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

Nearly 500 institutional investors announced allocations to spot bitcoin ETFs in the first quarter.

These include all kinds of institutions, says one expert; corporate advisors make up 60% of owners and hedge funds about 25%; an outcome that doesn’t normally happen just a few months after a new ETF launches, says one expert.

A surprising investment came from the state of Wisconsin, which allocated $160 million to the funds, and could further increase the interest of pension funds in the future.

Spot Bitcoin {{BTC}} exchange-traded funds launched with a splash in January, quickly attracting billions of dollars in investments. So who was buying them and why have inflows stalled in recent weeks? Was it a fad that disappeared?

For those who want to get excited about Bitcoin’s long-term prospects among large, professional investors, a new data point this week made another big splash: The U.S. state of Wisconsin pension fund disclosed in a quarterly filing that it stashed nearly $160 million in Bitcoin. ETFs from BlackRock and Grayscale through the end of March.

Annuities are generally conservative about investing and slow to adopt new things, and Wisconsin is generally not the land of flashy purchases. But if Bitcoin is making progress in this area (posting some of the investment industry’s highest returns in the last decade no doubt helps), then there may be good reason to suspect that the original cryptocurrency can continue to expand its investor base.

“Wow, a state pension was purchased [BlackRock’s bitcoin ETF] in the first quarter,” wrote Bloomberg Intelligence senior ETF analyst Eric Balchunas. in x. “Normally you don’t understand these big fish institutions [investing] for about a year (when the ETF gets more liquidity).” He added: “Expect more as institutions tend to move in herds.”

As of the end of the first quarter, more than 500 institutional investors held one or more spot bitcoin ETFs; This is well above the 200 average for a newly launched ETF. Balchunas noted. Nearly all institution types were represented, including private equity, insurance companies, brokerage accounts, among others, according to the report. Bloomberg data. Investment advisors made up about 60% of the total, with a quarter accounting for hedge funds. Balchunas said it was unusual to see all types of investors represented in the first quarter and is not normally seen years after the launch of a new ETF.

Wow, the state bought a pension $IBIT in the first quarter. You normally won’t be able to buy these big fish institutions at 13Fs for about a year (when the ETF gains more liquidity), but as we’ve seen these are no ordinary launches. Good sign, expect more as institutions tend to move in herds https://t.co/leKVe2CK1S

— Eric Balchunas (@EricBalchunas) May 14, 2024

The biggest buyer turned out to be hedge fund Millennium Management, which allocated roughly 3% of its total assets to various funds, the majority to BlackRock’s IBIT.

The story continues

It is important to understand that 13F filings only tell part of the story and do not provide any insight into why someone is investing. These are not all long-term bets or even investments that depend on the price of Bitcoin rising. Some of it undoubtedly comes from trading companies’ market-making businesses, positions held so they can act as counterparties to someone else’s trade, which are then likely liquidated quickly.

The filing also appears to be retroactive, and investments may have increased, decreased, or completely reversed when the public saw this disclosure regarding positions held on March 31. Bitcoin’s price has fallen since it reached a record high in March, which probably explains why. Companies should reduce their investments.

The biggest surprise may be the involvement of a pension, given the industry’s risk aversion and the potential for bureaucracy to hinder the adoption of something new like Bitcoin ETFs (even though Bitcoin itself is 15 years old).

Insurance giant Massachusetts Mutual purchased $100 million worth of Bitcoin and a stake in crypto store NYDIG in 2020, and the industry expected rivals to follow suit with similar moves, but that didn’t quite happen.

The introduction of Bitcoin ETFs makes this easier, even if it takes time for more pensions to copy Wisconsin. Instead of buying bitcoin directly and deciding how to hold it safely, an investor (large or small) can purchase an ETF that holds it. ETFs trade like regular stocks; There are little or no administrative concerns such as custody.

“Pensions typically have extremely rigorous due diligence processes, which means it can take time when deciding to allocate to a new investment, especially an emerging asset class,” said Nate Geraci, president of ETF Shop.

He said the allocation from the Wisconsin investor board, made just a few months after the ETFs launched, shows that institutions of this size can quickly become familiar with the structure and liquidity of these funds.

‘Demand wave’

“I expect more pensions to follow suit, but it will be a gradually increasing wave of demand rather than an overnight event,” Geraci said.

Kyle DaCruz, head of digital assets at VanEck, one of the issuers of spot bitcoin ETFs, said recent developments show retirement plans are now comfortable investing in digital assets. “My assumptions are that it will certainly help pensions and institutions get comfortable more quickly, but I would imagine it would be a relatively small number to start with,” he said.

A representative from Wisconsin’s investment board declined to comment.

Pension funds are arguably among the most risk-averse investors in the industry because they are forced by law to “minimize the risk of large losses.” Digital assets, which are some of the riskiest assets on the market, are therefore generally not considered a good investment for pension funds.

This is also one reason why investment giant Vanguard doesn’t allow its clients to buy spot bitcoin ETFs, because the company doesn’t think digital assets are suitable for a long-term portfolio like a retirement fund.

News on Tuesday about the appointment of BlackRock’s former ETF head Samil Ramji as Vanguard’s CEO sparked rumors that the firm might change its stance on crypto, but Ramji said in an interview with Barron’s on Wednesday that Vanguard has no intention of reversing its decision. told. to launch a spot bitcoin ETF.

“Behind the scenes, I think many investment committees at these major institutions are working to get approval to allocate funds to Bitcoin. But this type of approval process doesn’t happen overnight, which means it will take months and possibly years,” the head of Seven Seas Capital said. “This kind of institutional adoption of Bitcoin is totally going to happen, but it’s clearly happening,” said chief operating officer Stephanie Vaughan.

“And yes, this time it’s different. The game has changed, with the stamp of approval not only from the federal government, but from major firms like BlackRock and Fidelity,” he said.