Bitcoin returns “too significant to ignore” for world’s retirement plans

In simple terms, the value of cryptocurrencies like Bitcoin is interconnected around the world. For instance, when the SEC in the US announces a decision regarding Bitcoin ETFs in New York, this news will promptly influence the Bitcoin price in cities such as Singapore.

When Japan’s large Government Pension Investment Fund (GPIF) revealed in March its intention to consider diversifying their investments, which might involve Bitcoin, this news didn’t only impact East Asia but resonated globally.

Japan’s advanced and strictly regulated economy makes it less probable for workers’ retirement funds to be jeopardized, especially in the Government Pension Investment Fund (GPIF), which manages an impressive $1.5 trillion investment portfolio as the world’s largest public pension plan.

Additionally, this development sparks some doubts: Don’t conservative institutional investors face challenges in adopting Bitcoin due to its inherent volatility? Will the GPIF’s move set a trend beyond Japan? If it does, will the influence be felt right away or only become noticeable gradually?

How about this version?: Have the recently introduced Bitcoin ETFs on the spot market, which gained significant attention and seemed successful in January, made it commonplace for institutional investors to consider crypto as a viable investment option? To the point that pension funds might soon incorporate Bitcoin into their diversified portfolios?

Last week, there were various perspectives shared by market analysts regarding this emerging pattern. Is it indeed a trend, they pondered?

Bitcoin has “a place at the table”

“GPIF’s decision to invest represents significant news since it is among the biggest sovereign wealth funds globally. Their investments have the power to influence market trends,” explained Lucas Kiely, Yield App’s Chief Investment Officer, in conversation with CryptoMoon.

“According to Matthew Hougan, chief investment officer at Bitwise Asset Management, spoken to CryptoMoon, GPIF’s statement holds no significance in this context. The fund is merely seeking fundamental data on a diverse range of unconventional investments, including farmland, forests, gold, and Bitcoin.”

“On the other hand, GPIF’s statement says something really significant,” Hougan continued:

“Bitcoin now has a place at the table alongside gold, farmland, and other alternative assets. Back up five years ago, and there is no chance that Bitcoin would even make the first cut for consideration. That’s big progress.”

An Arizona bill proposes that the two major retirement systems in the US state consider exploring investments in digital currencies like Bitcoin and related Exchange-Traded Funds (ETFs). GPIF isn’t the only one pondering such opportunities.

The Chamber of Digital Commerce, an organization that promotes digital currencies and blockchain technology, made this statement: “Given Bitcoin’s market value exceeding $1 trillion and increasing institutional investment, such as the SEC’s approval of several Bitcoin ETFs, the opportunity for portfolio expansion and potential profits is too substantial to be overlooked.”

In November 2023, South Korea’s National Pension Service revealed that it had bought more than 280,000 shares of Coinbase, a publicly traded cryptocurrency exchange on Nasdaq.

It might come as a shock that the Government Pension Investment Fund is considering adding Bitcoin to its investment portfolio, given pension funds are typically known for their cautious investing. However, this isn’t completely unexpected for the following reasons: (1) The increasing recognition of digital assets as a viable investment class, (2) The potential for higher returns compared to traditional bonds and stocks, and (3) The growing interest in crypto investments among institutional investors. (Source: Cyril Pipaud, chief product officer at Scrypt)

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According to Pipaud’s statement, investments in cryptocurrencies like Bitcoin by endowments of renowned universities such as Harvard, Yale, Stanford, and MIT began as early as 2018.

University endowments and pension funds share a common goal when it comes to investing: they focus on shielding their funds from risk and typically steer clear of unstable assets such as cryptocurrencies.

Another reason is Japan’s long-term issue of low returns on investments, which was compounded by a stretch of eight years with negative interest rates. This situation compelled Japan to seek out new avenues for investment. Pipaud further explained:

“With demographic shifts and increasing longevity, GPIF may be seeking higher-performing assets to meet their long-term obligations.”

In simpler terms, the US Securities and Exchange Commission (SEC) giving its approval and successful launch of eleven Bitcoin ETFs has made Pipaud feel more confident about investing in Bitcoin.

Pipaud pointed out that more institutions offering custodianship and trading solutions is giving pension funds greater confidence and access to necessary resources as they delve deeper into new areas.

