUIDL yet, which involves the process of transitioning from traditional tracks to crypto tracks. Ethena seems to be one of the main holders of BUIDL.

I think there will be a big trend this year, although it hasn't been fully public yet, but it has already started behind the scenes. Stablecoins initially brought the dollar onto the blockchain, and then we started bringing treasury bonds and money market funds onto the blockchain. Next, I believe there will be on-chain credit, bringing credit onto the blockchain.

Before we delve into tokenization, I want to ask you a question about new products. From an institutional perspective, how many crypto assets do you think are currently investable? For example, Bitcoin and Ethereum?

Samara Cohen:

I don't know much about the situation of other coins in the institutional ecosystem. But based on our conversations with institutional investors, they are currently primarily focused on Bitcoin, especially in the current environment. Ethereum is still relatively secondary.

We are talking about those institutional investors who typically sit in 60/40 bond portfolios, looking for new sources of yield and diversification. They want to achieve both simultaneously, which is also why they are investing in private markets and Bitcoin, especially in the current situation, along with a series of other more systematic alpha-generating strategies.

Jason:

From a valuation perspective, do you think we will adopt existing company valuation methods? In today's market, we are all looking at the same metrics, such as earnings per share and price-to-earnings ratios, or income statements. Will we apply these metrics to crypto assets? Or do you think we will create new important metrics for crypto assets?

Samara Cohen:

I think it depends on what you are focusing on. I feel it can be easy to apply income statements to blockchains, but Ethereum may not apply. It may be more like a commodity rather than a company. Applications like Uniswap may find it easier to apply income statements because they have revenues and expenses, etc.

I think that makes sense. You and I have had many discussions about digital asset policy and regulatory pathways. I think one complex but exciting thing right now is that much of the existing regulation does not consider the potential of blockchain technology. It does not truly account for 24/7 trading or atomic settlement, real-time transferability, and all these features. Therefore, I do believe there will be a new set of standards and metrics that will become part of the true lasting adoption of crypto assets.

Jason:

How do you view tokenization?

During 2018 and 2019, there was a lot of discussion about "we will tokenize the entire world," and many companies began to take action. The initial proposal was that we would make illiquid assets more liquid through tokenization. We would put all real estate on the blockchain, but ultimately nothing happened because illiquid assets did not become liquid as a result. The new phase now is that we are actually moving relatively liquid assets on-chain, and there is a significant demand for this.

Samara Cohen:

You have a good answer to this question. First, it can make the infrastructure for securities trading, derivatives trading, and collateral management more efficient, reliable, and transparent. Therefore, I think finding technological applications that solve real problems is much better than simply turning illiquid assets into liquid assets.

I love this point; as you said, everyone thinks we can create markets for more assets. This situation often happens with ETFs. I can't tell you how many times I've been approached by a securities exchange in some emerging market country, where they need to do a lot of work to make their local market more investable, create transparency and data, but they seem to have a myth that simply listing an ETF will solve their market modernization issues. But that is not the case. Markets need certain standards to build investor confidence so that buyers and sellers can come together. I think tokenized assets are the same. There is no doubt that if we look at the various parts of the capital market ecosystem, tokenization will improve these parts and unlock value for the ultimate investors.

BlackRock's Ten-Year Vision for Cryptocurrencies

Jason:

What do you think about BlackRock's ten-year plan in the digital asset space?

Samara Cohen:

We recently elaborated on this vision in detail; we published a paper titled "The Power of Capital Markets," and we will also release a letter from the chairman each year to publicly share our views. We believe in capital markets, and by the way, in our paper and thoughts, we adopt the broadest definition, which is that capital markets are the intersection between consumers and suppliers of capital.

For suppliers of capital, they are those savers who temporarily do not need to use funds and hope to earn returns through investments, such as company shares or bond interest. On the other hand, consumers of capital are those companies and governments that wish to use funds immediately for investment to promote growth.

In the current post-crisis era, the funding capacity of banks and governments is limited, so we need to expand capital markets to drive economic growth. Tokenization can play an important role in this, especially in liquidity and collateral ecosystems, which are key to market operations.

Jason:

When do you think we will see the emergence of tokenized stocks?

Samara Cohen:

I'm not sure. What do you think? I believe that the IPOs of some large crypto companies will be a moment worth watching.

