Pension Funds Bet on Bitcoin: A Promising Leap for Crypto’s Future
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Around 500 institutional investors allocated funds into spot bitcoin ETFs during the first quarter of the year.
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These investors encompassed a variety of institutions, with 60% being institutional advisors and about 25% being hedge funds, which is an unusual outcome for a newly launched ETF, according to an expert.
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One remarkable investment was from the State of Wisconsin, which poured $160 million into these funds, potentially influencing other pension funds to follow suit in the future.
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The debut of spot bitcoin (BTC) exchange-traded funds (ETFs) in January created a significant impact, swiftly attracting billions in investments. But who were the primary buyers, and why have the inflows slowed in recent times? Was this a passing trend?
For those optimistic about bitcoin’s long-term appeal among large institutional investors, a recent noteworthy event stood out: The State of Wisconsin’s pension fund reported in a quarterly filing it had invested approximately $160 million in bitcoin ETFs from BlackRock and Grayscale by the end of March.
Pension funds, generally known for their conservative investment strategies and slow adoption of new assets, are rarely seen making high-profile purchases. If bitcoin is gaining traction in such conservative circles—helped no doubt by its leading performance among investments over the past decade—then bitcoin’s investor base might be expanding substantially.
“Wow, a state pension bought [BlackRock’s bitcoin ETF] in the first quarter,” commented Bloomberg Intelligence senior ETF analyst Eric Balchunas in an immediate reaction on social media. “Normally, these large institutions don’t invest until a year or more after the ETF gains liquidity.” He further noted, “This is a positive indicator; expect more to follow, as institutions often move collectively.”
In the first quarter of this year, more than 500 institutional investors reportedly held one or more spot bitcoin ETFs, significantly higher than the usual average of 200 for newly launched ETFs, according to Balchunas. The data, compiled by Bloomberg, shows a diverse range of holders including private equity firms, insurance companies, and brokerage accounts. Investment advisors comprised the largest segment, accounting for about 60% of holders, with hedge funds making up roughly 25%. Such broad representation is uncommon in the early stages of a new ETF.
The largest buyer among the investors was Millennium Management, a hedge fund which allocated around 3% of its total assets into multiple funds, primarily IBIT.
It’s crucial to note that 13F filings offer only a partial view and don’t explain the reasons behind the investments. Not all these purchases are long-term bets on bitcoin’s price increase; some are likely short-term positions held for market-making purposes, and could be liquidated quickly.
Moreover, the filings are retrospective, meaning investments may have changed by the time they become visible to the public. Since March, bitcoin’s price has dropped, which might have prompted some firms to reduce their exposure.
The most unexpected detail might be that a pension fund participated at all, given their general risk aversion and the bureaucratic hurdles that could prevent rapid adoption of something new like bitcoin ETFs (although bitcoin has been around for 15 years).
In 2020, the insurance giant Massachusetts Mutual purchased $100 million worth of bitcoin and invested in crypto firm NYDIG, sparking expectations of similar moves across the industry, which ultimately did not occur on a large scale.
The introduction of bitcoin ETFs simplifies the investment process for pensions. Instead of buying and securely storing bitcoin directly, investors can buy ETFs, which function like regular stocks and sidestep administrative challenges like custody.
“Pension funds usually undergo extensive due diligence, which means it takes time to allocate to a new investment, especially in an emerging asset class,” said Nate Geraci, president of the ETF Store.
The rapid allocation by Wisconsin’s investment board within just a few months of the ETFs’ launch shows that institutional investors can quickly adapt to the structure and liquidity of these funds, Geraci noted.
Building Momentum
“I expect other pension funds to follow, but it will be a gradually growing wave of demand rather than an overnight shift,” Geraci added.
Kyle DaCruz, the head of digital assets at VanEck, one of the issuers of spot bitcoin ETFs, stated that the recent move indicates pension plans are becoming comfortable with investing in digital assets. “I believe this will help pensions and institutions get comfortable sooner, although I expect the number to be relatively small initially,” he said.
A representative for the Wisconsin investment board declined to comment.
Pension funds are among the most risk-averse investors due to legal mandates to “minimize the risk of large losses.” Consequently, digital assets, which are often considered highly risky, are typically not viewed as ideal investments for retirement funds.
This caution is one reason why financial giant Vanguard has not allowed clients to buy spot bitcoin ETFs, as the firm does not consider digital assets suitable for long-term portfolios like retirement funds.
Recent news of the appointment of BlackRock’s former head of ETFs, Samil Ramji, as Vanguard’s CEO led to speculation that the firm might reconsider its stance on crypto. However, Ramji reaffirmed in an interview with Barron’s that he does not plan to reverse Vanguard’s decision on launching a spot bitcoin ETF.
“Behind closed doors, I believe many investment committees at larger institutions are working towards getting approvals for bitcoin allocations. However, this approval process is lengthy, meaning it could take months or even years for full institutional adoption of bitcoin to occur, but it’s evidently underway,” said Stephanie Vaughan, COO at Seven Seas Capital.
“And this time, the scenario is different. With approval from not only the federal government but also major firms like BlackRock and Fidelity, the landscape has fundamentally changed,” she added.
