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

The crypto market is truly global. When the United States Securities and Exchange Commission (SEC) makes a decision about exchange-traded funds (ETFs) in New York, that immediately affects the price of Bitcoin  in Singapore.

And when Japan’s massive Government Pension Investment Fund (GPIF) announced in March that it is exploring a new diversification strategy — one that possibly includes Bitcoin — this has reverberations not just in East Asia but all over the world.

It has particular resonance because Japan is an advanced, highly regulated economy that isn’t likely to put its workers’ retirement savings at risk, especially in the GPIF, which is the world’s largest public pension plan with a $1.5 trillion investment portfolio.

It also raises questions: Aren’t there obstacles to be overcome before these conservative institutional investors embrace Bitcoin — including BTC’s well-documented volatility? Will the GPIF’s announcement have an impact outside Japan? If so, will the effect be immediate or only evident over time?

And what about the new spot market Bitcoin ETFs launched in January to so much fanfare and apparent success? Have they “normalized” crypto investment for institutional investors to the extent that even pension funds may soon be using Bitcoin to diversify their investment portfolios?

So, what did market observers say last week about this developing trend — if that is even what it is?

Bitcoin has “a place at the table”

“It’s huge news as GPIF is one of the largest sovereign wealth funds in the world. What they invest in tends to move markets,” Lucas Kiely, chief investment officer at Yield App, told Cointelegraph.

“On the one hand, GPIF’s statement doesn’t matter at all,” Matthew Hougan, chief investment officer at Bitwise Asset Management, told Cointelegraph. The fund is just looking for basic information on a wide variety of non-traditional investments, such as 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.”

GPIF isn’t alone. In the United States, a bill was recently introduced in Arizona’s state legislature encouraging the Arizona State Retirement System and the Public Safety Personnel Retirement System to explore investing in digital assets and Bitcoin ETFs.

“With Bitcoin’s market cap surpassing $1 trillion and growing institutional adoption, including approval for several Bitcoin ETFs by the SEC,” the Chamber of Digital Commerce, a crypto and blockchain advocacy group, wrote in support of the Arizona initiative, “the potential for portfolio diversification and returns is too significant to ignore.”

Bitcoin market capitalization blew past $1 trillion earlier this year. Source: CoinMarketCap

Elsewhere, in November 2023, South Korea’s National Pension Service announced the purchase of over 280,000 shares of Coinbase, the Nasdaq-listed cryptocurrency exchange.

“The Government Pension Investment Fund considering the inclusion of Bitcoin in its investment portfolio may indeed seem surprising at first glance, considering that pension funds are often characterized as conservative investors,” Cyril Pipaud, chief product officer at Scrypt — a Swiss financial services firm specializing in crypto assets — told Cointelegraph. But it isn’t entirely unexpected for three reasons.

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First, “endowments at prestigious [educational] institutions such as Harvard, Yale, Stanford and MIT have all invested in crypto assets and Bitcoin starting at least in 2018,” said Pipaud.

University endowments are like pension funds in the sense that both prioritize capital preservation and tend to avoid volatile investments like cryptocurrencies.

A second reason is Japan’s persistent low-yield environment, including an eight-year period of negative interest rates that only ended recently. This has pushed Japan to explore alternative investment opportunities. Pipaud added:

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

More immediately, the U.S. SEC’s approval and successful debut of eleven Bitcoin ETFs “have increased their comfort level with the asset class,” said Pipaud.

Pipaud added that the increasing number of institutional-grade players providing custody and trading services has provided additional infrastructure and confidence for pension funds to explore further.

Recognition of Bitcoin as asset class grows

There is a growing recognition today that “Bitcoin has permanence as an asset class,” David Tawil, president and co-founder at ProChain Capital, told Cointelegraph. Jamie Dimon acknowledged as much recently, he observed.

The JPMorgan CEO and long-time Bitcoin skeptic, declared at a business conference in March that while he’d never buy Bitcoin himself, “I’ll defend your right to buy a Bitcoin.”

“Governments are in flux; there is massive divisiveness. Broken sovereign balance sheets are increasingly the norm,” added Tawil. In this environment, an asset like Bitcoin increasingly looks like a “safe haven.”

Globally, many public pension funds today are underfunded. In the U.S. alone, more than 20 million Americans are covered by state and local government pensions.

Yet these plans “by their own reckoning, are underfunded to the tune of $1.6 trillion,” said Stanford University’s Institute for Economic Policy Research recently. Some of these plans are presumably looking to get more bang for their investment buck.

Still, pension funds are among the most cautious of institutional investors for a good reason: They are caretakers for people’s lifetime savings. “When it comes to federal guarantees and pensioners, we have to be cautious,” James Pinkerton, author of the forthcoming book, The Secret of Directional Investing: Making Money Amidst the Red-Blue Rumble, told Cointelegraph.

Kiely thinks pension managers will probably invest indirectly in the new asset class. “It is unlikely that we will ever see a situation where pension funds are investing directly in cryptocurrency.”

They’re more likely to favor alternative asset funds run by established money managers who, in turn, invest a portion of their portfolios in crypto ETFs, he said.

Hindrances remain. “The biggest obstacle from pensions allocating today [in crypto], in my opinion, is education and traditional mindsets for investing,” Brian Dixon, CEO of Off the Chain Capital, told Cointelegraph.

To some extent, fund managers may have to “‘re-architect’ their reality” before coming to grips with Bitcoin.

After all, no CEO or board of directors is operating the decentralized Bitcoin network, “and that can be challenging for some to wrap their heads around,” Dixon added. That said, “Eventually, it is inevitable that Bitcoin will be a part of all portfolios.”

Swiss pension plans stepping in

All in all, the GPIF announcement is “encouraging” for the future of Bitcoin and crypto, Tawil told Cointelegraph, especially when paired with recent signs that crypto is “de-coupling” from other financial assets like gold and tech stocks. That speaks well for Bitcoin as a future investment diversification tool.

“Pension funds will be adding Bitcoin to their portfolio — this is just a matter of time,” Basile Maire, co-founder of D8X — an institutional-grade perpetual futures decentralized exchange — told Cointelegraph.

Just look at Switzerland’s non-compulsory private pension plans, said Maire, a former executive director at Swiss banking giant UBS:

“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.”

“The interest demonstrated by GPIF in evaluating Bitcoin is a significant indicator of the growing acceptance of Bitcoin among sovereign wealth funds, public pension funds and corporate pension funds. This trend suggests a shift and an increasing recognition of crypto assets as legitimate investment options,” added Pipaud.

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Hougan urged for patience regarding crypto and pension plans. There are still many factors that need to play out positively, including “the maturation of custody, liquidity, audit and regulation more broadly.[...] I think we are still years away from broad-based adoption by pensions and endowments. You might get one or two breakthroughs, but widespread adoption is years out.”

Still, it’s hard not to get excited. “Given the performance of Bitcoin with roughly a 75% compound annual return over the past decade — it is not surprising to see pension fund interest in investing in Bitcoin,” Gabriella Kusz, adviser at TCS and a former CEO for the Global Digital Asset Association, told Cointelegraph. “I believe that we are seeing the beginning of this nascent trend that will skyrocket in the coming months.”

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