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Bitcoin as an investment

A look into the institutional ownership of bitcoin

Bitcoin as an investment

_{A common misconception in business circles on both sides of the North Atlantic is that investing in bitcoin is almost exclusively the domain of retail investors. This is simply not true, as our research into US institutional ownership of bitcoin has revealed.}

_{In the United States, institutional investment managers that manage at least $100 million in assets must make quarterly disclosures of what they are invested in through so-called ‘13F filings’. These filings are then made publicly available.}

_{In our analysis of these filings and corporate press releases, we found that over 700 US institutional investors are currently invested in bitcoin. What’s more, this list of investment managers is far from exhaustive, for example, it does not include private institutions and trusts – and will quickly become out of date as more organisations seek exposure to bitcoin.}

_{We also learnt that half of the top 25 hedge funds on the planet (in terms of size) have made significant allocations to bitcoin. Most of these allocations appear to have occurred during 2024, triggered by the launch of 11 exchange-traded bitcoin funds in the USA. (While these exchange traded funds (ETFs) make access to bitcoin easier, particularly for certain types of investor accounts, they are not, in our view, the most secure option for long-term investors.)}

_{Unfortunately, it is all but impossible to accurately gauge the extent of institutional exposure to bitcoin in other parts of the world. This sort of data is simply not (yet) publicly available in most parts of Europe, Japan, China and other jurisdictions.}

_{According to the 6th Annual Global Crypto Hedge Fund Report by PwC and the Alternative Investment Management Association (AIMA), nearly 47% of traditional hedge funds worldwide reported having exposure to digital assets in 2024, up from 29% in 2023 and 37% in 2022.}_[xix].

_{Overall, whilst individuals seem to be in the latter stages of the early adoption phase, institutions seem to be in the early stages of the early adoption phase.}

Bitcoin as an investment

_{More recently, the 2023 Institutional Investor Digital Assets Outlook Survey, conducted by Institutional Investor Custom Research Lab, asked 250 institutional investors in the US about their plans to invest in bitcoin}_[xx]_{. Here are a few of its findings:}

_{64% of the current investors surveyed expect to increase their allocations to bitcoin in the next three years.}
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_{45% of the institutional investors surveyed without bitcoin allocations expect to allocate in the next three years.}
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_{57% of the institutional investors surveyed believe prices will move higher in the next 12 months, compared to just 8% who shared that view in October 2022.}
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_{Respondents believe that blockchain-based payments can replace legacy payment and trade settlement rails in the future.}

_{With the launch of the ETFs in the US in early 2024, and the reporting requirements that institutions must conform to (showing their holdings) - it is clear to see the uptake in bitcoin exposure across institutions in the US. There have been several hedge fund buyers, and a small number of pension fund multi-asset fund allocations. Institutional activity is modest but clearly growing.}

_{Bitcoin ownership distribution}
_{^{Source: Who Owns the Most Bitcoin in 2024? | River.com}}

Bitcoin as an investment

_{It is not just hedge funds that are making big moves in the bitcoin space. In May 2024, the State of Wisconsin Investment Board, or SWIB, one of the largest and best run public pension systems in the US, disclosed that it has invested $187 million in bitcoin exchange trade funds, or ETFs. In doing so, it became the first public institution in the US to invest in bitcoin.}

_{It's a good investment in the sense that it's going to add diversification.}_{^{David Krause, Associate Professor of Finance, Marquette University Emeritus}}

_{Here’s what David Krause, Marquette University Emeritus Associate Professor of Finance, said about the move}_[xxi]:_{“It's a good investment in the sense that it's going to add diversification. The objective of a portfolio manager or a fund is to maximize return while minimizing risk. Bitcoin, like other alternative investments, does not move in parallel with stocks and bonds. So therefore, it adds a nice diversification effect. The potential upside returns are high as it could be with any new technology. And finally, because this is a currency with a limited supply, it can actually serve as an inflation hedge.”}

_{Granted, SWIB’s investment in bitcoin represents only a tiny fraction ‒ around one-tenth of 1% ‒ of its more than $156 billion in assets.}

_{But the mere fact that this public pension scheme dipped its toes into this growing investment space in the US is likely to encourage other public and private investors to follow suit. And why wouldn’t they? After all, bitcoin as an investment vehicle has outperformed traditional asset classes over almost any time horizon over the past decade and a half.}

_{Returning to the UK - and indeed to Cartwright - we advised the first UK DB pension trust to make an allocation to bitcoin during 2024. This was the first ever bitcoin allocation within a corporate pension trust in the UK and it took a very forward-thinking and open-minded trustee board to commit to the training and education required to build the understanding and confidence to make an investment.}

_{^{Compound annual growth rate by time horizon}}
_{^{Source: Casebitcoin.com}}

_{Their 3% allocation is a long-term commitment, but they are already seeing meaningful returns on their efforts to understand the attractive investment characteristics that can enhance portfolio diversification. We have since spoken to a number of other institutions who are showing interest in learning about bitcoin, and how it can complement a more 'traditional' portfolio.}