Original title: BlackRocks Crypto Strategy In 2025 With Samara Cohen
Original source: Empire
Original translation: TechFlow
Summary of key points
Guest: Samara Cohen, Chief Investment Officer of ETFs Indexes at BlackRock
Host: Jason
Air Date: April 28, 2025
In this podcast, we invite Samara Cohen to discuss BlackRock’s cryptocurrency strategy in 2025. We take a deep dive into the reasons behind the successful launch of Bitcoin ETP, investor demand for cryptocurrencies, why Samara is optimistic about tokenization, and how to put traditional assets on the blockchain.
Summary of highlights
Bitcoin is indeed a new asset class, and as a borderless store of value, its ultimate state is to be more like gold.
Bitcoin is usually more dramatic when it rises, and relatively mild when it falls.
In the Bitcoin ETP space, most buyers are still hedge funds.
We are currently paying close attention to tokenized money market funds and tokenized treasury bond funds because the liquidity of cash and collateral in the capital market is poor, and blockchain technology can obviously improve this problem.
I don’t think it is necessary to market L1 and L2 projects in the crypto market specifically to BlackRock.
I don’t think Ethereum’s position is more complex than other altcoins. In fact, I think the entire crypto space has a problem with data and standardization.
Like the top 50 tokens on Coingecko or CoinMarketCap, I don’t have confidence in 40 of them. I think there is some opaque manipulation among market makers, which is completely different from the top 50 companies in the stock market.
Stablecoins initially put the U.S. dollar on the chain, and then we started putting Treasury bonds and money market funds on the chain. Next, I think there will be the emergence of on-chain credit, putting credit on the chain.
Finding technological applications that solve real problems is much better than simply turning non-current assets into current assets.
In the current post-crisis era, banks and governments have limited funding capacity, so we need to expand capital markets to drive economic growth.
How important is the cooperation between digital native crypto companies and traditional financial companies. We need to think about what is the right investment portfolio, how to attract investors, how to create solutions, and how to market. The significance of brand is becoming more and more important.
introduce
Jason:
Hello everyone, and welcome back to Empire. Im really excited to be here today. I dont usually read a guests bio at the beginning of my show, but I felt the need to in this case because its one of the most impressive bios weve come across on Empire.
Our guest today is Samara Cohen, Chief Investment Officer of ETFs and Index Investing at BlackRock, responsible for the market quality and investment integrity of approximately $7.8 trillion of BlackRock index funds and iShares ETFs. Prior to joining BlackRock, Samara was a Managing Director at Goldman Sachs Securities Division.
Additionally, Samara was named one of American Banker’s Most Powerful Women and was named the Most Powerful Woman in American Finance by Barron’s for four consecutive years. She also serves on the boards of SIFMA and the BlackRock Foundation. I found it interesting that she studied theater in college.
Im wondering what your actual role is at BlackRock, how you view it, and if you can, can you give me some numbers, like how big your team is? Is $7.8 trillion an accurate number? Id like to hear your perspective on your role.
Samara Cohen:
I think if you want to understand the most important number in my role, it is the number of investors around the world who have access to the market through iShares ETFs and BlackRock index portfolios, which has exceeded 100 million. Our goal is to add another 100 million investors, hoping to drive retirement and financial health for people. The more people who participate in the market, the more they can enjoy the dividends of 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 role at BlackRock is to oversee how we turn indexes into investable portfolios. Half of our assets are in other types of fund formats, index portfolios, and the other half are ETFs. So a lot of 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 BlackRocks role globally? What is your main job?
Samara Cohen:
I have an almost old man perspective on this. Actually, it depends on who you ask, how long its been. I think working at BlackRock, but BlackRock was actually my first job out of college.
I thought you might be interested in a film about the history of index investing that was posted on YouTube a few weeks ago, called Tune Out the Noise. Interestingly, index investing didn’t really take off until commercial microchips became available, because buying thousands of securities simultaneously to form a portfolio required a lot of computing power.
