When Wall Street moves in, it completely takes over. This is what we are witnessing with cryptocurrency.
What was once a domain of freedom lovers and technological thinkers is now falling into the laps of investment banks and hedge funds. The entire industry was given away.
Blackrock is one of the most powerful financial institutions in the world. It is now looking to position itself as one of the main players in crypto. This is making Michael Saylor and Microstrategy look like a bit player.
It is what Wall Street does.
The ETFs are well known. Other financial instruments are being built. Blackrock has turned its attention to Tether. This is the next conquest.
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Blackrock Looking To Dominate Crypto
The BUIDL token was created by Blackrock. It was an institution stablecoin in the sense it is pegged to $1 and backed by US Treasuries. The difference is holders of the token receive interest unlike those with USDT, which goes to the entity behind Tether.
Larry Fink seeks to make this a bigger part of the crypto industry. When it comes to expansion, derivatives are key. Guess what he wants utilized as collateral.
BlackRock is in talks with major crypto exchanges to use its BUIDL token as collateral for derivatives.
Collateral is something that we discussed a great deal over the years. We mentioned the concept when talking about the Hive Backed Dollar (HBD) and having it structured in a time vault while being tokenized. This could then serve as high quality collateral.
Blackrock is seeking to do exactly this except with BUIDL. There is an obvious advantage to the company.
The success of BUIDL could help BlackRock dominate the lucrative crypto derivatives market.
Instead of building it ourselves, Blackrock simply swoops in and takes over. And to think many were calling for Wall Street to join crypto, hoping they would get involved back in 2017-2018. Once again, the green candle craze has shot us in the foot.
If major exchanges accept BUIDL as collateral instead of popular stablecoins like Tether, it could unlock a vast market. Centralized crypto exchanges handle massive trading volumes, with derivatives trades comprising the majority. By leveraging its expertise and connections in traditional finance, BlackRock stands to potentially earn billions if BUIDL gains traction in this space.
I am sure many are happy about giving Blackrock the opportunity to earn billions of dollars more. This is the price we pay.
Derivatives: The Golden Goose
Many seem to have a negative opinion of derivatives. Sadly, people only look at part of the story, missing much of what takes place.
Derivates are products that do allow individuals and entities to leverage their positions. This is where people feel these are a negative. There is little doubt this brings risk to the table, yet if that is the profile the investor is seeking, there is nothing wrong with it.
The flip side is derivatives can also be used as a hedge. This is where a product is purchased to effectively deleverage a position. For example, Foreign Exchange Derivatives (FED) are designed to hedge against currency fluctuation. These are often purchased by companies that do business in a multitude of countries.
What I am getting at it is not a black and white issue. Some prefer to leverage while others are in of the opposite. Derivatives serve the role of each. Unfortunately, it is the leverage that gets the media attention.
When it comes to a financial system, derivatives are crucial. Even something as simple as options on commodities are necessary for those who are involved in production. It is hard to run a business if the price of what you are growing now could crater 25%-50% before you get it to market.
That is where futures contracts and/or options can enter. Either the seller could use a future contract to get a locked in price or hedge against decline with an option.
The point is we are dealing with something that has tentacles everywhere. It is hard to know exactly how large the market is. Some estimate around $300 trillion. To me, this sounds low. I saw numbers around $1.25 quadrillion, something I am more apt to believe.
Whatever the number, crypto is going to see massive explosion regarding adoption when derivatives are set up. Larry Fink and Blackrock understands this.
It is why that firm is likely to be a dominant player in crypto.
Currency Value
Another factor is regarding what gives a currency value. This is something we also dove into a few years ago.
Here are two articles discussing this regarding the Hive Backed Dollar (HBD):
We know Fink is well aware of this. Of course, he is adding more value to the US Dollar by using that as the basis for all that he is constructing. The fact that BUIDL is backed by US Treasuries show exactly where he the focus is.
If cryptocurrency wants to truly establish an alternate financial system, it is going to have to understand what is available. Focusing upon payments is only the tip of the iceberg. In fact, when we look at the money involved, it is a drop in the proverbial bucket.
Any currency is going to have to focus upon a number of areas. The above articles show a couple, the others being payments and funding.
Nevertheless, sophistication is required. A great deal of financial activity, at the level we are talking about, is nothing more than asset swaps. That is effectively what we are talking about. People aren't really buying or selling since that is what the masses do. Instead, financial institutions make "payments" with assets.
This means having assets taking on different forms. Again, there is a utility that it provides depending upon what the institutions are seeking to achieve.
Here we have another example of where the hijacking of crypto by Wall Street is in full force.