Coinbase (COIN:NASDAQ) shares, shot up Thursday after a partnership with BlackRock (BLK:NASDAQ), the world’s largest money manager, was announced. The stock spiked by as much as 40% when the market opened, but finished 10% higher after giving up some of its gains.
BlackRock’s institutional clients who also own digital assets on Coinbase will now be able to use Aladdin, the asset manager’s suite of software tools, to manage their portfolios and conduct risk analysis on investment decisions.
BlackRock has over $10 trillion in assets under management (AUM) and is one of the notable names in the financial world. Rumors have long swirled that it would be entering the cryptocurrency market, with reports earlier in the year saying that it would allow trading via Aladdin. The rumors seem to have come true.
For now, the partnership is restricted only to bitcoin, though client demand will determine how the partnership will expand to other digital assets, a BlackRock spokeswoman said.
BlackRock has had some involvement with the crypto space in the past. It owns 16.3% of MicroStrategy and has launched a blockchain industry ETF. A former BlackRock executive has also said that bitcoin will become a part of everyone’s portfolio.
A plunge in cryptocurrency prices have prompted layoffs at Coinbase as well as Gemini Trust, two of the largest cryptocurrency exchanges. Coinbase is also facing an investigation from the Securities and Exchange Commission on whether it improperly allowed Americans to trade digital tokens that should have been registered as securities, according to a Bloomberg report.
Asked about the timing of this partnership, a BlackRock spokeswoman said it was part of the asset manager’s long-term cryptocurrency strategy. In April, the firm announced it had participated in a $400 million fundraising round for Circle Internet Financial, a crypto-focused company that manages the stablecoin USD Coin.
The interest is a beacon in the night for the crypto community. The industry has suffered a slew of layoffs, hacks and breaches, including attacks on Solana and Nomad this week alone. Crypto has also gone down with the broader sell-off in risk assets and is further handicapped by the financial contagion that stemmed from the Terra collapse in the spring. Many investors maintain that institutional adoption is key to increasing the maturation, stability and price of bitcoin and perhaps the broader crypto market.
Coinbase shares have been on a tear lately and analysts have not been sure why. The stock has gained 30% in the last two days of trading (Wednesday and Thursday). Albeit, the shares are still down nearly 70% for the year.
The unusual jump in Coinbase this week could be related to investors who were betting against the stock scrambling to cover their short positions, a so-called short squeeze. More than 22% of Coinbase’s shares which are available for trading are sold short. So as the stock has run, these investors have to buy back the shares to cover their losses, further fueling the gains.
Despite the doom in the market and decline in Coinbase’s share price, Citi (CITI:NYSE) on Thursday called it the “fizzle before the sizzle” and said it’s on the lookout for a stock reversal over the next three months.
“There are some good developments brewing,” Citi analyst Peter Christiansen said in a note to investors, citing potential stablecoin regulation and Ethereum’s long-awaited transition to proof-of-stake.
However, the recent moves in Coinbase stock have the makings of a meme stock, as the run could possible fade given the current macro-economic set where inflation, rate hikes and recession is weighing heavily on the mind of investors. Also, the price action of cryptocurrencies in the light of an investing clime that is still largely risk averse may prove to be an Achilles heel for Coinbase’s recent stock performance.