BlackRock didn’t actually have an ETF or index business at that time. I was a graduate with a double degree in finance and theater, but all of my summer experience was working in local theaters. I wanted to see what I could do with my finance major, and I was attracted to this company, which was called BlackRock Financial Management at the time, and their mission was to provide better risk management technology to investors in the mortgage-backed securities market, which was exactly what BlackRock was doing at the time. Although I didn’t fully understand what that meant at the time, I liked the mission of helping ordinary investors better manage risk. So I ended up choosing this company, BlackRock, and I was employee No. 134. Now we have over 20,000 employees, but I was employee No. 134 at the time. Even though we have over 20,000 employees now, I still think that the fundamental mission of helping investors manage risk and access the market is still as true today as our purpose as a company.
The difference between ETFs and ETPs
Jason:
Can you explain the difference between ETFs and ETPs and how BlackRock’s business has evolved and how we should think about BlackRock as a company?
Samara Cohen:
Lets start with the definitions. ETP is a general category that stands for Exchange Traded Product, while ETF is a subcategory of it, which is Exchange Traded Fund. These two terms are often confused in the industry. Im glad you asked this question, especially because I didnt tell you about it ahead of time. But we think its helpful to distinguish between the two as more and more products are included in the ETP category. Certain products may be called ETPs or even ETCs (Exchange Traded Commodities), but these terms are not widely accepted in the United States. ETCs are not funds, nor are they diversified index funds or passively managed portfolios. So, while the two terms are often used interchangeably in the industry, ETFs are more common and ETPs are a larger category.
BlackRock was founded in 1988. In fact, BlackRock acquired Barclays Global Investors in 2009, and iShares became part of BlackRock since then, and BlackRock began to focus on ETFs and index business. At that time, this was actually controversial in the industry because many people did not realize that active management and index investing could coexist.
Jason:
As a member of BlackRocks Global Executive Committee, how do you think about the firms business? Can you tell me about BlackRocks different business lines and how you think about the firm as a whole? Im particularly interested in knowing where these fit into BlackRocks overall profits and losses as you potentially start to get involved in cryptocurrencies and Bitcoin.
Samara Cohen:
I have been on BlackRock’s Global Executive Committee for three years, having returned to BlackRock ten years ago after 16 years at Goldman Sachs. I would say being part of an asset management firm, and especially working at BlackRock, is very different from my experience in the trading business at Goldman Sachs. We are very mission-focused, and our mission is to help people invest better and help more people achieve financial wellness. We review our long-term goals for the firm every five years, write about them, and do a lot of internal communication with employees to make sure everyone really understands where we are going. So as you can see, we have made some adjustments in recent years to where we think we need to make progress in the future to help more people achieve financial wellness.
We know we have to further scale in the private markets, which explains the several important transactions we have announced in the past year, including our partnership with GIP and the pending transaction with HPS. Our work in digital assets, tokenization, and thinking more broadly about retirement and retirement portfolios is all geared towards the new macroeconomic environment we are in.
New market system
Jason:
What do you think of the current macroeconomic environment?
Samara Cohen:
We have learned a lot about the market over the past year. This is truly a unique market. As a 30-year market professional, I can recall many times in my career when I have experienced such unique market conditions. I have experienced more of these moments in the past five years than in the previous 15 years.
I think the last few years, especially since COVID, have seen an increase in uncertainty in the markets. Ive been thinking a lot about what that change means for the resilience of the markets, for adaptability, and for how to reposition when information changes rapidly. And actually, weve seen the growth of ETFs in part because of that growth in demand, because ETFs are an easy and convenient way to access the markets. For example, were having this conversation right now, just a few weeks after the tariffs were first announced, and were seeing record volumes in equity ETFs and fixed income ETFs. For example, the percentage of ETF trading in the U.S. equity market is usually positively correlated with the VIX (volatility index). Before April 2, that percentage was around 27% or 28%, and on some days in the last two weeks, that percentage has spiked to 40%. Because if you want to adjust risk quickly, ETFs provide a transparent and easy way to do that. So I think the growth of ETFs is very much about how to provide more access and flexibility in a rapidly changing market.
Active vs. Passive Investing
Jason:
Lets say weve entered an era of what could be broadly described as high volatility markets. ETFs now seem to make up more than 50% of the fund complex and somewhere between 13% and 20% of the stock market. I think conventional wisdom would probably say that in times of high volatility, you might want more active strategies and active managers, whereas in less volatile economic environments, you might prefer passive or index investing. How do you view the role of ETFs in high volatility markets?