Jason:

That would be interesting. I predict that crypto platforms like Coinbase and traditional brokerages like TD Ameritrade, Schwab, and fintech brokerages like Robinhood and public.com will begin to converge. If traditional brokerages do not innovate, they may be eliminated, while platforms like Coinbase may start offering stock trading, and Robinhood will launch powerful crypto products. This will be the first intersection.

Samara Cohen:

We need to see on-chain investors' demand for broader investment opportunities. This will drive the tokenization of assets like stocks and bonds.

Jason:

In recent years, people in the financial industry have often talked about building permissioned blockchains, like JPMorgan's Quorum. Now, many people, including BlackRock, are developing on public blockchains. How do you view the difference between public and private blockchains?

Samara Cohen:

I think future developments may primarily focus on permissioned blockchains, as this helps meet regulatory requirements and allows for better control of information. I feel our thinking is influenced by the surge of trading venues after the financial crisis. While increasing multilateral trading platforms is a good idea, too many platforms lead to complexity and fragmentation in the system, which is not ideal.

Therefore, leveraging the transparency of public blockchains to avoid these issues, I think this is an important shift. This is not only true for me personally but also for our strategic thinking. How to effectively build institutional-grade financial applications on public blockchains still faces many challenges, but I am optimistic about it.

Jason:

What advice do you have for teams building L1 and L2 and trying to pitch to BlackRock?

Samara Cohen:

I don't think there's a need to specifically pitch to BlackRock. We do well in staying connected and self-learning. Therefore, rather than thinking about how to pitch, focus on the significant problems that need to be solved in the market. For me, 24/7 trading and its future is an important topic. This is a captivating subject that I have been following.

24/7 trading will become a reality. In public markets, we have already seen its trend, especially in the stock market. Part of the reason is the "FOMO" in the crypto market, as many investors have become accustomed to accessing the crypto market anytime and anywhere. Additionally, there are other reasons. There are many different views on the advantages of 24/7 markets. In my view, it is very difficult to restart a market that has stopped trading. When a market has continuous liquidity, its resilience makes sense. However, certain periods carry higher risks. Therefore, how to create a 24/7 market while ensuring transparency, resilience, and protections to safeguard investors is a significant issue that needs to be addressed. This is a real challenge that blockchain technology needs to solve.

Did Speculation Drive Adoption?

Jason:

What are your thoughts on the popularity of memes last year? Will this affect Solana's brand image among institutional investors?

Samara Cohen:

I don't have a particular view on that. However, I find the gamification phenomenon in the market interesting. Anything that can attract investors to participate in the market has the potential to be beneficial in the long run. But the key is to have the right protections and education, as well as how we view investable long-term portfolios.

For me, this is very appealing. Initially, I thought the focus was on converting more savers into investors. But then I realized there might be an intermediate stage where people first become traders, making them comfortable with the market and willing to participate.

Jason:

The GameStop incident is an example, right? Many people stayed in the market because of it.

Samara Cohen:

Indeed, it is an interesting case. Memes may have played a role in attracting long-term investors into the crypto space. But I believe that transparency and education, as well as a sense of responsibility across the entire crypto industry, are crucial for this process to continue evolving rather than stagnating.

Jason:

I hadn't thought of that before. These speculative elements have almost become a guiding tool, leading people to ultimately become investors.

Samara Cohen:

My children are an example. My son thinks ETFs are meaningless and not worth investing in. As a parent, I initially thought, "Well, I'll wait until he grows up." But now I hope he can experience the market, albeit within a framework that has protections.

Final Thoughts

Jason:

A massive wealth transfer may be on the horizon. Approximately $50 to $70 trillion is expected to transfer from the older generation to the younger generation. If you look at some surveys, you will find that about 90% of young people aged 15 to 20 feel disappointed with the traditional financial system. What are your thoughts on this massive wealth transfer, especially regarding young people's dissatisfaction with the financial system?

Samara Cohen:

Another statistic indicates that about two-thirds of that 90% may be women, which also means that the structure of investors and market participants will undergo significant changes. We know that this generation is digital natives in investing, typically obtaining investment advice through peers and social media. So how do we prepare for this and help them succeed? I think this is a great example of how the collaboration between digital-native crypto companies and traditional financial firms is crucial at this pivotal moment. We need to think about what constitutes a suitable portfolio, how to attract investors, how to create solutions, and how to market them; the significance of branding is becoming increasingly important.