The Wisconsin Pension Fund puts $164 million into Bitcoin ETFs and expects holdings to rise in the future.
TakeAway Points:
- iShares Bitcoin Trust from BlackRock and the Bitcoin Trust from Grayscale received $164 million from Wisconsin’s pension plan, indicating institutional interest.
- Only 0.1% of SWIB’s $156 billion portfolio is made up of the investment, suggesting a cautious move into cryptocurrency.
- The Marquette Seeing this as a test run, Professor David Krause anticipates other investments and other pensions to follow suit.
The Crypto Excursion of Wisconsin Pension Fund
By acquiring shares in two spot Bitcoin exchange-traded funds (ETFs), the State of Wisconsin Investment Board (SWIB) has made a substantial investment in the cryptocurrency market in a ground-breaking move.
According to a filing with the U.S. Securities and Exchange Commission (SEC), the SWIB purchased shares of Grayscale’s Bitcoin Trust (GBTC) and BlackRock’s iShares Bitcoin Trust (IBIT), with a combined value of $164 million as of March 31. For institutional investment in digital assets, especially for a state pension fund, this investment is significant.
Strategic and Innovative Investment
David Krause, Marquette University finance professor, emphasised Wisconsin’s investment board’s inventiveness. In an interview with PBS Wisconsin, Krause stated, “Wisconsin’s investment board has always been inventive.”
He pointed out that the SWIB does not have the liquidity issues associated with underfunded pensions because it is fully funded and can make long-term investments. The $164 million investment in Bitcoin ETFs is a very small yet strategic deployment of roughly 0.1% of the SWIB’s portfolio, which as of the end of 2023 handled approximately $156 billion in assets.
Krause called the investment a “toe in the water,” implying that it is a preliminary measure to determine how the market and public will respond. In the future, he predicts that the SWIB will grow its assets and that other pension funds might decide to follow Wisconsin’s example.
“I think it’s just an entry point. I think they’re testing to see the reaction of the public to whether or not there’s resistance to owning this and they’re using it as a trial run,” Krause explained.
Market Impact and Institutional Interest
The institutional interest in Bitcoin ETFs that the SWIB is making is part of a larger trend. In the first quarter of the year, allocations into spot Bitcoin ETFs were disclosed by nearly 500 institutional investors. As of March 31, the largest owner was the hedge fund Millennium Management, which has $2 billion spread across several Bitcoin exchange-traded funds (ETFs), or around 3% of its total assets under management.
Michael Saylor, a prominent proponent of Bitcoin, highlighted SWIB’s investment, characterising it as a “fiscally solid pension fund” that acknowledges the worth of Bitcoin. Senior ETF analyst at Bloomberg Intelligence, Eric Balchunas, reiterated this sentiment, pointing out that state pension funds usually wait longer to participate in new ETF markets.
“Wow, a state pension bought $IBIT in the first quarter. Normally, you don’t get these big fish institutions in the 13Fs for a year or so (when the ETF gets more liquidity) but as we’ve seen, these are no ordinary launches. Good sign; expect more as institutions tend to move in herds,” Balchunas tweeted.
Future Prospects and Diversification
Krause emphasized the diversification benefits of including Bitcoin in the pension fund’s portfolio. Due to its disassociation from conventional assets such as bonds and stocks, bitcoin can improve portfolio diversification and reduce risk while raising profits.
Furthermore, the restricted quantity of Bitcoin may function as a useful protection against inflation. While there is inherent volatility in Bitcoin, Krause said that a lot of assets in pension fund portfolios also have volatility, and the dynamics of supply and demand for Bitcoin are starting to stabilise.
Krause anticipates that other state pension funds will keep a close eye on Wisconsin’s Bitcoin experience in the future. According to him, pension systems with adequate funding might do the same, but those with less liquidity would decide against making such long-term commitments.
Krause said that the quick 1% boost in Bitcoin’s price after the SEC filing was made public suggests that Wisconsin’s investment may help institutional investors view Bitcoin more favourably.