Samara Cohen:
I am an index portfolio manager and my husband is an active manager seeking alpha. But in reality, managing an ETF or an index portfolio is not completely passive. And, perhaps more importantly, an investors decision to use an ETF or to allocate to an index strategy in their investment process is definitely not passive either, which I think is very important.
Going back to BlackRocks trajectory since it acquired BGI in 2009, active investing and index investing are really a spectrum that investors can use to build a portfolio and decide when they need core beta building blocks and when they need high conviction in a single security. Some of the biggest institutional adoption of ETFs that weve observed in the post-COVID era is institutional asset managers like BlackRock using ETFs for allocations in their portfolio strategies, particularly in fixed income ETFs.
As for the stats you mentioned, I think you are roughly correct about the percentage of the stock market that is currently in ETF or ETP wrappers, but the percentage in the bond market is much lower. About 1% to 2% of the fixed income market in the bond market is in ETP wrappers. Of course, for those of us who follow the market closely, Bitcoin is about 5%, somewhere between stocks and bonds.
BlackRock Bitcoin ETP Launch
Jason:
Lets talk about Bitcoin. We discussed whether we should launch a Bitcoin product before 2024. Was this decision driven by regulatory factors, investor demand, or market structure? Do you think the market structure is mature enough, and the exchanges are transparent, what exactly led to this decision?
Samara Cohen:
All three aspects have an impact, but initially it is mainly based on investment thesis and customer demand. Usually, the order of investment thesis, customer demand, market structure preparation and regulatory background is like this. Hopefully, regulation will also follow this trajectory, that is, only after the market structure is in place can there be corresponding regulation, and these factors influence each other.
It’s also worth noting that our first Bitcoin product wasn’t actually an ETP, but rather a private placement trust that we launched in 2022. Although we launched our digital asset team in 2020 and did a lot of work on investment applications of blockchain technology, we didn’t really start to get involved with Bitcoin until we launched that institutional product in 2022. This was a critical moment for us, giving us a deeper understanding of workflows, risk management, and systems, and laying the technical foundation for subsequent support of ETPs. As you mentioned, we launched and filed the ETP in 2024, but in 2022, we had already received a lot of feedback from customers who wanted to be able to get exposure to Bitcoin and were dissatisfied with existing alternatives, and built their investment thesis around this. This change in demand compared to five years ago is very significant.
Regarding ETPs, although you can have the best technology and trading capabilities, it takes a market ecosystem to make the ETP work. In the case of Bitcoin ETPs, this is not only an interesting exercise in evaluating the crypto market structure, but also involves the evaluation of key interoperability, because Bitcoin ETPs are actually a bridge connecting the crypto market to the ETP market. In the end, I would like to say that this process is indeed a long one. Initially when we discussed Bitcoin ETPs, I was surprised that people in the crypto community thought it was very important. Both ETPs and cryptocurrencies are seen as disruptive technologies that help people enter 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 sort out this value proposition. Although the packaging of ETPs seems to undermine the promise of Bitcoin market structure, I have learned that the reality of crypto market structure is that there are many places for value addition in traditional finance, which is why we see the demand for ETPs.
Jason:
How do companies like BlackRock make decisions like this? I see three ways in general: One is top-down, like the CEO says, Were going to do this. Another is bottom-up, where sales hears customer feedback and then reports it up the chain. Another possibility is that someone on the executive team is very supportive and thinks we have to do something in the crypto space.
Samara Cohen:
Ideally, all three of these will happen. Our cryptocurrency journey has unfolded in the public eye. Given the nature of our firm, we are students of the market and our views on an issue may evolve over time. The client feedback we heard in 2020 and 2021 has changed significantly from a few years ago, with clients beginning to see cryptocurrencies as potentially important in a diversified portfolio. It’s worth noting that 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, we need market interest from the top down and bottom up interest growing as client feedback increases when evaluating its role in asset allocation strategies. In addition, there needs to be educated and engaged champions internally who have patience. I think our head of digital assets, Robbie, is a great example in this space and he is doing an excellent job.
Reasons for the success of IBIT
Jason:
Why was the launch of IBIT so successful? This is one of the most successful cases in the history of ETP.
