Original text: Bankless

Compiled by Yuliya, PANews.

According to Samara Cohen, head of ETFs and index investments at the global asset management giant BlackRock, the financial market is at a critical transformation period. In this in-depth dialogue hosted by Bankless, Samara, who manages $6.6 trillion in assets, shares her unique insights on digital asset ETFs, the market modernization process, and the integration of blockchain technology with traditional finance. PANews has compiled this interview text.

Samara: A driver of market modernization.

Before joining the ETF industry, Samara focused on fixed income and derivatives at a major investment bank. She describes herself as a 'driver of market modernization', dedicated to enhancing market resilience, improving transparency, and expanding investor participation. At BlackRock, she works closely with Robbie Mitnik, head of the digital assets department, to explore the potential of cryptocurrencies and digital assets.

Samara believes that ETFs themselves are a disruptive technology, aligned with the goals of blockchain technology: to modernize the market and achieve innovation and transformation in financial markets. She points out that technological innovation has always been the cornerstone of market modernization, and this principle has not changed in the past thousands of years.

The integration of blockchain and traditional markets.

Samara states that we are currently in a phase of integration between blockchain assets and traditional financial markets. She points out that the launch of U.S. Bitcoin ETPs (exchange-traded products, not ETFs; this subtle distinction is important) marks the one-year anniversary, signifying an important watershed moment, but it is merely the beginning.

The significance of these Bitcoin ETPs lies in their construction of a bridge between the crypto world and the traditional financial (TradFi) world. Surprisingly, this bridge has had a positive impact on participants from both worlds:

  • Traditional investors can access Bitcoin through familiar investment tools.

  • Digital-native investors also find that ETPs meet their needs.

Data shows that many investors first encountered this product category through Bitcoin ETPs and then expanded to other ETPs. This integration currently involves only a few crypto assets and relies on traditional financial infrastructure. Samara believes the ideal development direction is to create bridges, drawing on best practices from all sides rather than completely overturning existing systems.

Technological evolution and market transformation.

Samara likens the transition from dial-up to broadband internet to the current development of crypto assets: initially, internet data was transmitted over phone lines, and now, conversely, phone calls are made over the internet. There are two perspectives on the future development of crypto assets:

1. Current stage ('Dial-up phase'):

  • Bitcoin ETFs, Ethereum ETFs, etc. are 'simulated versions' of crypto assets.

  • Equivalent to forcibly inserting crypto technology into traditional financial frameworks.

2. Future vision ('Broadband era'):

  • Traditional financial institutions (such as BlackRock and Nasdaq) may shift their operations to blockchain.

  • Specialized financial institution blockchains may emerge.

But Samara raises a key question: Does this vision of complete decentralization really suit the current market and investors? She analyzes the issue from the perspective of the need for balance:

  • Recognizing the advantages of crypto technology in terms of transparency and auditability.

  • Questioning the necessity of complete decentralization.

  • Pointing out the historical value of intermediaries: allowing people to focus on their areas of expertise.

  • Suggesting the use of crypto technology to improve trust mechanisms rather than completely replacing intermediaries.

The development of the options market.

BlackRock's iShares Bitcoin ETF and Ethereum ETP dominate in options trading volume. BlackRock is establishing an options ecosystem through partnerships with institutions like Nasdaq, where Bitcoin ETF options are launched a day earlier than similar products.

The iShares platform covers multiple asset classes and national markets, establishing extensive connections with the trading ecosystem. In the Bitcoin market, the following characteristics are the focus of market attention:

  • High volatility

  • The volatility of volatility (volatility's volatility) is high.

  • Features positive skewness (volatility tends to rise when prices increase).

The development of the options market brings new trading mechanisms for cryptocurrency ETFs. Although there are many sources of price information in the cryptocurrency market, the introduction of volatility tools to exchanges and listed trading has achieved:

  • Standardization of funding methods.

  • Measurability of volatility trends.

  • Real-time monitoring of trading conditions.

Data shows that the ETF market has experienced significant growth over the past 20 years, with a considerable portion of institutional investors initially entering the market through ETF options. The options market provides investors with an additional way to participate in the market, allowing them to adjust risk exposure based on their own needs.

The development of the options market has expanded the diversity of market participation methods, specifically manifested in:

  • Standardization of trading methods.

  • The improvement of price discovery mechanisms.

  • The increase in risk management tools.

  • Enhancement of market liquidity.

'Price is the best marketing.'

In the Bitcoin community, there is a famous saying: 'Price is the best marketing.' However, from BlackRock's perspective, education is actually the best marketing for Bitcoin. This education primarily revolves around risk management, how to utilize risk to achieve portfolio diversification, and studying the interactions between portfolios.

