Brian Armstrong and Larry Fink: Crypto and Capital

Please welcome Andrew Ross Sorkin and his guests, CEO of Coinbase, Brian Armstrong, and Chairman and CEO of BlackRock, Larry Fink. Good morning again, everybody. I wanted to try to bring together this morning two pioneers from two different generations, dare I say, to talk about the future of finance at a time when we are going through a remarkable shift in all of it, from the passing of the Genius Act to the surge of stable coins, prediction markets, now talk of tokenization, as well as where we are in our economy. And Larry Fink, of course, founded BlackRock back in 1988. Today, it's the world's largest asset manager, overseeing $13.5 trillion. That's with a T, if you can believe it. Brian Armstrong founded Coinbase in 2012. Today, it is the largest crypto exchange in the U.S. and has grand ambitions to do much more. In 2021, it became the first crypto company to go public and has half a trillion dollars in assets on its platform. So good morning to both of you. One of the reasons I wanted to put you together is you historically, over the years, did not agree with each other at all about this world of crypto, if I dare say. You obviously were a proponent from the beginning. I think we met about a year or two after you began this effort. Larry, you were, though, on the other end of it. Even on this stage in the past, you famously, in 2017, called crypto an index for money laundering. BlackRock. And thieves. And thieves. Yes. Money laundering and thieves. You now have the biggest Bitcoin ETF. So what happened here? You know, as the Secretary said, you've got to evolve and change. So I did say that, I think I said that in Washington, sitting next to Jamie Dimon. But during COVID, when we had a little more time on your hand, if you weren't traveling around the world, I actually took it upon myself to visit and talk to a lot of people who were advocates of it. I wanted to understand what am I missing? Why am I, why do I have that belief? And so I was testing myself like I do in many other things. And I was, so around 2021, 22, I began to evolve those views. Those statements were not, was not about crypto. Those statements were specifically about Bitcoin. So let me be clear, too. But I see a big, large use case for Bitcoin, and I still do today. And so, you know, this is one thing that I get excited about. I have very strong views. But that doesn't mean I'm not wrong. But by having strong views, you have to test yourself and ask yourself. And, you know, in my role, I see, you know, thousands of clients a year. I have, you know, governmental leaders. And we have these conversations that my thought process always evolves. And this is a very glaring public example of a big shift in my opinion. How much though, and Brian, you can speak to this. Do you think that folks in the legacy or traditional industry didn't either get it, want to promote it, want to be part of it because they were scared? Yeah, well, this is the classic innovators dilemma, right? Anytime you have a new technology come around, everybody who's an incumbent has to decide, do we want to embrace it, or do we want to fight against it? And in some of these larger organizations, it's kind of funny, actually, because there'll be part of the organization, like their lobbying team in DC, it's actually fighting against it, kind of trying to do regulatory capture. But the innovation arm of the company is actually embracing it. And for many of the largest banks now, we're actually powering, you know, pilots with them doing stable coins and custody and trading and these kinds of things. And once in a while, we run into their lobbyists in DC, and they're kind of trying to curtail it. And so, you know, I think it's like any company, you have to embrace change and be on the frontier. It's not unique to crypto. Is there any chance in your mind at all that Warren Buffett is right? He and Charlie Munger used to call it rat poison and say, eventually, it'll go to zero. It just might take a while. They're talking specifically about Bitcoin. They're talking about Bitcoin. But you offer a Bitcoin ETF, so you can speak to that. Yeah, there's, I mean, there's no chance that I don't think that's going to happen at this point. I mean, you know, there's something that happens from a psychology point of view, as we all age, and, you know, we grew up in a certain environment, and we're shaped by the experiences we had. And I think for Charlie and Warren, they, you know, they grew up in an environment of America, preeminence, and the dollar was everything, and how dare you question it. And, you know, we're in a world now where democracies around the world are trying to figure out how to curb deficit spending. And, you know, Bitcoin is kind of this new digital gold, people are going through it in times of uncertainty. And so it's tough for them to contemplate a world that is more decentralized and running on the internet. How much of it, though, in terms of what's happening in the last year is a function of money, money being spent, you mentioned lobbying in Washington. So you were behind the political movement that really pushed a lot of this, directly. You spent about $50 million in corporate donations in the 2024 cycle. The crypto industry spent about $130 million. How much of it do you think is here now, because the industry effectively, and some people cynically would say, bought this new opportunity? Yeah, well, our mission is to increase economic freedom in the world. And I prefer to do