Samara Cohen:
I learned a bit about the practicality of ETP wrappers and their role in bridging crypto and traditional finance. In 2024, we found that the crypto community had a very large demand for ETP wrappers. Overall, about half of IBIT holders are now self-directed investors, and the other half are retail and advisory investors.
(TechFlow Note: IBIT refers to The iShares Bitcoin Trust ETF, which provides an investment method similar to directly holding Bitcoin.)
Jason:
So 50% are self-directed investors, lets say I have a TD Ameritrade or Charles Schwab account and I just click buy on my account.
Samara Cohen:
Yes, 50%. And then the other 50% is roughly divided between advisors and institutional investors. Among self-directed investors, the data shows that three-quarters have never held iShares. This indicates that they have not bought an iShares ETP before. Although we have many products, since iShares is the leader in this space, it can be said that for these people, they opened a brokerage account and bought their first ETP because they wanted to hold Bitcoin in an ETP, probably because they need institutional-level custody and trading transparency. And, they may not want to frequently enter and exit the crypto ecosystem, because it would be cumbersome.
Jason:
Yes, there may be a too big to fail mentality. A lot of my friends who entered the industry early on always suggested that I keep my own Bitcoin. Then Coinbase became bigger and bigger and started to provide custody services to some institutions, and people began to think that if Coinbase fails, then we may face bigger problems, so they turned to Coinbase. Now, products like IBIT may be the next iteration, because if BlackRock fails, it is almost too big to fail. I am trying to understand the mentality of those who are willing to do this.
It will be simpler to move Bitcoin into IBIT. Investors, especially those who manage risk holistically, want to do everything on one platform rather than switching between two ecosystems, which can be complicated to handle. If you are an iShares holder, it is worth noting that BlackRock is not your counterparty. You are a shareholder in 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 to investors in IBIT.
Investor demand for Bitcoin
Jason:
BlackRock recommends a 1% to 2% asset allocation for investors interested in investing in Bitcoin. What is the basis for this allocation recommendation? Because this will definitely attract a lot of attention. BlackRock recommends allocating 1% or 2% to Bitcoin. What is the reasoning behind this decision?
Samara Cohen:
First, we advise investors who want to invest in Bitcoin that it is reasonable to allocate 1% to 2% of their assets to Bitcoin, which needs to be considered in the context of the entire portfolio.
Looking back at the course of 2020, we tried to do two things. One, we were educating existing iShares investors about Bitcoin. Second, we realized that we were also educating existing Bitcoin investors about ETPs and their wrappers. So we wanted to do both at the same time. We started out mainly educating people about Bitcoin.
We discussed what Bitcoin is, how ETPs work, and how to get access to Bitcoin. We then 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, regional banking crises, and others, and looked at how Bitcoin performed versus other risk assets. We explored the diversification potential of Bitcoin, a story that will continue to unfold as we get more data, including the latest events in the geopolitical market volatility we are currently experiencing.
After examining Bitcoin’s role as a potential diversification asset, we wanted to explore the question of portfolio allocation, but this is indeed difficult when it comes to Bitcoin, and the same is true for gold. Ultimately, this analysis becomes complicated when the value of an asset depends on its level of adoption.
We think a key point that outside investors can understand, and that we agree with internally at our company, is to consider the tolerance for overall portfolio risk. Our view is that given the concentrated investment in the MAG 7 companies in the broad U.S. equity portfolio, investors have already taken on some concentration risk and are living with it. Therefore, we can set up an allocation like this: If I am willing to take the same additional risk contribution in Bitcoin as in the MAG 7 stocks, this idea is something I can understand, which has led to the 1% to 2% allocation we proposed. If it exceeds 2%, the additional contribution to the volatility of the overall portfolio will increase exponentially. Therefore, this is the construction idea that we think is helpful.
How Bitcoin trades during the market sell-off
Jason:
Trading Bitcoin has always been fascinating. We are recording this show in mid-April and the market has been very volatile in recent weeks and it is clear that there is still some uncertainty in the market about how to trade Bitcoin.
I remember one day, the Nasdaq crashed, gold surged, and Bitcoin remained stable. We talked about this a week or two ago. I think Santis point is that investors are not sure whether Bitcoin should trade like the Nasdaq or like gold. I saw Bitwise CIO Matt Hogan tweeted that Bitcoin is traded differently than either of them, Bitcoin is Bitcoin, it is a new asset class. Im curious what you think.
