On March 15, BlackRock (BLK -0.04%) CEO Larry Fink released his annual letter to shareholders. This annual letter from the world’s largest asset manager might not get as much love as the one from Berkshire Hathaway, but it’s especially worth a read this year, given that Fink specifically addresses the Silicon Valley Bank crisis and the changing risk environment for investors worldwide.
BlackRock — which rose to prominence in the crypto sector last year with its much-ballyhooed partnership with cryptocurrency exchange Coinbase Global — also has something to say about the crypto sector. In a section of the letter called “Digital Assets,” Larry Fink hints at three big takeaways for crypto investors.
As might be expected, Bitcoin (BTC 3.72%) is top of mind for crypto investors right now. At a time when the entire banking system seems to be melting down, Bitcoin has somehow emerged as a potential safe haven for investors trying to protect their savings.
So it’s perhaps not surprising that Larry Fink mentions Bitcoin in his annual letter — but it’s not for the reasons you might think. In fact, if you read between the lines, it’s almost like he thinks that investors are paying too much attention to Bitcoin, when there are many other exciting developments taking place in the crypto sector. For example, he specifically notes “the media’s obsession with Bitcoin.”
That being said, one key theme moving forward is obviously going to be the embrace of the crypto asset class by institutional investors. Bitcoin is going to be a key focal point of any new initiative for institutional investors as they boost their portfolio allocation of crypto. At one time, BlackRock was skeptical of Bitcoin, but crypto seems to have finally proven its worth as an asset class.
This leads me to what Larry Fink and BlackRock are really excited about: asset tokenization. Sure, asset tokenization might not be as sexy as Bitcoin to the average crypto investor, but to the titans of Wall Street, this is a seismic change in the way the financial world works. Asset tokenization refers to the process of converting a real-word financial asset into a digital asset that can be traded and stored on a blockchain. So you can have tokenized stocks and bonds, for example. According to BlackRock, asset tokenization makes the job of asset management much easier.
This could lead to a lot of interesting investment ideas. For example, one of the top asset tokenization platforms in the world right now is tZERO, which is majority owned by internet retailer Overstock.com. So investing in Overstock might be an indirect way to get access to the crypto sector.
Or, if you’re looking for direct access to the crypto sector, one investment target could include Layer 1 blockchain Avalanche, which is at the forefront of tokenizing financial assets and putting them on the Avalanche blockchain. In 2022, a high-profile success story was Avalanche’s tokenization of a $4 billion healthcare fund from private equity giant KKR.
Finally, Fink touches on the subject of crypto payments, which he says are taking off worldwide. Fink notes that the U.S. appears to be lagging behind other nations right now in the embrace of crypto as a form of payment for online purchases. But BlackRock obviously seems to think that there’s a world of opportunity here (especially in India and Brazil), and that could be big for cryptocurrencies such as Bitcoin and Litecoin that can be used for online transactions. According to a recent survey, more than 50% of the world’s online merchants could accept crypto payments within the next one to three years, so this is definitely a space to watch if you’re tracking long-term growth opportunities in the crypto space.
Where to invest in 2023
With the exception of Bitcoin and FTX, Fink does not mention a single other crypto in the nearly 9,000-word shareholder letter. So a simple reminder: Any of the investment ideas mentioned above is simply reading between the lines of what Fink actually wrote.
But there are certainly several provocative and exciting ideas out there for 2023, and a number of interesting investment angles to play. For example, when it comes to asset tokenization, you can invest in the companies doing the actual tokenizing, or the blockchain platforms where those tokens are going to reside. The same thing is true for digital payments. You can invest in the companies providing the tools and services for digital payment providers, or the actual cryptocurrencies used for those digital payments.
These are two spaces I’ve targeted for further research and analysis in order to find the best crypto investment options.
SVB Financial provides credit and banking services to The Motley Fool. Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Avalanche, Berkshire Hathaway, Bitcoin, Coinbase Global, KKR, and SVB Financial. The Motley Fool recommends Overstock.com. The Motley Fool has a disclosure policy.