that just with our products and integrating crypto into the traditional financial system to update it. But it turns out over time that a big way we can accomplish our mission is actually, you know, holding bad government accountable, right? So if there's 52 million Americans who have used crypto, and they want to see clear rules on the books to protect consumers. I think in the last administration, we saw that our representatives in government were not actually fulfilling those values that the American people had, they were actually unlawfully trying to kill the industry. A lot of it went offshore as a result of that, and a lot of consumers got harmed. And so, you know, we've always been very transparent about donations we've made to super PACs like Fairshake, but we also helped bring together a large number of voters to elect pro-crypto candidates. And to me, that's democracy working. I think we need to get back to what is the purpose? What is the purpose of Bitcoin? And we gave you the staple coin. You know, the $13.5 trillion that BlackRock managed on behalf of our clients, it's basically managing hope. That's all it is. I mean, why would anybody invest in a 30-year outcome unless you're hopeful in 30 years you're going to have the compounding effect? Bitcoin is an asset of fear. And when you're less fearful, like we had a trade agreement with China, you saw a shift downward. There is conversations this week that there may be some type of settlement in Ukraine. Bitcoin fell a little bit. So, you own Bitcoin because you're frightened of your physical security. You own it because you're frightened of your financial security. The long-term fundamental reason you own it, because the debasement of financial assets because of deficits. And so, to me, even the movement in the last week, and we've had about a 20, 25% drawdown. And this is the third time since IBIT was created, our ETF. And so, this is, you see these shifts and they're actually pretty non-correlated shifts. But then some people say, is that really insurance, right? If you had bought it at $125,000, and it's now sitting at $90,000, you're saying- If you bought it for a trade, you know, it's a very volatile asset. You're going to have to be really good at market timing, which most people aren't. If you're buying it as a hedge against all your hope, you know, then it has a meaningful impact on a portfolio. The bigger, the other big problem of Bitcoin is it's still heavily influenced by leveraged players. That's what I wanted to talk to you guys about. Okay. I mean, that's Bitcoin, but we could see because we see where the flows are coming from. We're seeing more and more legitimate long only investors investing in it. There was an article about a foundation endowment just bought a lot of IBIT. But I can tell you there are a number of sovereign funds that are standing by. They're adding incrementally at 120, 100. I know they bought more in the 80s. That's fine. And they're establishing a longer position. And you own it over years. This is not a trade. You own it for a purpose. But the market is is is heavily leveraged. And that's why you're going to have more volatility. So, Brian, let's talk about that, though, the leverage piece. I think people don't we all don't know where all the leverage lies. I think some people look. Michael Saylor has a company strategy, formerly MicroStrategy. That seems like a big levered bet. He owns about 3 percent, I believe, of all the Bitcoin that exists. How much leverage is there really? Well, yeah, I mean, we saw a little bit of this on October 10th this year, and there was there was quite a bit of leverage that got unwound as the market moved around a little bit. But this largely happened on offshore exchanges. Right. On Coinbase, we saw very little of this. And to me, it's just an example of why we need clear rules on the books in the United States. I think 2025 is actually we'll look back on this as the year that crypto regulation went from kind of gray market to well-lit establishment because we saw the passage of the Genius Act, which was huge for stable coins. We've now seen a bipartisan vote for market structure legislation in the House, and now it's going through the Senate. And so hopefully within a few months, we might get a vote on that in the Senate. And then I think we'll have the foundation to really have this industry built in the U.S. and we'll see a little bit less of this kind of leverage or high risk activity happening offshore. I want to get stable coins and tokenization and blockchain and where this all goes. But you mentioned lobbying before, and I just want to ask you one lobbying related question. And actually, it can go to both of you because you're both doing something similar, which is that you both made donations to the new ballroom that the White House is creating. We were just talking to the Treasury Secretary earlier about David Ellison making movies and trying to placate the administration, if that's what he's doing. I want to read you what Jamie Dimon said about making donations in this context, because he says that he's not doing it. And he says, we have an issue, which is anything we do, since we do a lot of contracts with governments here and around the world, we have to be very careful about how anything is perceived and also how the next DOJ is going to deal with it. So we're very quite conscious of the risk we bear by doing anything that looks like buying favors or anything like that. What do you think about that? I agree with what Jamie said. And