Pension funds now have cryptocurrency, particularly Bitcoin, in their portfolios. Pension funds are known to be quite conservative. Pension funds, therefore, diversified their portfolios and started putting small percentages of their investment in Bitcoin as a result of the tremendous growth potential and volatility in the market that this cryptocurrency offers.
This is how pension schemes integrate Bitcoin and how this impacts retirement savings.
Pension Funds Finally Dip into Bitcoin
In general, pension funds are considered conservative so this means they only have a low-risk appetite. However, the cautious investors finally decided to start testing the water with Bitcoin due to the asset's remarkable growth in the previous years. According to Financial Times, two particular pension schemes out of Wisconsin and Michigan emerged as some of the biggest owners of crypto-based US stock market funds.
Those dollars would then be reinvested in a regulated US exchange-traded fund, which watched the price of widely recognized cryptos like Bitcoins and Ethereum and their movements.
Many conservative fund managers recently realized that prices of Bitcoin will go to very high levels even to $100,000 per unit in the year 2023.
Record-Breaking Bitcoin Performance Drives Pension Funds
This performance has been attributed to the rising popularity of Bitcoin among pension funds. For example, by the end of September, the Wisconsin State Investment Board had become the 12th largest shareholder in BlackRock's Bitcoin ETF with a stake valued at an impressive $155 million.
Michigan has also made tremendous strides by becoming the sixth-largest holder in Grayscale's Ethereum ETF, valued at more than $12 million. These investments have become more valuable due to a 50% increase in Bitcoin prices over the past few months.
The US is not the only country where pension fund managers are interested in Bitcoin. Pension funds in the UK and Australia have also allocated their funds. AMP, a major Australian pension fund manager, recently entered Bitcoin futures to boost returns on its portfolios.
The Risks and Rewards of Bitcoin for Pension Funds
Of course, investment in Bitcoin is also attractive because of the potential for high returns. Pension funds, however, are well aware of the volatility and regulatory uncertainty surrounding cryptocurrencies. Dangers were shown by past failures, like the collapse of the FTX exchange in 2022 when its investment worth $95 million was lost to the Ontario Teachers' Pension Plan.
However, the current crypto boom, fueled by the possibility of a pro-crypto US administration, has renewed interest in the space. With a potential doubling of Bitcoin's value, some analysts predict that the trend of pension funds investing in crypto will continue to grow.
Conservative Approach to Bitcoin: Cautious But Curious
Even as more people begin to take interest in Bitcoin, pension funds remain extremely cautious with regard to the cryptocurrency market.
Several funds opt for investing in Bitcoin through ETFs or derivatives that provide access to the asset class without necessarily exposing themselves to the volatility associated with it.
Pension fund managers have even begun establishing Bitcoin-specific funds that aim to address the demands of investors interested in exposure to crypto assets but at lower risks.
Sam Roberts, director of investment consulting at Cartwright, notes that while the pensions industry has been "slow-moving," more pension schemes are considering crypto as a viable investment.
In fact, Cartwright has been advising on Bitcoin allocations for smaller schemes, with some opting to allocate a portion of their funds directly to Bitcoin, in hopes of achieving better returns.
While Bitcoin is still a speculative and volatile asset, the interest from pension funds is a sign that retirement portfolios are being managed differently. The growing adoption of cryptocurrencies by conservative investment bodies reflects their potential as high-return assets, despite the risks.
So pension funds seeking to balance growth with stability are most likely to look further for Bitcoin and other cryptocurrencies as part of their portfolios. Technology may mature and regulatory frameworks most probably change and develop, but crypto may indeed become a part of the pension strategy in the following years.
