A slew of high-profile fund managers and technology business leaders have made big moves to support digital assets in recent months.
We’ve seen former crypto critics, Morgan Stanley and Goldman Sachs, start offering Bitcoin services to their institutional clients, with the latter also recently reopening its crypto trading desk. Additionally, a growing roster of companies, from Time magazine to WeWork, have added Bitcoin to their balance sheets.
These decisions all fit a pattern of accelerating institutional and corporate adoption – propelling Bitcoin to a new all-time high of nearly $65k earlier this month.
Now, word on the street is that sovereign wealth funds (SWFs), the investment arms of cash-rich nations, could be following the same path.
With an estimated $8 trillion assets under management, sovereign wealth funds are major players in global financial markets and a critical source of income for Wall Street asset managers.
Some of these state-controlled funds, such as Norway's Government Pension Plan or Saudi Arabia’s Public Investment Fund (PIF), have been funded by oil revenues. Others, such as the China Investment Corporation, have grown via trade.
Amidst a backdrop of a global pandemic, their investments were all initially hit hard. The Norwegian Government Pension Plan, for instance, lost an estimated $21.3bn in the first six months of 2020 due to market volatility caused by the pandemic. As a result, SWFs have been seeking out deals in high-growth sectors to protect their interests after the last 18 months of global economic turmoil. And with governments slowly accepting that blockchain is here to stay, it is expected that sovereign wealth funds may be joining the ranks of big institutional players investing in Bitcoin.
Asen Kostadinov, Head of Strategy at Copper, believes that once these entities veer around to Bitcoin, the tsunami of inflows could send the asset into a bullish uptrend.
However, until regulations governing digital assets solidify, it’s likely that many state controlled investment funds will look to indirectly access digital assets via crypto proxies such as Microstrategy, Coinbase, the Grayscale crypto trusts or an ETF.
“We’re already aware of several large state institutions which have indirect exposure to cryptocurrencies”, Kostadinov explains. “One example is the Norwegian Government Pension Fund, which invests surplus revenue from Norway’s lucrative oil and gas sector on behalf of the government.”
In all, the Norwegian Government Pension Fund has over $1.3 trillion in assets, making it the world’s largest sovereign wealth fund, followed by the China Investment Corporation and the Abu Dhabi Investment Authority.
“This fund indirectly owns Bitcoin through its investment in MicroStrategy, which as of 21 April 2021 is valued at £39.1m. Other sovereign wealth funds are accessing digital assets by investing through the rising number of hedge funds that can make bets on cryptocurrencies.”
The latest investment firm to join this growing roster is the $13.7bn hedge fund Brevan Howard. On 15 April 2021, the fund, which manages assets for institutional investors around the globe – including sovereign wealth funds – announced it would soon be investing in crypto.
Another SWF believed to be investing in Bitcoin is the Singaporean sovereign wealth fund Temasek.
On March 2021, NYDIG CEO, Robby Gutmann, revealed on Raoul Pal’s Real Vision podcast that unnamed sovereign wealth funds have been approaching the firm with inquiries about buying Bitcoin. Raoul Pal then confirmed that Temasek, the higher risk-leaning fund of Singapore’s two sovereign wealth funds, has been buying Bitcoin since 2018.
According to Pal, Temasek bought Bitcoin directly from miners and diversified its assets with it.
This is not the first time the Singaporean state has shown support for crypto. Back in 2018, Temasek’s Vertex Ventures invested in Binance, and also helped the exchange to apply for a crypto license. That same year, Singapore’s other sovereign wealth fund, GIC, was among the investors that helped US cryptocurrency giant Coinbase raise $300m.
In 2019, Abu Dhabi's Mubadala Investment Capital, the financial investment arm of Mubadala Investment Company, took a stake for an undisclosed sum in MidChains, an upcoming crypto exchange that will be based out of the Emirate's financial centre.
And in April 2021, 3iQ Corporation, which listed The Bitcoin Fund ETF on the Toronto Stock Exchange, expects to begin trading the fund in Dubai in Q2 2021 after gaining approval from the Dubai Financial Services Authority. The CEO of Dalma Capital Management, a Dubai-based alternative investment firm which was 3iQ’s syndicate manager for the fund’s Middle East expansion, revealed that institutional investors, including sovereign wealth funds, have already expressed interest in the listing.
New Zealand’s KiwiSaver Pension Fund is also said to have held a 5% Bitcoin position since October 2020. The fund’s Chief Investment Officer, James Grigor said he expects competitors to follow suit over the next five years, commenting, “If you are happy to invest in gold, you can’t really discount Bitcoin.”
David Shrier, non-executive director at Copper and world-leading fintech expert, believes the entry of state actors in the crypto sector would be a paradigm shift. "Sovereign wealth funds will act as an accelerant on the crypto fire." he said, adding. "These funds deliver three levels of impact on crypto. First, they provide direct investment and price support to a given crypto. Second, their investment acts as implied endorsement that encourages other institutional and retail investors to participate in this new asset class. And third, if the particular country releases its own central bank digital currency (CBDC), sovereign money could induce market movement into that CBDC and away from nonaligned cryptocurrencies like Bitcoin."
Kostadinov meanwhile, believes that as the cryptoasset market continues to mature, the obstacles preventing institutions from getting involved have largely dissipated, commenting: “The availability of new solutions on the market that reduce the risk and complexity of investing in cryptoassets are empowering not only the largest companies in the world, but even state actors, to participate in crypto.”
“Bitcoin might be volatile, but investors are getting more than compensated for that by the stellar returns available in the asset class! It is only a matter of time that these funds dive in with both feet, and once they do, it would be another inflection point for rapidly growing Bitcoin adoption.”
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