BlackRock may be left without a bitcoin ETF due to ties with China

The world's largest asset manager, BlackRock, has come under scrutiny from the authorities because of its ties to China. According to letters obtained by the Wall Street Journal, on Aug. 1, the U.S. House of Representatives Committee on Chinese Communist Affairs notified BlackRock and MSCI that they were investigating their activities.

According to the WSJ article, BlackRock has ties to more than 60 Chinese companies that US agencies have flagged for security reasons. Formally, the relationship of the investment giant with these firms can be legal. However, Congress is concerned that BlackRock customers may inadvertently fund companies with close ties to the Chinese Communist Party (CCP).

BlackRock has many reasons to be concerned about the scrutiny of legislators. An asset manager is awaiting approval of an application to launch a spot bitcoin ETF by the Securities and Exchange Commission (SEC). If the regulator gives BlackRock the green light, it will be the first of its kind in the US. However, the current problems of the company significantly reduce the chances of a positive outcome.

Chinese firms, partially or wholly state-owned, are involved in the supply and/or development of China's military resources and capabilities. A House committee found that BlackRock had invested more than $429 million in such structures through five funds.

By funneling “massive US capital flows” into Chinese companies, BlackRock clients are “aggravating an already significant national security threat and undermining American values,” the letters said.

The harsh tone of Congressional statements is not unexpected. One of the signatories of the letter is Republican Mike Gallagher of Wisconsin. As chairman of the House Select Committee on China, Gallagher has spearheaded sanctions against China-related businesses.

Ties to China are a hotbed of controversy in the United States, which has become increasingly anti-Beijing since the Trump administration took office. However, this is far from the only country that is dissatisfied with the policies of the Asian superpower. The governments of Canada, the UK, Australia and Lithuania have also boycotted the 2022 Beijing Olympics on human rights grounds.

The two companies at the center of the new investigation are real financial giants. MSCI is a leading provider of indices and analytics for the financial markets, with a value of $13.5 trillion in assets. BlackRock, in turn, manages $8.59 trillion in assets. Both companies are headquartered in the United States.

On July 19, the same committee of the House of Representatives launched an investigation into venture capital firms GGV Capital, GSR Ventures, Walden International and Qualcomm Ventures for funding Chinese technology firms involved in semiconductors, artificial intelligence and quantum computing.

The Beijing regime, which once maintained positive relations with the Western world, has tarnished its reputation in recent years, so the connection with Chinese companies can cost BlackRock dearly.