Samara Cohen:
Bitcoin is indeed a new asset class, and as a borderless store of value, the ultimate state of Bitcoin is to be more like gold. But its hard to grasp this in the adoption process. I heard you or someone on Roundup mention that Bitcoin is 50% like Nasdaq and 50% like gold. I think this is exactly what we are seeing.
This is a critical moment in how Bitcoin’s price performance plays out in this market volatility caused by cross-border tensions and supply chain complexities. In theory, this should be a “stage” for Bitcoin. However, the actual performance is not as satisfactory and does not show the unique diversification we see in other market stresses. Instead, Bitcoin’s correlation with stocks actually increased during this event.
A few additional observations. Weve talked about these before, and Id love to hear your thoughts as well. First, if we look at whats happening with Bitcoin and IBIT, there are some divergences between the two. IBIT hasnt really experienced the same massive outflows as Bitcoin, which could indicate that the market price action over the past few weeks has been driven primarily by retail investors and speculative trading, while many institutional positions have been liquidated in the second half of March. Of course, IBIT cant be leveraged like BTC, so we can now see the role of different investor bases, with the presence of long-term investors being more visible in IBIT.
Another interesting thing to note is that Bitcoin’s volatility is also interesting. Bitcoin did not show much volatility when it fell, and its volatility still maintained a positive skew.
Volatility is evolving. Bitcoin is usually more violent when it goes up and relatively mild when it goes down. This is usually a good thing. Incidentally, this is also why IBIT options are so important to the ecosystem, because this volatility characteristic is usually very favorable for options market makers.
Who is buying Bitcoin ETPs?
Jason:
We just talked about different types of buyers, 50% of them are self-directed, and the other 50% buy through advisors. In the institutional investors, there is another category of buyers. But there is actually a new group of buyers, they 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 a small profit through large-scale transactions. What do you think of these new groups entering the market?
Samara Cohen:
I havent heard him talk specifically about that. I do think, though, that the last segment of institutional investors is not self-directed, nor advisor-directed, but institutional investors. While we can see in some filings that sovereign wealth funds, pension funds, and endowments are buying Bitcoin, the majority of buyers in this space are hedge funds. In many cases, the buying is like that.
I think the non-emotional buyers that David is talking about can be thought of as investors or widget buyers who only buy specific financial instruments and look for relative value in different asset classes. One important way they buy Bitcoin is through futures basis trading, which I think is an important dimension in every market.
Was the launch of the Ethereum ETP a success?
Jason:
Ethereum’s success has clearly been less dramatic. Why is that?
Samara Cohen:
I am used to the crypto communitys disappointment with ETH, but I think it is inappropriate to use IBIT as a benchmark.
Obviously, for investors, there are very clear investment frameworks for Bitcoin, such as its role as a store of value. Understanding the valuation framework for Ethereum or other tokens is much more complicated. I have noticed that in the investor community, while people may be optimistic about the utility of the Ethereum blockchain, it is not clear how to translate this into actual value accumulation of tokens. This is one aspect. In addition, investors are generally concerned about the risk exposure of large technology stocks and feel that there is a certain correlation with the investment allocation of Ethereum.
Jason:
What do you think are the main problems facing Ethereum right now? If Bitcoin is digital gold, what is Ethereums position? Is this position too complicated?
Samara Cohen:
I dont think Ethereums positioning is more complicated than other altcoins. In fact, I think the entire crypto space has a problem with data and standardization. How to evaluate these different tokens and applications, understand where the value accumulation comes from and where it goes, and access to analytical information are all very complicated. I dont think this is a simple marketing problem.
Investor demand for cryptocurrencies
Jason:
What do you think of other crypto products? I know you can’t reveal upcoming products, but what new crypto products do you think the market needs?
Samara Cohen:
Looking back at the development of Bitcoin ETP, we must first clarify its investment logic. At present, the investment logic of many altcoins is not clear. One challenge in the crypto field is which applications will be winners? Which problems will be solved and how will they be solved? We are currently paying close attention to tokenized money funds and tokenized treasury bond funds because the liquidity of cash and collateral in the capital market is poor, and blockchain technology can obviously improve this problem. As these technologies gradually mature, we will see which protocols, applications or companies have successfully solved practical problems, and thus derive their investment logic. But I think we are still in the early stages of technology application, and we cannot determine who will be the ultimate winner or loser, and investment requires a clear view of this.