Although Bitcoin reached a new high by the end of the year, investors need to be aware: while Bitcoin's price volatility has decreased in recent years, it remains a high-risk, high-volatility asset compared to other assets in investors' portfolios. It is precisely this volatility characteristic that gives Bitcoin unique value as a portfolio diversification tool. Without these volatility characteristics, Bitcoin might not have the same investment argument as it does now.

For an institution like BlackRock, which primarily targets long-term investors, conveying these fundamental factors to investors is more important than focusing on Bitcoin's price movements. This also reveals a common misunderstanding in the cryptocurrency space: many believe that the success of ETFs is directly related to the rising prices of their underlying assets. However, this is entirely different from the actual metrics of ETF product success.

BlackRock measures the success of ETPs (exchange-traded products) based on:

  • Whether the product meets investors' needs.

  • Whether it provides effective market access mechanisms.

  • Whether it has good liquidity.

  • Whether it can achieve effective price discovery.

Metrics for ETF success.

As a traditional finance (TradFi) expert, Samara points out some misunderstandings that exist between the cryptocurrency community and the traditional finance sector, especially regarding the performance assessment of Bitcoin ETFs and Ethereum ETFs. Samara specifically notes that many believe Ethereum ETFs are less successful than Bitcoin ETFs, but from the professional standards of the ETF industry, the launch of Ethereum ETFs is actually quite successful. She emphasizes that the primary criterion for judging whether an ETF is successful is whether it can achieve its intended goals.

Metrics for ETF success:

1. Tracking accuracy.

  • It is essential to track the underlying index precisely.

  • The importance of Bitcoin ETFs stems from addressing issues previously faced by investors.

  • Providing new options beyond self-custody and exchange holding.

  • Avoided the position limit issues of futures ETFs.

2. Market quality

  • Requires complete ecosystem support.

  • Including trading volume, liquidity, and exchange access.

  • Creation of redemption mechanisms for authorized participants (AP).

  • Both Bitcoin and Ethereum ETFs show good market quality.

Traffic difference analysis:

  • ETFs themselves do not directly drive capital inflows.

  • Investor sentiment and investment philosophy are key.

  • In 2020, the investment philosophy for Bitcoin was clearer and more specific than for Ethereum.

  • This explains the difference in their capital inflows.

Actual performance:

  • Bitcoin ETFs have broken historical records.

  • Ethereum ETFs still rank in the top 20% of ETF issuances in the U.S. this year.

  • Both are considered successful products.

Key findings:

  • The marketing story of Bitcoin is simpler and more direct (21 million cap, digital gold).

  • Product success depends not only on technical performance but also on a clear narrative and identity positioning.

ETF trends.

About the development history of Ethereum ETFs:

  • The SEC unexpectedly approved the Ethereum ETF in May 2023.

  • The industry faced uncertainty about the trading launch timeline during June and July.

  • It is necessary to simultaneously prepare portfolio, trading operations, and educational strategies.

Current market trend analysis:

1. Investor characteristics.

  • From small investors to complex investors, there are all types.

  • Self-directed investors are the main driving force.

  • Investors generally understand the difference between Bitcoin and Ethereum.

2. Advantages of the Bitcoin investment thesis.

  • Aligning with current geopolitical tensions.

  • Responding to concerns about the U.S. dollar deficit.

  • As a diversification tool for traditional portfolios.

  • Especially in the context of the simultaneous decline in stocks and bonds in 2022, it is seen as even more valuable.

3. Challenges facing Ethereum.

  • For U.S. investors who already hold tech stocks,

  • Ethereum is more like an 'amplifier' of existing investments rather than a 'diversifier'.

  • There is a high correlation with large tech stocks.

Market education process:

  • Investors' understanding of the two assets is deepening.

  • Bitcoin currently better meets portfolio allocation needs.

  • Market education is still ongoing.

ETF agreement upgrades.

Regarding potential future protocol upgrades for Ethereum and Bitcoin blockchains, BlackRock's position and perspective as an ETF issuer are noteworthy. BlackRock's viewpoints during industry discussions are primarily based on the following principles:

  • Focusing on how the ecosystem can best serve the needs of companies and clients.

  • Tending to support open architecture and interoperability.

  • Considering the practical needs of institutional scale operations.

Due to BlackRock's large operational scale, operating within a closed ecosystem often faces many restrictions. This is also why the company has significantly shifted its focus toward supporting public blockchains rather than permissioned chains in recent years. This shift reflects the institutions' emphasis on openness and scalability.

