The global impact of the crypto market is undeniable. When the United States Securities and Exchange Commission (SEC) makes a decision about exchange-traded funds (ETFs) in New York, it directly affects the price of Bitcoin (BTC) in Singapore. Similarly, when Japan’s Government Pension Investment Fund (GPIF), the largest public pension plan with a $1.5 trillion investment portfolio, announced in March that it is exploring diversification strategies that may include Bitcoin, the reverberations are felt worldwide.
This announcement from Japan is significant because it comes from an advanced and highly regulated economy that prioritizes the safety of workers’ retirement savings. It raises questions about the obstacles that conservative institutional investors, like pension funds, need to overcome before embracing Bitcoin, given its well-known volatility. Will the GPIF’s announcement have an impact outside of Japan, and if so, will it be immediate or gradual?
Additionally, the launch of new spot market Bitcoin ETFs in January has garnered attention and success. These ETFs have potentially “normalized” crypto investments for institutional investors, making it possible for pension funds to consider diversifying their investment portfolios with Bitcoin.
Market observers have expressed their thoughts on this developing trend. Lucas Kiely, Chief Investment Officer at Yield App, stated that the GPIF’s announcement is significant because of its influence on global markets. Matthew Hougan, Chief Investment Officer at Bitwise Asset Management, believes that while GPIF’s statement is important, it is merely seeking information on various non-traditional investments, including Bitcoin.
In the United States, a bill has been introduced in Arizona’s state legislature to encourage state retirement systems to explore investing in digital assets and Bitcoin ETFs. The Chamber of Digital Commerce, a crypto advocacy group, supports this initiative, citing Bitcoin’s growing market cap and institutional adoption.
South Korea’s National Pension Service also made headlines when it purchased over 280,000 shares of Coinbase, a Nasdaq-listed cryptocurrency exchange, in November 2023. Cyril Pipaud, Chief Product Officer at Scrypt, a Swiss financial services firm specializing in crypto assets, explains that while it may seem surprising for pension funds to consider Bitcoin, it is not unexpected. Prestigious educational institutions such as Harvard, Yale, Stanford, and MIT have already invested in crypto assets and Bitcoin since 2018. Japan’s low-yield environment and the SEC’s approval of Bitcoin ETFs have also increased pension funds’ comfort level with the asset class.
There is a growing recognition that Bitcoin has permanence as an asset class. David Tawil, President and Co-founder at ProChain Capital, notes that even long-time skeptics like JPMorgan CEO Jamie Dimon acknowledge Bitcoin’s legitimacy. In an environment of governmental flux and broken sovereign balance sheets, Bitcoin is increasingly viewed as a safe haven.
However, pension funds remain cautious due to their responsibility as caretakers for people’s retirement savings. James Pinkerton, author and pension expert, emphasizes the need for caution when it comes to federal guarantees and pensioners. While it is unlikely that pension funds will directly invest in cryptocurrency, they may opt for alternative asset funds managed by established money managers who allocate a portion of their portfolios to crypto ETFs.
One obstacle hindering pension funds from allocating to crypto is education and traditional mindsets. Fund managers may need to “re-architect” their reality to understand and embrace Bitcoin fully. Despite these challenges, many experts believe that Bitcoin will eventually become a part of all investment portfolios.
The GPIF’s announcement is encouraging for the future of Bitcoin and crypto. Basile Maire, Co-founder of D8X, predicts that pension funds will eventually add Bitcoin to their portfolios. The interest shown by GPIF reflects the growing acceptance of crypto assets among sovereign wealth funds, public pension funds, and corporate pension funds.
However, Matthew Hougan advises patience when it comes to crypto and pension plans. Various factors, such as custody, liquidity, audit, and regulation, need to mature before widespread adoption occurs. While breakthroughs may happen in the near future, broad-based adoption by pensions and endowments will take years.
Despite the challenges, the potential of Bitcoin as an investment is undeniable. With a compound annual return of approximately 75% over the past decade, pension funds are becoming increasingly interested in investing in Bitcoin. Many experts believe that this nascent trend will continue to grow in the coming months.