As a Pension Embraces Bitcoin, Hope Grows for Cryptocurrency’s Long-Term Prospects Even Among Conservative Pros

If you’re intrigued by Bitcoin’s future potential among major institutional investors, an intriguing development emerged this week: The Wisconsin State Pension Fund revealed in its quarterly report a substantial investment of approximately $160 million in Bitcoin ETFs from BlackRock and Grayscale as of March’s end.

Pensions tend to be cautious with their investments and are slow to adopt new trends. Wisconsin is typically known for avoiding extravagant purchases. However, if bitcoin is gaining traction there – given its impressive returns in the investment industry over the past decade – it could be worth considering that this digital currency may continue to attract more investors.

As a crypto investor, I was taken aback when I read that a state pension had purchased BlackRock’s Bitcoin ETF during the first quarter. Typically, large institutional investors don’t jump on board this early. They usually wait for some time, allowing the ETF to gain more liquidity before making their moves. This unexpected announcement is a positive sign for me, indicating that more institutional investors might follow suit in the near future. Institutional investors tend to act in groups, and this herd mentality could lead to significant inflows into Bitcoin ETFs.

Approximately 500 institutional investors owned at least one bitcoin spot ETF during the first quarter, significantly more than the typical 200 for a newly introduced ETF, Balchunas noted. A diverse range of institutions were present in the data from Bloomberg, including private equity firms, insurance companies, and brokerages. Approximately 60% of these investors were investment advisors, while around a quarter were hedge funds. It’s noteworthy that such a wide array of investors was represented during the ETF’s initial quarter, an occurrence that usually doesn’t happen until several years post-launch.

It was revealed that hedge fund Millennium Management, with the largest purchasing power, invested approximately 3% of its entire wealth into various funds. The greater portion of this investment went towards IBIT.

13F filings offer partial information, yet they don’t reveal the reasons behind an investment. Not every filing represents a long-term commitment or a bet on bitcoin’s price increase. Many of these filings could be from market-making firms, holding positions to facilitate trades for their clients and subsequently liquidating them promptly.

The disclosure of investment positions on March 31 may not reflect current realities as some investments could have increased, decreased, or even reversed in value since then, given Bitcoin’s price drop following its record-high in March. Firms might have adjusted their holdings accordingly based on this market fluctuation.

The most unexpected aspect of this situation may be the presence of a pension, considering their risk aversion and the possibility that red tape might hinder their acceptance of bitcoin ETFs, despite bitcoin being fifteen years old.

In the year 2020, Massachusetts Mutual Life Insurance Company invested approximately $100 million in bitcoin and acquired a position in digital currency firm NYDIG. The insurance sector anticipated that other competitors would make comparable investments – however, this trend did not significantly emerge.

The introduction of bitcoin ETFs simplifies the process, albeit with a potential wait for wider adoption among pensions similar to Wisconsin’s example. Rather than purchasing bitcoin outright and figuring out secure storage, investors (regardless of size) now have the option to buy an ETF that owns it instead. These ETFs function like standard stocks in trading, and administrative duties such as custody are either reduced or eliminated altogether.

Nate Geraci, president of the ETF Store, explained that the thorough examination process for pensions before investing in a new asset is usually quite extensive. Therefore, adding investments in unconventional classes, such as emerging assets, may require additional time and consideration.

Within just a few months after the debut of the ETFs, Wisconsin’s investment board has already allocated funds, indicating that large institutions like theirs can swiftly become accustomed to the architecture and market fluidity of these exchange-traded funds.

‘Wave of demand’

“Geraci anticipates that more pension plans will adopt similar strategies, but this change is likely to unfold gradually rather than all at once.”

Kyle DaCruz, VanEck’s digital assets head, commented on the latest development, expressing his belief that it signifies a growing confidence among pension plans to invest in digital assets. “I assume this will expedite the process for pensions and institutions to become more accustomed,” he added, expecting a gradual influx of new investors initially.

A representative for the Wisconsin investment board declined to comment.

Pension funds are renowned for their cautious investing approach due to legal requirements that prioritize minimizing potential losses. Thus, digital assets, known for their high-risk nature, are generally considered inappropriate investments for retirement funds.

As a researcher studying investment strategies, I can share that one reason why Vanguard, a prominent investment firm, does not offer its clients the ability to purchase spot bitcoin Exchange-Traded Funds (ETFs) is due to their belief that digital assets may not align with long-term investment goals. For instance, retirement funds are designed for steady growth over extended periods, while the volatile nature of cryptocurrencies like bitcoin might not be suitable for such investment vehicles.

As a crypto investor, I’ve been keeping a close eye on the recent news about Samil Ramji, who was appointed as the new CEO of Vanguard. Some speculation emerged that this change in leadership might lead to a shift in Vanguard’s stance towards cryptocurrencies. However, Ramji made it clear in an interview with Barron’s on Wednesday that he has no plans to reverse the decision to launch a spot bitcoin ETF at Vanguard.

As an analyst, I’ve observed that investment committees at larger institutions are deliberating behind the scenes over the allocation of funds towards bitcoin. The approval process for such decisions doesn’t occur swiftly; instead, it takes months, if not years, to materialize fully. Nonetheless, the institutional adoption of bitcoin is unmistakably underway.

She acknowledged that this situation is distinct from previous ones and expressed her belief, supported by endorsements from the federal administration and major corporations such as BlackRock and Fidelity, that the rules have shifted accordingly.