A former finance professor in Wisconsin suggests that the state’s initial investment in Bitcoin ETFs has the potential to grow exponentially, potentially reaching much larger scales.
Why Did Wisconsin Buy The Bitcoin ETFs?
In a PBS interview, David Krause, a professor emeritus at Marquette University, highlighted that the current $160 million investment by the state is merely a tentative step into the realm of Bitcoin ETFs. He views this investment as a preliminary exploration, testing the public’s reaction and gauging potential resistance to owning such assets. Over the past two months, major investment firms have disclosed their securities portfolios through mandatory 13F filings with the SEC. This has provided Bitcoin enthusiasts with insights into the initial adoption of Bitcoin by prominent US institutions through ETFs, following the launch of Bitcoin spot ETFs on national securities exchanges in January.
The State of Wisconsin Investment Board (SWIB), a significant pension fund ranking in the country’s top ten, surprised many by investing in both BlackRock and Grayscale’s Bitcoin products. Even Bitcoin enthusiasts were taken aback, as they anticipated a delay or reluctance from pension funds to allocate funds into Bitcoin products. As of March 31, SWIB’s Bitcoin holdings accounted for only 0.4% of its $37.4 billion securities portfolio and a mere 0.1% of its total assets valued at $155 billion.
David Krause noted that Bitcoin’s impact on the portfolio would remain minimal until its allocation reached around one or two percent. However, he acknowledged the potential benefits of diversification that Bitcoin could offer to the state’s portfolio, given its low correlation with traditional assets like stocks and bonds. Additionally, Bitcoin could serve as a hedge against inflation due to its digital nature and limited supply.
Future Institutional Demand For Bitcoin
Krause anticipates that other states will emulate Wisconsin’s approach in the future. However, he clarified that financially challenged states might find it difficult to afford such investments due to Bitcoin’s significant short-term volatility, which could pose challenges for funds with limited liquidity. Nonetheless, he believes in the long-term upward trajectory of assets like Bitcoin.
Matt Hougan, Bitwise’s CIO, highlighted in a recent memo that many institutional investors initially make modest Bitcoin allocations, gradually increasing them to one to five percent of their portfolios over time. For instance, HighTower Advisors allocated $68 million to Bitcoin ETFs last quarter, representing a mere 0.05% of their total portfolio. Hougan pointed out that a 1% allocation to Bitcoin by such firms could amount to substantial sums—like $1.2 billion from a single firm—underscoring the growing enthusiasm among professional investors for cryptocurrency assets.