In terms of specific positions, BlackRock tends to focus on:

  • System scalability.

  • Conditions for counterparty participation.

  • The overall openness of the ecosystem, rather than a stance on any particular crypto platform.

ETF development forecasts.

In terms of ETF development prospects for 2025, BlackRock has put forward several key observations and expectations.

  • Firstly, they want to see ongoing research on Bitcoin in portfolio construction. The focus of discussion should shift from 'whether to invest in Bitcoin' to 'how to reasonably incorporate Bitcoin into the portfolio'.

  • The second important development is the launch of Bitcoin ETP options. This innovation has already shown its significance in November 2023. Generally, the options ecosystem helps create a more balanced trading dynamic, with buyers emerging when the market declines and sellers when it rises. However, innovation often comes with complexity. While many institutions are eager to launch and market option-based strategies, not all strategies are easily understood by investors. Therefore, enhancing investor education will become increasingly important.

Other ETF plans

Regarding BlackRock's future plans in digital asset ETFs, the company adopts a relatively cautious and pragmatic approach. Here are the main points of analysis:

The difference between market perception and reality:

  • There is a common misconception in the market that launching an ETF will inevitably lead to a rise in the underlying asset prices.

  • The success of Bitcoin ETFs has somewhat reinforced this perception.

  • The performance of Ethereum ETFs shows that this correlation is not necessarily the case.

The actual impact of ETFs on assets:

  • Providing a more convenient investment channel.

  • Bringing a degree of legitimacy recognition.

  • Reducing regulatory risks.

  • Potentially attracting new pools of funds.

BlackRock's investment decision-making principles:

  • Based on clear investment arguments.

  • Focus on cash flow assessment of underlying assets.

  • Emphasis on risk measurement.

  • Consider customer portfolio needs.

Observations regarding capital inflows:

  • Bitcoin ETFs have accumulated about $36 billion in net inflows.

  • The secondary market trading volume is nine times that of the primary market.

  • Institutional investors participate through various channels, with ETFs being just one of them.

BlackRock's current digital asset strategy focus:

  • The operation and development of Bitcoin and Ethereum ETFs.

  • Tokenization projects, especially the tokenization of government bond funds.

  • Stablecoin-related businesses.

Looking ahead:

  • The company is currently primarily focused on Bitcoin and Ethereum ETFs.

  • Digital asset strategy encompasses three pillars: cryptocurrencies, stablecoins, and tokenization.

  • New product development will continue to be customer demand-oriented.

New government influences.

A new government is about to take office, which is more inclined toward free market and pro-market policies. An important change for the cryptocurrency industry is that SEC Chairman Gary Gensler will step down. This change affects not only crypto-native enterprises but also mainstream financial institutions like BlackRock, which is closely monitoring the situation. It is worth noting that the SEC's influence is not limited to the U.S. market; it actually extends across global financial markets.

Historically, the U.S. market has performed better than other global markets in balancing support for innovation and investor protection, and this balance has contributed to the U.S. market's current dominance. The current regulatory environment has largely been shaped by market changes in 2020-2021. During that period, individual investor participation significantly increased, mainly due to trading platforms beginning to offer commission-free services, greater acceptance of technology during the pandemic, and government stimulus funds. Subsequently, many individual traders transitioned to index and ETP investors, further driving the ongoing transformation of the market.

Future outlook.

BlackRock holds an optimistic view of the future, hoping the market can return to a balanced development direction. Despite recent regulatory opacity regarding cryptocurrency ETFs, this situation is expected to improve. They anticipate a more innovation-friendly regulatory environment while also emphasizing that appropriate regulation is crucial for maintaining investor confidence.

For the specific outlook for 2025, BlackRock focuses on three core aspects:

  • Establishing basic definitions that clarify the attributes of various digital assets.

  • Clear delineation of jurisdiction, defining the responsibilities of specific regulatory agencies.

  • Establishing collaboration mechanisms between public and private sectors.

For the existing FIT 21 bill and stablecoin bill, BlackRock sees these as positive progress but emphasizes the need for better integration with the traditional financial (TradFi) system, avoiding the creation of a completely independent crypto ecosystem to prevent redundant regulatory systems from hindering the participation of existing financial institutions.

She observed that while 2023 has been challenging and there was strong dissatisfaction with the regulatory environment within the industry, it is now time to refocus on the core mission: to create a more transparent and inclusive financial system.

The industry is entering a possible 'golden age', largely due to three key factors:

  • Lower-cost block space.

  • More convenient development environment.

  • Clearer regulatory outlook.