Even pension funds are getting involved in cryptocurrency fever
17 January 09:16
Pension funds are starting to enter the bitcoin market cautiously, as even the most conservative financial market participants cannot ignore the potentially high profitability of cryptocurrencies. This is stated in the material of Ars Technica, according to Komersant ukrainskyi.
The pension funds of Wisconsin and Michigan are among the largest holders of American exchange-traded funds specializing in cryptocurrencies. At the same time, some pension fund managers in the UK and Australia have also made small investments in bitcoin through funds or derivatives in recent months.
Consultants say that the rapid growth of bitcoin last year, when its value more than doubled to $100,000, has spurred the interest of conservative trustees.
Cryptocurrency market analysts predict that the value could double again this year with the arrival of the pro-cryptocurrency Trump administration. The newly elected president has promised to make the United States the “bitcoin superpower of the world” and to stop regulatory pressure on the sector.
Matt Scott, a consultant at Mercer, which advises British pension funds, said:
“We’ve had a flurry of enquiries since the election – trustees don’t want to think there’s a hot asset class they don’t know anything about.”
Most pension funds have turned to regulated U.S. exchange-traded funds (ETFs) approved last year that invest directly in cryptocurrencies on behalf of investors and track the price of tokens such as bitcoin and ethereum.
The Wisconsin State Board of Investment was the 12th largest shareholder in BlackRock’s bitcoin ETF at the end of September, according to recent reports. This share is now estimated at about $155 million after the fund grew by 50% since the beginning of the quarter.
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Michigan is the sixth largest shareholder in Grayscale’s ethereum ETF, with a stake valued at $12.9 million, according to a November regulatory filing. The state is also the 11th largest holder in the ARK 21Shares Bitcoin ETF led by investor Katie Wood, which has surged 14% since the election.
The return of pension funds to cryptocurrencies comes after some notable failures during the cryptocurrency market crisis two years ago. The Ontario Teachers’ Pension Plan (Canada) wrote off a $95 million investment in the bankrupt cryptocurrency exchange FTX in 2022. The Caisse de dépôt et placement du Québec, Canada’s second largest pension fund manager, admitted that it entered cryptocurrencies “too early” when it wrote off a $150 million investment in the cryptocurrency lending platform Celsius Network.
In the UK, pension consultancy Cartwright reported its first bitcoin deal: a small pension fund with £50 million in assets allocated about £1.5 million directly to bitcoin rather than through ETFs, hoping that the extraordinary gains would help cover a funding shortfall.
In Australia, AMP, which manages pension funds, is also using bitcoin to boost returns.
However, funds investing in bitcoin and other cryptocurrencies remain a minority in the pension industry, and advisors are largely reluctant to recommend such investments to their clients.
In December, the U.S. Government Accountability Office warned that crypto assets have “uniquely high volatility” after it found 69 crypto investment options available to investors in retirement plans.
“We don’t think pension funds should be investing in cryptocurrencies – they’re very volatile, and we don’t see any reliable valuation framework that can justify their value,”
– Daniel Peters, partner in Aon’s global investment practice, said, adding that the best way for pension funds to gain exposure is through hedge funds with expertise and skills in this asset class.
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Bitcoin
Bitcoin is the world’s first and most popular cryptocurrency, which appeared in 2009. It was created by a person or a group of people under the pseudonym Satoshi Nakamoto, who remain anonymous to this day. Bitcoin is based on blockchain technology and has no centralized governing body.
Bitcoin is “mined” using a special mining technology, which is a digital analogy of mining physical minerals. Similarly to physical minerals, the number of Bitcoins is limited – there are only 21 million tokens in existence. So far, 19 million tokens have been mined, which is more than 90% of all “deposits”. That is why mining is becoming increasingly difficult and expensive.
Bitcoin, like anything else in the world, can be exchanged for anything else, including traditional currencies. The value of Bitcoin shows the level of trust in it.
Bitcoin is considered a reliable and well-secured currency with a very high level of confidentiality. In the Bitcoin system, all information about transactions is open, but information about owners is completely anonymous. That is why Bitcoin, like some other cryptocurrencies, is popular among Ukrainian corrupt officials.
At the end of last year , Bitcoin broke through the $100 thousand mark.