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Wisconsin’s pension fund now includes bitcoin
The Wisconsin pension fund has added Bitcoin to its balance sheets, purchasing more than $160 million of shares in two newly approved funds earlier this year.
US stocks and exchanges filings from the State of Wisconsin Investment Board show that between January 1 and March 31, he purchased just over $99 million worth of shares in a bitcoin exchange-traded fund, or ETF, from investment giant Blackrock. The Investment Board, known as SWIB, also purchased another bitcoin ETF from Grayscale worth about $64 million.
A spokesperson for SWIB told WPR that it does not comment on specific assets or acquisitions.
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David Krause, associate professor emeritus of finance at Marquette University, said there is a distinction between buying bitcoin itself and buying shares of a bitcoin ETF. People can buy bitcoin directly and hold it in a digital wallet, but Krause said he thinks of bitcoin ETFs more like 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 exchange traded,” Krause said. “So they have liquidity just like stocks. They are also regulated by the Securities and Exchange Commission. This gives investors some security that they are not dealing with a direct purchase of an asset.”
While $160 million is a lot of money, Krause says it’s a small fraction of Wisconsin’s overall pension fund. At the end of December SWIB held assets of over 155 billion dollarsthe vast majority of which represent assets in 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 are aware that not only does it offer quite high returns – sometimes over periods of time truly phenomenal returns – but it also has diversification capabilities. It doesn’t move directly, along with stocks and bonds.”
However, bitcoin is notoriously volatile. In 2021, the price of one bitcoin peaked at nearly $66,000 before falling to around $16,000 in 2022. This year it reached a new high of around $71,000.
Krause said it is a “big deal” for SWIB to be involved in bitcoin funds because it is considered one of the most highly regarded pension funds in the country.
“I can assure you that most institutional money managers have taken notice,” Krause said. “Pensions magazine we highlighted this just a couple of days ago that Wisconsin did this. So, I’m quite confident that almost everyone who manages large pension funds or institutional funds is aware that SWIB has taken this action.”
Mark Fedenia, associate professor of finance at the University of Wisconsin-Madison School of Business, said the move provides “institutional validation for Bitcoin and cryptocurrency investments.”
“SWIB’s investment can increase confidence among other pension funds regarding the legitimacy and potential of Bitcoin ETFs,” Fedenia said. “Seeing a well-regarded institution like SWIB take the plunge may alleviate 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. Aside from its volatility, critics have pointed to energy consumption, electronic waste, and its use by criminal hackers as a form of payment following ransomware attacks.
In Wisconsin, some local communities have turned to bitcoin and other cryptocurrencies as a way to reinvigorate their local economies. In 2022, owners of a rural hydroelectric power plant in Jackson County partnered with New York-based Digital Power Optimization to start a cryptocurrency mine on Corbezzolo Lake.
Editor’s note: WPR employees participate in the Wisconsin Retirement System.
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