Wisconsin Pension Fund Now Includes Bitcoin

Wisconsin’s pension fund added Bitcoin to its balance sheets, purchasing more than $160 million worth of shares in two newly approved funds earlier this year.

American securities and stock market deposits of the Wisconsin State Investment Council show that between January 1 and March 31, he purchased just over $99 million in shares in a Bitcoin exchange-traded fund, or ETF, from the investment giant Blackrock. The Investment Board, known as SWIB, also purchased approximately $64 million worth of another Bitcoin ETF from Grayscale.

A SWIB spokesperson told WPR it does not comment on specific assets or acquisitions.

Stay informed about the latest news

Subscribe to the WPR e-newsletter.

David Krause, associate professor emeritus of finance at Marquette University, said there is a distinction between purchasing Bitcoin itself and purchasing shares of a Bitcoin ETF. People can buy bitcoins directly and store them in a digital wallet, but Krause said you should instead think of bitcoin ETFs as a mutual fund. He said the ETF’s shares are tied to the price of bitcoin, but investors don’t actually own the cryptocurrency.

Bitcoin ETFs, like those purchased by SWIB, were approved by the SEC on January 10.

“These are traded on an exchange,” Krause said. “So they have liquidity, just like stocks. They are also regulated by the Securities and Exchange Commission. This gives investors confidence that they are not purchasing an asset directly.

Although $160 million is a lot of money, Krause said it’s only a small fraction of Wisconsin’s overall pension fund. End of December, SWIB held over $155 billion in assetsthe vast majority of these assets representing the assets of the Wisconsin Retirement System.

“Like any good portfolio manager, you want to diversify,” Krause said. “And now that bitcoin has been around for over a decade, we realize that not only does it offer quite high returns – sometimes over quite phenomenal periods of time – but it also has diversification capabilities. It does not move directly, in tandem with stocks and bonds.

However, Bitcoin is notoriously volatile. In 2021, the price of one bitcoin peaked at nearly $66,000 before dropping to around $16,000 in 2022. This year, it reached a new high of around $71,000.

Krause said it was a “big deal” for SWIB to get involved with Bitcoin funds, as it is considered one of the most reputable pension funds in the country.

“I can assure you that most institutional money managers have taken note,” Krause said. « Pension review I pointed this out a few days ago that Wisconsin did this. So I am confident that almost everyone who manages large pension funds or institutional funds knows that SWIB has taken this step.

Mark Fedenia, associate professor of finance at the School of Business at the University of Wisconsin-Madison, said the move provides “institutional validation for Bitcoin and cryptocurrency investments.”

“SWIB’s investment could increase the confidence of other pension funds regarding the legitimacy and potential of Bitcoin ETFs,” Fedenia said. “Seeing a reputable institution like SWIB take the plunge may ease concerns about volatility, regulatory risks and the overall investment thesis for Bitcoin.”

Bitcoin, created in 2009, is “mined” using high-powered computers to verify online transactions using the cryptocurrency. Bitcoin mines consume significant amounts of electricity. Besides its volatility, critics have pointed to energy consumption, electronic waste and its use by criminal hackers as a means of payment following ransomware attacks.

In Wisconsin, some local communities have turned to bitcoin and other cryptocurrencies to reinvigorate their local economies. In 2022, the owners of a rural hydroelectric plant in Jackson County partnered with New York-based Digital Power Optimization. start a cryptocurrency mine on Lake Arbousier.

Editor’s Note: WPR employees participate in the Wisconsin Retirement System.

Wisconsin Public Radio, © Copyright 2024, University of Wisconsin System Board of Regents and Wisconsin Educational Communications Board.

Source