Will your pension fund buy bitcoin?
Traditional pension funds and asset managers will have no choice but to rethink their strategies, writes Christopher Thomas, head of digital assets at Swissquote.
A cryptocurrency distributor in Zurich. - © Reuters
A real change in mentalities is underway. The world is forced to quickly come to terms with new challenges. However, the return to a certain “normalcy” in traditional financial markets contrasts with the panic of recent months. Investment funds are investing again in the same securities, reassured by the trillion dollars spilled by "currency helicopter" to help financial markets.
But these appearances are somewhat misleading. A new "currency" has emerged from the rubble of the last global financial crisis. The time may have come for bitcoin, pioneer of a new emerging asset class, to cross a critical threshold and be seen as an asset in its own right by professional investors.
Bitcoin remains strong. To date, and eleven years after its inception, no hacking has affected the bitcoin protocol, and its blockchain infrastructure is increasingly resilient. While the drop in price on March 12 - due to lack of liquidity in international financial markets - shook the system, bitcoin survived and returned to pre-crash levels within a matter of weeks. Admittedly, the market remains small: bitcoin represents only 160 billion dollars (against a Swiss stock market ten times larger and a gold market nearly fifty times larger). It’s hardly surprising then that many traditional financial institutions have yet to invest in this asset class. Indeed, these structures rarely speculate on new technology and do not invest in relatively "small" volatile markets, favoring more familiar products.
Another reason is cultural. Globally, Europe has the lowest rates of adoption of cryptocurrencies by traditional institutions. These rates are much higher in Asia, a continent where regulations are less stringent and where flexibility favors rapid implementation of innovations. In the United States, adoption rates are lower compared to Asia, but the infrastructure is much more robust, underpinning the creation of "real" asset management companies whose assets match those of institutional investors.
The example of Grayscale Capital
New York-based Grayscale Capital manages more than $ 3.7 billion on behalf of investors in the cryptocurrency markets. In the first quarter of 2020, the company raised an additional $ 500 million, mostly invested in bitcoin.
Grayscale is the exception for now - cryptocurrency-focused hedge funds remain small. According to the Global Crypto Fund Industry Report released by PwC & Elwood this month, crypto fund assets average $ 20 million and come mostly from high net worth individuals and family offices. The size of these funds is not sufficient to attract capital from pension funds.
Investors comfortable with the crypto ecosystem will be able to rely on stable underlying infrastructure to invest and trade profitably. Paul Tudor Jones (the famous billionaire hedge fund manager), who accumulates around 2% of his wealth in bitcoin, recently spoke of his confidence in this cryptocurrency as an investment, and believes that investors should bet on the "horse the faster". Forerunners of this trend, American endowments at Ivy League universities (including Harvard, Yale and MIT) have been investing in bitcoin for two years now.
A restrictive regulatory framework
But the crypto universe is changing and this news is shaking up traditional financial markets. Pension funds and traditional asset managers will have no choice but to rethink their strategies, seek returns in markets they were not used to investing in and expand their mandates. Management. Without a doubt, it will be a few more years before the most regulated funds invest in bitcoin, but the changes taking place around the world may cause them to become more flexible. We can hypothesize that then you too, through your pension funds, will buy bitcoin.
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