everything we do is with that type of lens. Typically, our political giving is split between 50% one party and 50% one. How we distribute it, that is up to my public policy team. But we're very deliberate on it. We try to be equal in every category, in every case. But we are very deliberate. And we look through the lens of how we describe it. But Brian, what do you think of that? Because I think there is a view that people are trying to buy influence in Washington, and that it's more available to buy today than it used to be. Yeah, so I think these are really two separate things. On the one hand, we're an American company. We're proud to be an American company. So we donate to various things like national monuments and milestones. And it is bipartisan in the way that Larry described. Separately, we heavily engage in lobbying. I mentioned to you standwithcrypto.org and Fairshake and all these kinds of efforts. And so those two are separate in my mind, but both important. We're proud to be an American company. And do you ever worry, to this Jamie Diamond point, that somehow the Democrats will get into office next time around, or maybe even after that, and then say, you know what? We think that all these donations were part of some kind of quid pro quo or some kind of influencing factor. Does that mean they're not going to use the ballroom then? I don't know. But it's always possible. I mean, these agencies can get politicized. They seem to always get politicized. So anything's possible. But that shouldn't stop us from doing the right thing. It comes down to the ethics of an organization, making sure you're looking at the entirety of what you're doing in a balanced and fair way through the lens over time. OK, let me ask you a different question, Larry, because you just wrote a piece in The Economist about tokenization. And I think that tokenization, some people here will know it well, some people will not. So maybe you can help level set. But I think you have a view that tokenization is effectively going to change finance forever. Yeah. Want me to explain? Explain. There's so much conversation going on about AI and how AI is going to be reshaping the world. There's not enough conversation about how technology is going to be reshaping the financial services area, too, and the need for democratization. As Secretary Bestin talked about, the democratization of investing in America. There are slews of middlemen in the whole financial services area. We have elongated settlements, elongated processes. If we could digitize every asset, so if we digitize all stocks and bonds and have more seamless going from a digital wallet of cash or stablecoin into equities or bonds through most categories through an ETF, it will reduce the friction costs, the transaction costs, and it allows a much more free flow. So there's $4.1 trillion of money in digital wallets globally sitting in stablecoins mostly. And right now if they wanted to go into a bond or stock or have a real estate transaction, they have to take the money out of the digital wallet into a traditional wallet and have all those commissions and fees and all that stuff. So the whole idea of tokenization of all assets, including real estate ultimately, is to just reduce huge friction costs, making investing easier, simpler. As the Secretary was talking about this one account, you could do this all through your app, and it's going to allow a more, I would say, a free-flowing process of investing. Brian, if all this happens, how does the finance industry change? Would you short all the credit card companies, for example? What's the digitization of a dollar? Well, that's the digitization. I mean, we can also get into stablecoins, which is the other piece of this, which is in some cases required for all of this. We didn't really talk to the Treasury Secretary about it, but underlying all this has to be lots of treasuries, which a lot of the banks, one of the reasons I think banks have been frustrated or anxious about some of this has been the idea that there's going to be a flight of capital effectively out of the banks that's going to go to effectively support the stablecoin business, which ultimately will support in large part some of the transactional issues and potentially even some of the tokenization projects. Well, in that case, I think that's just the banks trying to protect their profit margin. I mean, they should have to pay rewards and higher rates to their own customers, and I think they're trying to put their thumb on the scale of regulatory capture essentially to prevent crypto from doing that. But my prediction is actually the banks are going to start, we're already seeing this actually, they're going to be increasingly embracing stablecoins. And my guess is that in a year or two, they'll come back and say, actually, we want to be able to pay interest and yield on stablecoins in our own companies. And so it goes back to that innovators dilemma situation. I mean, the best banks are leaning into this as an opportunity, and the ones who are fighting it are going to get left behind. I would say as a country, we're late. We're late. Who's ahead of us? India and Brazil. So this is the biggest issue. We are a successful nation. So much of the foundation of our success has been the role of the capital markets. If you think about how the U.S. economy was able to restabilize itself faster after the Great Financial Recession is because of the role of capital markets. The Secretary was talking about the role of private credit, but it