This reminds me of your question about indexes. If you are optimistic about the application of technology, but unsure how to pick winners and losers, this is what index investing is about. It allows investors to be exposed to the entire market or a certain area of the market, which is defined by an algorithm we call index methodology. So my question to you is, how can this market organization technology be applied in the crypto space? Because this requires relying on data and standards.
Jason:
I think data and standards are key. The industry is currently focusing on the wrong metrics. At Block Works, we believe that the industry is focusing on the wrong metrics. So the core of the problem is data and standards. If I look at the top 100, 50 or 500 companies in the stock market, although I dont necessarily understand their specific businesses, they are real companies with revenue, cash flow, profit and loss statements and governance structures.
Samara Cohen:
These aspects you just mentioned can be used to build an index methodology. If you consider factors such as governance, team, cash flow, etc., then I am not sure how many tokens can meet these requirements.
Jason:
I think what we need to focus on is, if you look at the leadership meetings at Block Works, this is something we think about constantly, because one of the core issues in the industry is that of the top 50 tokens on things like Coingecko or CoinMarketCap, I dont have confidence in 40 of them. I think theres some opaqueness among the market makers. This is completely different from the top 50 companies in the stock market, where I may not know exactly what they do, but I can see their PL, their governance structure, and I know their management team, and that doesnt exist in crypto.
Samara Cohen:
Yes, this is fundamental to index investing because there are actually two steps to index investing. The first step is how to build an algorithm and create an index methodology 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 a real-world investable portfolio and minimize the practical friction associated with investing and rebalancing.
Jason:
Yes, thats the index Id be willing to invest in. Like, maybe the top 50 protocols, the ones that are generating real revenue. But we can talk about that later.
Why BlackRock is bullish on tokenization
Jason:
We spent about $15 billion to $30 billion acquiring different companies. Crypto is obviously a big asset class and industry that you guys are focused on, as is private markets. Can you tell me how you see the growth of private markets and why thats so interesting? How do data and standards fit into that here?
Samara Cohen:
Data and standards are critical when operating at scale. Right now, our mission is to expand the capital markets so that they can support more people who want to save and invest, and more companies than just public companies that want to raise money for all kinds of interesting and exciting investment projects, whether its AI-related or infrastructure-related. We are at a point where the expansion of capital markets will lead to more economic growth.
How do you scale capital markets? It almost starts with data and standards. I think indexing is fundamental, it will be fundamental to crypto and private markets, and 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 the private market, including the acquisition of Global Infrastructure Partners and HPS (private credit management company), although the HPS transaction has not yet been completed.
Finally, there are the acquisitions that have been completed. Preqin is very important because Preqin is a data and analytics company. I think our transparency and belief in data and standards is obvious. This acquisition trajectory will bring transparency, scale, and ultimately provide more opportunities to the broader market.
Jason:
I saw a CNBC headline about how the worlds largest asset manager is reinventing itself with nearly $28 billion in acquisitions. Im not sure that number is entirely accurate. We call that $28 billion in acquisitions a push into private assets. Are you doing the same thing in crypto?
Samara Cohen:
Im not so sure. I think were still early in the journey with digital assets. As I said, were optimistic about the potential of tokenization to improve the capital markets and make them work better. So were very focused on more tokenization in the market and how we can build bridges with investors. Whether its bringing more crypto into traditional finance through ETPs or whether its the tokenized money funds that we talked about, some of the largest consumers and investors of tokenized money funds are crypto-native institutions that want more sophisticated financial management capabilities. So were going to continue to invest in our ability to build those bridges.
A question about cryptocurrency, or cryptocurrency is a broadly defined term. If I say digitizing the capital markets, people need to invest in the capital markets. Im very interested in this. At what inflection point do you think more peoples investments will shift to on-chain rather than off-chain?
Jason:
At Block Works, we basically think of it as were creating a new financial marketplace. You have all these assets in the legacy old databases, and we just move the assets into a new, potentially more efficient database.
