BlackRock’s caution on crypto ETFs may delay market diversity beyond Bitcoin and Ethereum. Chief Investment Officer Samara Cohen highlights investment criteria as key barriers.
In the crypto industry, where speculation and hype often outpace reality, the recent remarks from Samara Cohen, Chief Investment Officer for ETF and Index Investments at BlackRock, offer a sobering perspective.
In a July 29 interview with Bloomberg’s Katie Greifeld and Eric Balchunas, Cohen made it clear that, for now, Bitcoin and Ethereum were the only cryptocurrencies meeting BlackRock’s stringent criteria for exchange-traded funds.
Cohen’s statements came against the backdrop of a crypto market buzzing with excitement and anticipation following the successful launch of Ethereum ETFs on July 23, 2024.
In the interview, the BlackRock executive stated that despite some outflows from higher-priced ETF products, the demand for direct exposure to Bitcoin and Ethereum was high, with investors seeking diversification and potential returns.
The launch drove the weekly trading volume of crypto funds to a staggering $14.8 billion, the highest since May.
Experts suggest that investors are eager to explore new avenues. Solana has become a frequent subject of speculation as a potential new entrant in the ETF space. However, Cohen’s remarks pour cold water on these hopes, at least for now.
Bitcoin and Ethereum: the chosen ones
Listening to Cohen, it is clear that practicality and demand drive BlackRock’s decision to focus exclusively on BTC and ETH as viable ETF products:
"We really look at the investability to see what meets the criteria, what meets the bar to be delivered in an ETF."
The term “investability” includes factors like market depth, regulatory environment, and price tracking accuracy.
According to Cohen, both Bitcoin and Ethereum not only meet those criteria but also align with BlackRock’s client demands.
While this conservative approach may frustrate some, it is not without merit. Bitcoin and Ethereum have long established themselves as the big boys of crypto, both in terms of market capitalization and institutional interest.
Bitcoin alone accounts for more than 52% of crypto’s $2.5 trillion value. Often called “digital gold,” it is the standard-bearer for the crypto industry, touted for its relatively stable store of value.
Ethereum has carved out a niche with decentralized applications (dapps) and smart contracts, offering diverse use cases.
Both coins have strong infrastructures, including futures contracts on the Chicago Mercantile Exchange, which provide regulatory oversight and market stability lacking in most other digital assets.
The Solana conundrum
The conversation around Solana as a potential ETF candidate has been gaining traction, especially after VanEck and 21Shares filed for a Solana ETF in the U.S.
Solana’s proponents argue that it is a faster and cheaper alternative to Ethereum, boasting impressive scalability and low transaction fees. This has led to a surge in on-chain activity, fueling the narrative that Solana is the next big thing in crypto.
However, despite its technological advancements and a growing market cap of just over $84 billion, according to CoinGecko, Solana faces significant hurdles.
For one, it lacks CME futures, which complicates regulatory approval for an ETF based on the cryptocurrency. Without those futures, a Solana ETF market would lack an important mechanism for hedging and price discovery, making it difficult for the ETF to function effectively.
Additionally, while Solana has received praise from entities like Franklin Templeton, calling it an “exciting and major development,” it still lacks the widespread institutional backing that Bitcoin and Ethereum enjoy.
When asked by Katie Greifeld about the possibility of a Solana ETF, Cohen was straightforward: “Not in the near term.”
The broader market landscape
The current state of crypto ETFs reflects a cautious approach to emerging technologies and assets in the traditional financial markets.
While there is undeniable interest in diversifying beyond Bitcoin and Ethereum, substantial regulatory and technical challenges exist. The U.S. Securities and Exchange Commission has stringent criteria for approving crypto ETFs, often citing market manipulation concerns and a lack of investor protections.
Therefore, without clear regulatory guidance, even the most promising crypto assets face an uphill battle in achieving ETF status.
The successful launch of Ethereum ETFs has provided a blueprint for future products but also highlighted the complexities involved. Even Cohen mentioned that BlackRock has yet to include crypto ETFs in its own model portfolios, emphasizing the need for thorough due diligence and risk assessment.
This cautious yet optimistic view suggests that while not all institutional investors may be ready to embrace other crypto ETFs, there is a growing grassroots interest in such assets.