was really the capital markets. And we are now starting to see in Brazil and in India, a whole transformation of a digital economy. And they've digitized their currency. You even have now credit card purchases on the pipe in Brazil itself, the PICS. And so what I am worried about, we're not moving fast enough. And so I didn't put this in the article because I didn't want to be that vivid on this, but this is one of my big fundamental issues. We need to move faster. We need to move faster as a country, even in AI. I mean, you haven't asked the question. When people say, is there an AI bubble? I ask, well, if we don't continue to spend on this, that means we're going to have some failures and some success stories. But if we don't spend enough faster in AI, indigenization and tokenization, other countries are going to beat us. So you think, by the way, actually, I'll ask the AI question then. Do you think we're in an AI bubble and do you think the economics of this are all going to make sense? If we were sitting here all together five years from now, will we say that we vastly overspent? A number of the hyperscaler CEOs, and I've had this in various conversations, they're not certain if they're overspending or underspending right now, but what they're certain is the, and they're seeing it right now, most hyperscalers are short compute. There's not enough happening, the amount of demand for this. That being said, the timing of this build out may underperform their investment criteria, but they're certain that the demand will be there. That, and this is why I love a capitalistic market. I'm not here to suggest there's not going to be some headline blowups. I mean, there are going to be some huge winners and huge failures. I mean, it gets to this K economy, but I would say there are going to be just incredible winners. And I've raised this question with politicians. Does that mean we're going to have five, $10 trillion companies? What does that mean societal? How are we making sure? This is why I love the new children's account because how do we broaden the economy if these hyperscalers are these massive winners? Brian, let me connect this back to tokenization, because one of the things that we're seeing is there's an effort now to tokenize private companies. A lot of private companies in the AI space that are not public. They don't have the disclosures that you have, but people are going to eventually get access to some of the stuff. And some of this might ultimately, by the way, end up, you're looking at me askance, Larry Fink. Yeah, I haven't heard this one. You haven't heard this one? There's a bunch of companies that are now being, Robinhood and others have tried to, are effectively trying to tokenize private companies so that you could sell pieces of those private companies to the public without the same disclosures. What do you think about that? Well, in that case, I think they had some footfalls because you have to do it with the permission of the company, right? So I don't think that approach worked very well for them. But if you just zoom out for a minute and say, okay, these companies are staying private longer, right? Sarbanes-Oxley and all these things made it more difficult to go public. The amount of demand for capital in these private companies is just going to keep growing and growing. And there's so much money in crypto. How can crypto update capital formation, just like it's updated every other part of the financial services area? So there's a big investment that we're making in how to update capital formation and make it easier for private companies to raise money. But we want to do it with the permission of those companies. Ultimately, do you want to compete with Larry? Do you guys think that you're competing with each other? Because you've talked about broadening your offerings far beyond crypto. No, I don't think so. In fact, we're a great partner of theirs on their ETF. We're powering, I think, more than 80% of the ETFs for crypto in terms of custody and trading. And as there's an effort to tokenize their funds, Coinbase is well positioned to be the leader in just tokenization of every asset. We've done that with stablecoins. You can look at it happening now in various parts of the world with stocks. It should be happening with every fund. And what we want to do is actually market their products to our customers. The half trillion of assets that you mentioned for retail and institutional, we want to put those products in front of our customers. So I think we'll work well together. You mentioned IPOs and governance issues. I wanted to ask you a governance question. You are moving your company from Delaware to Texas. You're following Elon Musk effectively. And lots of companies, yeah. Tell us why. And do you think that this is, and this is interesting to me because, Larry, on the other end, I don't know if you think you're on the other ends, but historically has represented shareholders who want to have access to vote for things. And the shareholder is going to have less access to vote for things likely in Texas. Yeah. Well, we want to run our company in a business-friendly jurisdiction. I mean, it's pretty simple, right? I think Delaware historically had a great monopoly on this, and they had a lot of trust in the courts and everything. But recently we've seen really unpredictable outcomes from the court. We've seen hostility toward founder-led companies, and they're not deferring to the judgment of these boards. And I think even on your show, Andrew, the