Samara Cohen:
I love that metaphor. I think its important to focus on this transition. Because if you sat down with me and whiteboarded a vision for global capital markets, it would certainly be more tokenized than whats happening today. But we have large, functional traditional markets. How to get from point A to point B is something we need to spend time thinking about, and I spend a lot of time thinking about how these markets can be as interoperable as possible.
How to put assets on the chain
Jason:
I think one of the most interesting developments in recent months is your work with IBIT to move crypto assets like Bitcoin from the crypto track to the traditional financial track. We havent talked about BUIDL yet, which involves the process of moving from the traditional track to the crypto track. Ethena seems to be one of the main holders of BUIDL.
I think there will be a big trend this year, which is not yet fully public, but has already started behind the scenes. Stablecoins started with putting the dollar on the chain, and then we started putting Treasury bonds and money market funds on the chain. Next, I think there will be the emergence of on-chain credit, putting credit on the chain.
Before we dive into tokenization, I wanted to ask you a question about new products. From an institutional perspective, how many crypto assets do you think are investable right now, like Bitcoin and Ethereum?
Samara Cohen:
I dont know much about other coins in the institutional ecosystem. But based on our conversations with institutional investors, they are currently focusing on Bitcoin, especially in the current environment. Ethereum is still relatively minor.
We are talking about institutional investors who are typically in a 60/40 bond portfolio and are looking for new sources of income and diversification. They want to get both, which is why they are investing in private markets and Bitcoin, especially in the current situation, and there are a range of other more systematic alpha generation strategies.
Jason:
From a valuation perspective, do you think we will adopt existing methods of valuing companies? In todays market, we all look 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 youre looking at. I feel like you can easily apply a PL to blockchains, but maybe not Ethereum. Its probably more of a commodity than a company. An application like Uniswap, its probably easier to apply a PL to because it has revenue and expenses and so on.
I think that makes sense. There have been a lot of discussions between you and me about the policy and regulatory path for digital assets. I think one of the things thats complicated but exciting right now is that a lot of the existing regulation doesnt take into account the potential of blockchain technology. It doesnt really take into account 24/7 trading or atomic settlement, real-time transferability, all of these features. So I do think theres going to be a new set of standards and metrics that are part of the real lasting adoption of crypto assets.
Jason:
What do you think of tokenization?
During 2018 and 2019, there was a lot of talk about “we’re going to tokenize the whole world,” and a lot of companies started to move. The original proposal was that we’re going to make illiquid assets more liquid through tokenization. We put all the real estate on the blockchain, but ultimately that didn’t happen because illiquid assets didn’t become liquid. The new phase now is that we’re actually moving relatively liquid assets onto the chain, and there’s a lot of demand for that.
Samara Cohen:
You have a good answer to this question. First of all, it can make the infrastructure of securities trading, derivatives trading and collateral management more efficient, reliable and transparent. Therefore, I think it is much better to find technology applications that solve real problems than simply turning illiquid assets into liquid assets.
I like that, as you said, everyone thinks we can create markets for more assets. This is happening a lot with ETFs. I cant tell you how many times Ive been approached by a stock exchange in an emerging market country that has a lot of work to do to make their local market more investable, create transparency and data, but they seem to have this myth that just listing an ETF will solve their market modernization problems. But thats not the case. Markets need certain standards to build investor confidence so that buyers and sellers can come together. I think the same is true for tokenized assets. There is no doubt that if we look at various parts of the capital markets ecosystem, tokenization will improve those parts and unlock value for the end investor.
BlackRocks 10-Year Vision for Cryptocurrency
Jason:
What do you think of BlackRock’s ten-year plan in the digital asset sector?
Samara Cohen:
We recently elaborated on this vision in a paper called The Power of Capital Markets and we publish our Chairmans Letter every year to make our views public. We believe in capital markets, and by the way, in our paper and thinking, we use the broadest definition, which is that capital markets are the intersection between consumers and suppliers of capital.
The suppliers of capital are savers who do not need to use their money yet and want to earn a return on their investment, such as interest on company shares or bonds, while the consumers of capital are companies and governments who want to use their money immediately to invest in order to promote growth.
