Sirwin
Sirwin

From Mortgages to Crypto: Larry Fink and BlackRock's Long Game


The entrance of powerful financial institutions into the cryptocurrency space seems like it should be a positive development on the surface. With the deep pockets and extensive resources of firms like BlackRock and Fink's long history in financial markets, their involvement could help crypto go mainstream by bringing in large amounts of new investment. However, as the old adage goes, we must be wary of Greeks bearing gifts.

Is a two-faced trojan horse, still a horse?

Is a two-faced trojan horse, still a horse?

While increased investment is undoubtedly good for growing the size and liquidity of crypto markets, we have to consider the intentions and potential impacts of allowing institutions almost complete control. Larry Fink, who has been at the forefront of "tokenizing" and fractionalizing assets into tradable financial products for decades, now has his sights set on cryptocurrencies. Through his company BlackRock, Fink pioneered the creation of Collateralized Mortgage Obligations (CMOs) in the 1970s and 1980s, a process of slicing up mortgage-backed securities into tranches that could be independently bought and sold. This helped build the massive mortgage markets that later collapsed in the subprime crisis.

More recently, BlackRock has become the world's largest issuer of Exchange Traded Funds (ETFs), which allow investors to easily buy and sell fractional shares of a basket of assets like stocks or bonds. While ETFs have many benefits, some worry powerful players could use their dominant market positions to potentially manipulate prices or front-run emerging economic trends for private profit. As the largest financial institutions push for greater involvement in cryptocurrencies and their underlying blockchain technology through vehicles like a Bitcoin ETF, we must consider both the promises and potential perils of welcoming them into this new digital financial future.

Larry Fink and BlackRock's long history:

The long history of Larry Fink and BlackRock in reshaping financial markets provides important context for their growing interest in cryptocurrencies. Fink got his start in the 1970s as one of the first traders of mortgage-backed securities at investment bank First Boston. He helped pioneer new ways to package and sell portions of mortgage debt through his creation of the Collateralized Mortgage Obligation (CMO). This financial innovation allowed lenders to offload risk and attract new investors, greatly expanding the mortgage market.

By the 1980s, Fink was an early adopter of computers on trading floors. His firm developed algorithms and software to automate slicing up CMOs into customized tranches. This set the stage for BlackRock's later Aladdin risk management platform, which now oversees over $50 trillion in assets. When the mortgage bubble popped in 2008, BlackRock swooped in to purchase iShares, Barclays' popular ETF business. This positioned BlackRock to ride the ETF boom as investors increasingly chose these index funds providing low-cost access to stock markets.

Larry Fink has long viewed tokenization and fractionalization of assets as the future. Cryptocurrencies may provide a new frontier for these Wall Street pioneers to reshape global finance through their technological and financial expertise. However, we must consider both benefits and potential unintended consequences as institutions aim to put their stamp on this emerging digital landscape.

Blackrock HQ (Maybe)

Blackrock HQ (Maybe)

Actors involved with Bitcoin ETF raise red flags

The specific players bringing the Bitcoin ETF to market raise valid questions about oversight and fair pricing. JP Morgan Chase, one of the ETF's authorized participants to source Bitcoin, paid billions in fines for manipulating precious metals markets. Traders used "spoofing" fake orders to artificially influence prices for their own gain. Jane Street Capital, another participant, has ties to disgraced FTX founder Sam Bankman-Fried and his questionable trading practices during the crypto crash. Where do you think he learned his trade?

BlackRock also has conflicts of interest through their minority stake in $USDC issuer Circle. One of the largest stablecoins, USDC's supply directly impacts Bitcoin prices. If BlackRock can influence USDC flows, they may effectively control crypto prices. They acknowledge this connection in regulatory filings, while also advocating blockchain's ability to reduce financial corruption. However, the history of crimes at their partner banks undermines such claims of building a fairer system when the same actors remain in control.

Sceptics argue powerful entities like BlackRock may try "front running" the emerging digital economy for private profit rather than enabling free markets. With their expertise in tokenization and fractionalization, large institutions aim to shape blockchain technology on their terms from the beginning. Only strict oversight ensures they do not manipulate this new frontier to similar effects as past crises.

Is it me or do we need to see more cops chasing bankers before we trust bankers?

Is it me, or do we need to see more cops chasing bankers before we trust bankers?

Concentrated Power and the Potential for New Abuses

Fink asserts that blockchain technology can eliminate financial corruption through increased transparency. However, given the history of actions from those now involved, will control now simply shift to a new domain?

When BlackRock partner Bank of America received a then-record $16.65 billion fine for its role in the 2008 crisis, it showed past penalties have done little to curb bad behaviour. JP Morgan too faced billions in fines after admitting traders knowingly manipulated markets.

If the same dominant players transition oversight to blockchain systems they build, what guarantees real change? Through Aladdin, BlackRock already oversees most institutional investing globally. Their proposed solutions offer more data to regulators but not distributed ownership. Likewise, stablecoins like USDC function through trusted centralized issuers like Circle, compromising the rationale of decentralized digital currencies.

As long as concentrated power remains unchecked by accountability, new technologies risk enabling new forms of influence rather than curbing the abuses seen in past crises. For blockchain to realize its potential for fairer markets, oversight must ensure no single entity can manipulate prices or control access behind closed algorithms and private holdings. Only through open governance that limits control by any one party can such innovations best serve the public interest over private profits.

Banker bro trying to look cool. We see through you, bro.

Banker bro trying to look cool. We see through you, bro.

The Ability to Influence and Front-Run Emerging Trends

With decades shaping financial markets, Fink and BlackRock are well positioned to also influence cryptocurrencies. Their expertise in tokenization and fractionalization lays the groundwork to mould blockchain technologies. However, some argue this gives them an outsized ability to "front run" emerging trends for private profit rather than enabling open competition.

By pushing their own solutions like digital IDs and tokenized funds traded on public ledgers, large institutions can steer development. This may crowd out alternatives better suited to decentralized use cases. Their control of data through platforms like Aladdin also risks opaque front-running as analytics reveal shifts in institutional flows before others.

I am William Wallace, and I see a whole army of my countrymen here in defiance of tyranny.

I am William Wallace, and I see a whole army of my countrymen here in defiance of tyranny.

In conclusion

As cryptocurrencies and blockchain evolve, oversight must balance both innovation and accountability. While large firms bring resources to grow new markets, only open systems prevent concentrated control that risks new forms of manipulation or private advantage over public welfare. More scrutiny is needed of institutions' expanding role through vehicles like the Bitcoin ETF that could shape this emerging financial landscape.

Put simply, NEVER TRUST THE MAN.

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Gryphonboy
Gryphonboy

Small-time nerd. Publishing my book online for free! Check back every Sunday for the latest chapter. If you have any suggestions, corrections, criticisms, or just want to say hi please feel free to make them in the comments.


Gryphonboy's Crypto Journey
Gryphonboy's Crypto Journey

Dedicated cryptocurrency advocate! I hold the majority of the assets I discuss. This is not investment advice. Views and analysis expressed are my own and pertain to projects that I am invested in and passionate about. Support my work by tipping what you can here or you can support me directly by donating to gryphonboy.eth

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