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

If you’re intrigued by Bitcoin’s potential long-term growth among institutional investors, an intriguing development emerged this week: Wisconsin’s pension fund revealed in a quarterly report that they had invested approximately $160 million into Bitcoin ETFs offered by BlackRock and Grayscale by March’s end.

Pensions tend to be cautious when it comes to investing and are reluctant to adopt new trends. Wisconsin is typically known for avoiding extravagant purchases. However, if bitcoin is gaining popularity there – given its impressive returns in the investment world over the last decade – then it’s plausible that the original cryptocurrency may continue attracting more investors.

As a crypto investor, I was taken aback when I read about a state pension having bought BlackRock’s bitcoin ETF during the first quarter. Typically, large institutional investors don’t jump into new ETFs right away; they prefer waiting for some time to elapse so that the liquidity improves.

Approximately 500 institutional investors owned one or more bitcoin spot ETFs by the end of the first quarter, significantly higher than the typical 200 for a newly introduced ETF, Balchunas noted. Institutional categories such as private equity, insurance companies, and brokerages were all present in the data from Bloomberg. Nearly two-thirds of these investors were investment advisers, while a quarter were hedge funds. Balchunas expressed surprise, noting that such diverse representation among institutional investors is uncommon and usually takes several years to develop after an ETF’s launch.

As an analyst, I discovered that Millennium Management emerged as the largest investor, designating approximately 3% of their overall assets towards various investment vehicles. A significant portion of these funds were directed towards BlackRock’s IBIT.

Understanding 13F filings is crucial, as they provide only a partial perspective on investment decisions. These documents don’t reveal the reasons behind an investor’s move, and not every reported position signifies a long-term commitment or reliance on bitcoin’s price increase. Many of these holdings could stem from market-making activities, where firms maintain positions to facilitate trades for clients. Once their role as counterparties is fulfilled, these positions are often liquidated promptly.

The disclosure of investment positions on March 31 may not accurately reflect current holdings due to backward-looking nature of filing. Since Bitcoin’s price has decreased since its peak in March, some firms might have sold off their investments, resulting in a reduction or even reversal of their reported positions.

As an analyst, I was taken aback by the revelation that a pension fund had invested in a Bitcoin Exchange-Traded Fund (ETF), considering the risk-averse nature of the industry and the perceived complexity surrounding new financial instruments like Bitcoin ETFs. Despite Bitcoin’s 15-year history, the potential for bureaucracy to hinder innovation in this area remains significant.

In the year 2020, Massachusetts Mutual, a major insurance company, invested $100 million in bitcoin and acquired a share in crypto firm NYDIG. It was anticipated that other insurers would make comparable purchases or partnerships; however, this trend did not significantly emerge.

The arrival of bitcoin ETFs simplifies the process, albeit with a potential waiting period before more pension funds follow Wisconsin’s example. Instead of purchasing bitcoin and figuring out safe storage solutions, investors – regardless of size – can now invest in an ETF that owns it instead. These ETFs function similarly to ordinary stocks, with minimal or no administrative complications like custody concerns.

Nate Geraci, president of the ETF Store, explained that the thorough examination process for pensions is quite extensive, which may result in a lengthy decision-making period when it comes to investing in a new asset – especially if it belongs to an emerging class.

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

‘Wave of demand’

“Geraci anticipates that more pensions will adopt similar strategies, but this trend is likely to develop gradually rather than occurring all at once.”

Kyle DaCruz, VanEck’s digital assets head, commented on the latest development, stating that pension plans are now more confident in investing in digital assets. He added, “I believe this will expedite the process for pensions and institutions to become more accustomed, although I expect a limited number to initiate investments initially.”

A representative for the Wisconsin investment board declined to comment.

As a researcher studying pension fund investments, I’ve observed that these funds are legally mandated to prioritize risk mitigation above all else in order to protect the retirement savings of their beneficiaries. Given the inherently volatile nature of digital assets, it is uncommon for pension funds to consider them as viable investment options due to their high risk profiles.

As a researcher studying investment strategies, I can share that one reason why institutions like Vanguard do not offer spot bitcoin Exchange-Traded Funds (ETFs) to their clients is because they view digital assets as not aligning with the objectives of long-term investments, such as retirement funds.

Recent news reported on Tuesday about Samil Ramji, who previously led BlackRock’s ETF division, taking over as CEO of Vanguard, sparked speculation regarding potential shifts in the firm’s stance towards cryptocurrencies. However, during an interview with Barron’s on Wednesday, Ramji expressed no plans to alter Vanguard’s previous decision to introduce a spot bitcoin ETF.

In the background, I believe many investment committees at larger institutions are deliberating on granting permissions to invest in bitcoin. This decision-making procedure doesn’t occur swiftly; therefore, the complete institutional integration of bitcoin could take several months or even years as this progression unfolds, but it is undeniably underway. (Stephanie Vaughan, COO at Seven Seas Capital)

As a researcher, I’ve noticed an intriguing shift in the landscape. This time around, things are distinctly different. Not only have we received the blessing of the federal government, but heavyweights like BlackRock and Fidelity have also given their seal of approval. The game has been transformed as a result.