governor of Delaware came on and kind of made dismissive comments about one of the leading entrepreneurs of our time. And so that was a bit of a head-scratcher for me. I mean, how are you going to have people come incorporate in your state if you have this anti-business rhetoric, right? So luckily the founding fathers in the United States had this brilliant idea called federalism, where we have a free market competition amongst the states. And we had some meetings with the folks in Delaware. I think the legislature was doing a good job trying to fix some of the court outcomes. But ultimately, if you want to get reform, you don't try to just use your voice internally. You have to leave and align incentives and punish bad behavior. Otherwise they're not going to reform themselves. So we're happy to be in Texas, and they seem very business-friendly. But when you say business-friendly, shareholder-friendly or you're saying founder-friendly is what you're saying? I think both. Yeah. I mean, it's business-friendly in the sense that you can just get things done quickly. They're not going to allow somebody who owns one share of stock of your company to rack up hundreds of millions of dollars in legal fees. So I think it's business-friendly. I think ultimately people can choose which company they want to invest in. The free market is the right regulator of that. We don't want unpredictable outcomes from courts that are doing activist activity. Larry, you like Texas? You want to move to Texas? We were one of the original founding investors in the Texas Stock Exchange, unrelated to this topic. But I want to just link back to, yes, we were responsible for all our clients' equity investments. We've offered the right of each of our clients to vote their own shares. But let's just get back to tokenization. If we were able to tokenize every stock, we would know instantaneous the asset owner of record. So I would be transacting the trade on behalf of that owner of record. If we tokenize, we ultimately democratize everything related to voting. Every holder of the asset will have the ability to vote. But the argument always has been that most retail investors don't vote. But if it was on an app on a phone now that it is so easy and clear, technology can't help that education. Okay, but then the question is, if you're running a company, by the way, you're the CEO of a company too that also represents shareholders. You're fighting proxy battles every year as it is. If the democracy gets even larger, then you're going to be having to run massive campaigns every year. No, but I think the SEC is also trying to clarify at proxy access. So Paul Atkins did already said this is going to be one of his big plans. Well, but one of the things that we've heard that the president wanted to potentially sign an executive order that would actually prevent big funds like a BlackRock or State Street or any of your competitors effectively from voting those shares on behalf of shareholders. I've heard that rumor too. So let's be clear, if that became a rule, if that became an executive order, that means foreigners will have more power voting in the United States. Say that again? If they disallowed index funds to vote at this moment, it means foreign investors would have a greater percent of the vote. Is that an outcome that we want? Two, it would put much more power with the activists investing. I can tell you almost every CEO who approaches BlackRock of this is frightened of that outcome that because if the index investors own 30 percent, 40 percent of the shares, you take that out, it really will create very skewed outcomes and foreigners will have a bigger role in the voting process, as will activists. Is that the outcome? We want to see instability at the corporate level if that happens. I mean, last year we voted 98.8 with management, you know, and there's only a few instances where you vote against. And so, and as I said, if we get back to tokenization, which we're excited about, every asset owner of record of that moment will be the ultimate voter of record. We've only got about a minute and a half left and I have two questions for you. One is just, and so 30 seconds each, where do you think we are in the economy right now? If we were back here a year or two from now, would we be in a materially better place? How do you see the markets? I mean, I'm an optimist, right? I think that it's kind of a golden age for freedom that's happening with democratization of access to these different products with crypto. We're seeing prediction markets really start to flourish. We have regulatory clarity now for stable coins. We're seeing it emerging hopefully for market structure. And the U.S. feels like it's back on offense. We have a chance to go update the financial system with crypto and just get a lot of the friction out of the economy. You know, going into the midterms, who knows, maybe the government will want to juice the markets, do some more rate cuts. So I'm generally optimistic and we try not to get caught up in any short-term trends. We just try to build good products and play for the long term. Larry, what do you say? So managing 40-something percent of our assets are foreign-owned assets. They have a 70 to 80 percent allocation of their portfolio in dollar-based assets. This is the place where they want to invest in the opportunity. Obviously, earlier this year, we saw maybe a 3 or 4 percent reduction, but they're still heavily overweighted. And so I think that is one of the great powers that there are very few