In the current post-crisis era, banks and governments have limited funding capacity, so we need to expand capital markets to drive economic growth. Tokenization can play an important role in this regard, especially in the liquidity and collateral ecosystem, which are key to market functioning.
Jason:
When do you think we’ll see tokenized stocks emerge?
Samara Cohen:
Im not sure. What do you think? I think some of the big crypto IPOs will be a moment to watch.
Jason:
That will 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 don’t innovate, they may be eliminated, and platforms like Coinbase may start offering stock trading and Robinhood will launch a strong crypto product. This will be the first convergence.
Samara Cohen:
We need to see demand from on-chain investors for a wider range of investment opportunities. This will drive the tokenization of assets such as stocks and bonds.
Jason:
In the past few years, people in the financial industry have often talked about building permissioned blockchains, such as JPMorgan Chases 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 focus primarily on permissioned blockchains, as this helps meet regulatory requirements and allows for better control of information. I think our thinking is influenced by the proliferation of trading venues after the financial crisis. While adding multilateral trading platforms is a good idea, too many platforms have led to complexity and fragmentation in the system, which is not ideal.
So, using the transparency of public blockchains to avoid these problems, I think this is an important shift, not only for me personally, but also for our strategic thinking. There are still many challenges in how to effectively build institutional-grade financial applications on public blockchains, but I am optimistic about it.
Jason:
What advice would you give to teams that are building L1 and L2 and trying to pitch to BlackRock?
Samara Cohen:
I dont think its necessary to pitch BlackRock specifically. Weve done a good job of staying connected and educating ourselves. So rather than thinking about how to pitch, its better to focus on the big issues that are being solved in the market. For me, 24/7 trading and its future is a big topic. Its a fascinating topic that Im following.
24/7 trading will become a reality. We are already seeing a trend towards it in public markets, especially in the stock market. Part of the reason is the FOMO of the crypto market, where many investors have become accustomed to accessing the crypto market anytime, anywhere. In addition, there are other reasons. There are many different opinions on the merits of 24/7 markets. In my opinion, it is very difficult to restart a market that has stopped trading. When the market has continuous liquidity, its resilience makes sense. However, certain periods of time are higher risk. Therefore, how to create a 24/7 market while ensuring transparency, resilience, and safeguards to protect investors is a major problem that needs to be solved. This is a real challenge that blockchain technology needs to solve.
Is speculation driving adoption?
Jason:
What do you think about the popularity of the meme last year? Will it affect Solana’s brand image among institutional investors?
Samara Cohen:
I dont have a particular view. However, I find the gamification of the market interesting. Anything that can attract investors to participate in the market is likely to be beneficial in the long run. But the key is to have the right protections and education, and how we think about the investable long-term portfolio.
To me, that was fascinating. Initially I thought the focus was on converting more savers into investors. But then I realized there might be an intermediate stage where people become traders first, so that they feel comfortable with the market and want to participate.
Jason:
The GameStop thing is an example, right? A lot of people stayed in the market because of that.
Samara Cohen:
Its an interesting case indeed. Memes may have a role in attracting long-term investors to crypto. But I think its really important for transparency and education, and accountability across the crypto industry, to keep this process going and not stop there.
Jason:
I hadnt thought of that before. These speculative things have almost become a guide tool to get people to eventually become investors.
Samara Cohen:
My children are an example. My son doesn’t think ETFs are interesting or worth investing in. As a parent, I initially thought, “Well, wait until he’s older.” But now I want him to experience the market, but within a protected framework.
Final Thoughts
Jason:
There may be a huge wealth transfer coming in the future. It is expected that about 50 to 70 trillion US dollars of wealth will be transferred 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 are disappointed with the traditional financial system. What do you think about this huge wealth transfer, especially the dissatisfaction of young people with the financial system?
Samara Cohen:
There is also a statistic that about two-thirds of this 90% are likely to be women, which also means that the structure of investors and market participants will change significantly. We know that this generation is digital natives when it comes to investing, and often gets investment advice through peers and social media. So how can we prepare for this and help them succeed? I think this is a great example of how important it is for digital native crypto companies and traditional financial companies to collaborate at this critical juncture. We need to think about what is the right portfolio, how to attract investors, how to create solutions, and how to market, and the significance of brand is becoming more and more important.
