BlackRock CEO Addresses Investors: Expecting Long-Term High Inflation, Committed to Exploring Tokenization of Stocks and Bonds

The CEO of asset management company BlackRock, Larry Fink, recently released a letter to investors, in which he outlined three domino effects and expressed a somewhat pessimistic view on the future market, predicting that long-term high inflation will be beyond the control of central banks. He also criticized the media's excessive obsession with Bitcoin, stating that digital payments and asset tokenization are the key drivers of significant progress in the digital asset space.

Dominos Effect One: The Cost of Loose Monetary Policy

Since the 2008 financial crisis, the market has been influenced by aggressive monetary policies. In order to combat inflation, the Federal Reserve has initiated the fastest rate hike frequency since the 1980s, raising rates by nearly 500 basis points in the past year.

Larry Fink believes this is the cost the market has paid for years of easy money-making, marking the first domino effect.

Dominos Effect Two: Resurgence of Credit Crisis

With federal regulators taking over Silicon Valley Bank, the world witnessed the largest bank failure in 15 years. Larry Fink views this as a typical asset-liability mismatch and a potential second domino effect.

Although regulatory agencies responded swiftly to reduce systemic risk, the extent of the impact remains unknown. He referenced the savings and loan crisis of the 1980s and 1990s, where loose regulation led to a massive influx of loans, resulting in years of crisis with over a thousand savings institutions collapsing.

Larry Fink is uncertain whether loose monetary policy and regulatory changes will lead to a credit crisis similar to the past, spreading across the entire U.S. banking sector. He noted that some banks are reducing their total loans to support their balance sheets and anticipates stricter capital standards for banks in the future.

Dominos Effect Three: Imbalanced Asset Allocation

Similar to the misallocation of long-term assets by the crypto bank Silvergate, Larry Fink believes there will be more similar cases in the future. The past low-interest environment led institutions to invest heavily in illiquid assets to earn higher returns.

Larry Fink emphasized that institutions with leveraged investment portfolios are currently facing potential risks of misallocating liquid assets.

Economic Fragmentation: Sustained High Inflation Rate

Larry Fink pointed out that dramatic changes in the global economic landscape have led to economic fragmentation worldwide, resulting in a sustained high inflation rate. These changes include:

• Russo-Ukrainian War

• Brexit

• Unrest in the Middle East

• Political polarization in the U.S.

The Covid-19 pandemic has further intensified the already tense situation. Leaders in both public and private sectors are striving for self-reliance in supply chains to mitigate geopolitical tensions in various sectors such as food, energy, chips, AI companies, and even countries. He stated:

Leaders in both public and private sectors are essentially balancing flexibility and security, efficiency and cost reduction, and the balance between cost and national security. This is why I believe inflation will persist and become more difficult for central banks to control in the long term.

Media's Over-Enthusiasm for Bitcoin

Larry Fink mentioned the headlines about FTX's closure and the media's excessive obsession with Bitcoin. However, apart from this, the development in the digital asset space is quite intriguing. Emerging markets like India, Brazil, and parts of Africa have made significant progress in digital payments, cost reduction, and financial inclusivity.

In contrast, many developed countries, including the United States, are lagging behind in innovation, leading to high payment costs. He expressed:

I believe that certain foundational technologies in the digital asset space will bring exciting applications, especially asset tokenization that enhances capital market efficiency, reduces costs for investors, and improves accessibility. BlackRock will continue to explore the digital asset ecosystem, particularly in areas most relevant to us, such as permissioned blockchains and tokenized stocks and bonds.