Recognition of Bitcoin as asset class grows

Today, there’s increasing acceptance that Bitcoin functions as a distinct asset class, according to David Tawil, president and co-founder of ProChain Capital. He made this statement during an interview with CryptoMoon. Notably, Jamie Dimon has also acknowledged this reality.

At a business event in March, JPMorgan’s CEO, who has been critical of Bitcoin, expressed his personal disinterest in owning the cryptocurrency. However, he acknowledged the freedom and right of others to make their own investment decisions by stating, “I may not buy Bitcoin, but I will defend your ability to do so.”

In today’s volatile political landscape, governments are constantly changing and facing significant divisions. Many sovereign balances sheets are in disrepair. Amidst this instability, Bitcoin emerges as a potential “safe haven” asset.

Around the world, a significant number of public pension funds currently face insufficient funding. In the United States, over 20 million people depend on state and locally managed pension plans.

According to a recent assessment by Stanford University’s Institute for Economic Policy Research, these plans fall short by approximately $1.6 trillion based on their own estimates. It seems some of these plans aim to maximize returns from their investments.

Despite this, pension funds remain vigilant among institutional investors for a valid reason – they oversee individuals’ lifelong savings. As James Pinkerton, author of the upcoming book “The Secret of Directional Investing: Making Money Amidst the Red-Blue Rumble” stated to CryptoMoon, “We need to exercise caution when dealing with federal guarantees and pensioners.”

Kiely believes pension fund managers are more likely to invest in cryptocurrencies through intermediaries rather than directly. It’s uncertain if pension funds will ever hold cryptocurrencies directly.

Established money managers are more likely to prefer managing alternative asset funds that invest a part of their portfolios in crypto ETFs, according to him.

“Despite the opportunities available for investing in cryptocurrencies through pension funds today, there are significant hindrances, according to Brian Dixon, CEO of Off the Chain Capital. In his view, the main challenges are education and deeply ingrained conventional attitudes towards investment.”

In simpler terms, fund managers might need to significantly change their current perspective or understanding about Bitcoin before they can fully grasp its concepts.

In simpler terms, Dixon pointed out that unlike traditional businesses where CEOs and boards run the show, no one controls the decentralized Bitcoin network. This concept can be hard to grasp for some people. However, he emphasized that it’s only a matter of time before Bitcoin becomes an essential component of every investment portfolio.

Swiss pension plans stepping in

In summary, the GPIF’s announcement is viewed as positive for Bitcoin and cryptocurrencies by Tawil as indicated in his conversation with CryptoMoon. This optimism arises from the fact that Bitcoin seems to be distancing itself from traditional assets like gold and tech stocks, suggesting potential for Bitcoin as a distinct investment opportunity.

“It’s only a question of when pension funds will start including Bitcoin in their investment portfolios,” Basile Maire, the co-founder of D8X, mentioned in a conversation with CryptoMoon.

Maire, a former executive at UBS, suggested examining the optional private pension plans in Switzerland.

“Banks and other companies that offer such pension plans started to add Bitcoin ETFs to the mix over the last few weeks. It’s clear that this is just a first step.”

“GPIF’s exploration of Bitcoin indicates a rising approval among sovereign wealth funds, public pensions, and corporate pensions for this digital asset. This tendency hints at a transition and growing belief that crypto investments are valid options.” (Pipaud remarked)

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Hougan advocated for continued patience concerning cryptocurrencies and pension plans. Several key elements must fall into place favorably, such as the development of custody, liquidity, auditing, and broader regulatory frameworks. Widespread acceptance by pensions and endowments is likely still several years in the future, with perhaps a few pioneering instances, but overall adoption remains elusive for now.

Despite the challenge, it’s hard not to be enthusiastic. As Bitcoin has delivered approximately 75% annual compound returns over the last ten years, the attraction of pension funds towards investing in Bitcoin is understandable, according to Gabriella Kusz, a consultant at TCS and previous CEO of the Global Digital Asset Association. In my opinion, this is merely the initial stage of a developing trend that will significantly escalate in the upcoming months.

2024-04-12 16:52

Bitcoin has “a place at the table”

Recognition of Bitcoin as asset class grows

Swiss pension plans stepping in

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