BlackRock: Crypto ETF Institutional Adoption Still Early Stage

According to Robbie Mitchnick, BlackRock’s global head of digital assets, the institutional penetration of cryptocurrency exchange-traded funds is significantly trailing the enthusiastic retail adoption witnessed since their launch. The success of products like BlackRock’s iShares Bitcoin Trust (IBIT) and the proposed Ethereum ETF (ETHA) has not yet translated into broad-based acceptance within the professional wealth management community. Mitchnick pinpointed a fundamental barrier: “The vast majority of advisors in the US today still do not have the ability to make decisions on this on behalf of their clients.”

This limitation manifests as a predominance of execution-only approvals at wealth management firms. This model requires clients to specifically initiate and request purchases of crypto ETFs, rather than allowing advisors to proactively make strategic portfolio allocation decisions. Mitchnick noted that only a handful of “leading-edge firms” have moved beyond this restrictive framework. A significant milestone will be reached in early 2025 when BlackRock’s internal model portfolio teams begin adding allocations to the IBIT Bitcoin ETF, signaling a shift from a client-driven product to a core portfolio component managed by professionals.

When considering the launch of new crypto ETFs, BlackRock applies a rigorous, multi-stage framework. Mitchnick explained that client demand is the primary and non-negotiable driver. The asset manager first assesses the level of demand, the underlying investment logic, and the specific problems a new product would solve for investors. This initial evaluation is crucial for determining if there is a genuine need in the market.

The next phase involves a deep dive into the practicalities of the proposed asset. BlackRock evaluates the liquidity and maturity of the underlying cryptocurrency market. This analysis culminates in the firm achieving clarity on its investment thesis and how the product fits into broader portfolio considerations. However, when directly questioned about the potential for ETFs tracking assets like Solana (SOL) and XRP, Mitchnick offered no commentary, completely deflecting the inquiries and leaving the market to speculate on BlackRock’s future product pipeline.

Demand for Ethereum ETFs faces a unique structural constraint: the inability to offer staking rewards. Mitchnick acknowledged that the absence of these yields, which typically range from 3% to 4% annually, has had “some impact on demand” for these products. The integration of staking within the grantor trust structure used by crypto ETPs presents complex challenges, particularly around tax treatment and liquidity.

The core of the issue is the “unbonding period” required for staked Ethereum, during which the assets are illiquid and cannot be freely traded. This illiquidity directly conflicts with the fundamental requirement for ETFs to provide daily liquidity to shareholders. As a result, Mitchnick indicated that Bitcoin currently attracts broader institutional interest due to its clearer positioning as “digital gold.” This narrative allows institutions to view Bitcoin as a straightforward portfolio diversifier, analogous to traditional gold allocations. In contrast, Ethereum requires more nuanced discussions, positioning it as a technology bet on blockchain adoption, which aligns it more closely with tech equities or venture capital investments in the eyes of portfolio managers.

Beyond ETFs, Mitchnick provided a measured outlook on tokenization. BlackRock sees limited immediate opportunities for tokenization beyond specific applications like money market funds. In this niche, the technology offers clear utility by enabling 24/7 liquidity while allowing investors to maintain access to the full yield of the underlying assets. Mitchnick cautioned against overhyping the technology, noting, “A lot of projects in the early years have gone wayward because they merely relied on that high-level value prop,” suggesting that practical, problem-solving applications are key.

Finally, Mitchnick expressed BlackRock’s bullish stance on stablecoins. The firm believes their utility will expand significantly beyond their current primary use case in crypto trading. BlackRock envisions stablecoins playing a major role in the future of cross-border payments and financial market settlement, areas where their speed and efficiency could provide substantial advantages over traditional systems. This long-term vision indicates that while institutional ETF adoption may be nascent, BlackRock’s commitment to the broader digital assets ecosystem is firmly established.