destinations where capital is seeking long-term opportunities. That being said, we have to ask the question, why is the job market in 2025 so anemic? Last year, the job market averaged 154,000 new jobs every month. This year, we're averaging 31,000 jobs. That's not part of the conversation. The question is, is it the uncertainty around all the policies that are being created? If that's the case, when there's more certainty, are we going to see a surge in job growth next year? Well, that's an inflationary outcome. The counterpart is, are we seeing this anemic job market? Because the future is today, we're now beginning to see more labor substitution because of technology. That's a very deflationary outcome, but that has a profound impact on how we navigate. Which one do you think it is? I think it's both. But I think the trend of technology, you're starting to see that if you look at corporate margins, especially the leaders in every industry, the leaders in every industry are winning more and more share. So we are seeing this K economy developed in every industry. And what I think is happening is more and more companies are doing more with the same amount of people or less people. I mean, if you think about the ratio, think about BlackRock, our revenues are up 40%, our headcount's up five. So our margins are up about 300 basis points over the last few years. And so with technology, you're able to transact more volume, more business. You have more technology doing much more of the fundamental backbones of what we do as a firm. Having $13.5 trillion, we do a lot of trades and we have thousands and thousands of different criterias that each investor gave it. And it is all done through technology. And so this technological change is happening today, but it's going to have a profound impact on our economy. It's going to have the biggest impact is what do we do with our university system? You know, we built a university system in the United States based on white collar jobs. That's going to be changing with technology. How is that all going to be reshaped? We need to be these questions that I don't hear people asking the questions. They are important questions. Final question to you. You had a viral moment talking about the finality of at the end of your quarterly earnings call. We've been having discussions about poly market and prediction markets and everybody betting on what people are going to say at any given moment. And you read off the words that people were betting on on the call. You said tens of thousands of dollars had been bet on each of those words. People were betting on whether you would actually say those words and then you effectively were trolling them, I think. Can you tell us? Tell me what you think about that and what you think about prediction markets if you can effectively determine the winner in such a way. And by the way, there's lots of folks who bet. There are people in here. I heard that there are people making bets about what was going to happen at DealBook. CNN just made a contract with Kalshi, apparently, to have people bet on news. What were you thinking during the conference call? Yeah, well, the conference call was me just having a little bit of fun. But I think the bigger picture here is that prediction markets are a big deal. And it's for 1% of people, they're trading it just like another asset class. But for 99% of people, they're looking at it as an alternative, I think, to traditional media, actually, to figure out what's going to happen in the world. And then some people are also just using it for entertainment, right? So it's a very interesting new area. I think that actually, we're going to see even more potential here. Like an example would be policymakers could actually use prediction markets to say, okay, of these three policies, which one will raise GDP or which one will lower unemployment the most or whatever metric you're trying to get. And it'll get signal from the market about which policy to actually go implement. So it's one more example of this trend of kind of taking... Do you worry about manipulation? I mean, that's the other big part of it. And by the way, you effectively manipulated the outcome. Yeah, well, I didn't trade on it, of course. But I actually had a really interesting conversation with one of the folks that was nominated to be CFTC commissioner about this. And he asked me, he said, do you think we should allow insider trading in prediction markets? And I said, it's actually a pretty, it's not as clear-cut question, right? Because if your goal is to actually, for the 99% of people trying to get signal about what's going to happen in the world, like is the Suez Canal going to be reopened or whatever, you actually want insider trading. You want some admiral sitting on a ship in the Suez Canal who has really good information to be trading so you get better, higher quality signal out of them, right? Now, if you want to preserve the integrity of those markets, maybe you don't want insider trading, right? So there might be like a decentralization test that has to go in here, but it's not a clear-cut answer. Larry, I don't know what they're betting you're going to say, but you just sort of made a face. You know, we try to help people navigate a 30-year outcome. I don't really care about what happens the next moment. I mean, I'm aware in the betting market, in football, you could bet every play. I mean, to me, this is not how I'm going to live my life. Larry Fink, Brian Armstrong, thank you both very, very much. Thank you.