Crypto Updates

US Pension Fund's Interest in Bitcoin: FOMO or a Future-Proof Strategy?


The State of Wisconsin Investment Board recently announced the purchase of $99 million worth of IBIT shares, BlackRock’s spot Bitcoin ETF. This marks the first investment in Bitcoin ETF shares by a public pension fund.

While this is the first time a state pension has bought shares of a Bitcoin ETF, it’s not the first bitcoin investment by a pension fund. In October 2021, the Houston Firefighters’ Relief and Retirement Fund acquired an undisclosed amount of BTC through institutional bitcoin services provider NYDIG.

That was before spot ETFs were available. Now that a safer, easier alternative exists to buying bitcoin outright, it’s expected that many more large pension funds will follow.

Why Bitcoin? Understanding the Rationale Behind the Decision

The idea behind adding bitcoin to a balance sheet is simple. As Michael Saylor puts it, holding a large cash balance is akin to sitting atop a “melting ice cube.” Inflation steadily erodes the value of cash, resulting in guaranteed losses for investors.

Because they must balance the need for providing a guaranteed return to retirees with prudent risk management, the typical strategy of a pension fund would be to invest primarily in government bonds. Long-term and short-term Treasury bonds are considered to be the lowest-risk securities available, and they yield stable returns. Blue-chip stocks and investment-grade bonds are also viable options. For many years, these three asset classes were the only ones pension funds could expose themselves to by law.

But after the GFC and years of near-zero interest rates that followed, pensions have had to be more creative to generate returns, and the associated rules have relaxed. To make matters worse, bond yields have gone up dramatically since 2022. This makes shorter duration T-bills attractive for their higher interest rates, but it also means the value of bonds has gone down, resulting in losses for anyone holding long-duration government debt.

This situation, in essence, plays a large role in why pension funds have begun investing in bitcoin.

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