@Fundamentals pulls out some interesting bits from Cryptocurrency Is Growing Within U.S. State Reserves And Statewide Pension Plans:
Among them were from the summary of opportunities and risks (from the report):Opportunities
- Bitcoin holdings may provide a hedge against long-term debasement of fiat currency through inflation, due to bitcoin's finite supply. Its value may also be driven by geopolitical factors if its security and decentralized nature lead to its increasing adoption as a reserve asset.
- Other crypto assets such as ether or Solana are similar to technology venture investments, as they provide exposure to upside if these technology platforms continue to see increasing adoption.
Risks
- Market value risk: Historically, their prices have been volatile. They would introduce a risk factor if included in funds that are intended to cover an issuer's short-term liquidity needs (which typically do not include asset types with significant market value risk).
- Operational and cyber: Although direct ownership of crypto requires specialized infrastructure and staffing, much of the risk is adjusted to levels comparable with those of traditional investments when held, in lieu of direct crypto ownership, in shares of a crypto ETF from a third party investment manager with robust operational practices.
- Goal misalignment: Grouping all non-stablecoin crypto together under the same risk profile may overlook unique risk characteristics among different types of investments, such as bitcoin ownership, technology investments, or tokenized securities.
- Regulatory uncertainty: We have seen a large swing in the regulation picture at the federal level from the new U.S administration and similar changes could happen again, either due to leadership change or even a downturn in crypto prices if that reduces investor interest.
S&P is showing a superior understanding of the risks of Bitcoin. They echo several of the risks I discuss in the book. They caution against using Bitcoin with a short-term time horizon (1st bullet), as well as admonish the idea of grouping altcoins with Bitcoin (3rd bullet). Additionally, the 2nd bullet warms my heart discussing the additional operational risk involved when trusting custody to a 3rd party, as Blackrock (and all of the Bitcoin ETF providers except for Fidelity) does. We've already seen that Coinbase uses pre-Segwit legacy addresses for the ETFs and that Blackrock is beginning to explore other options for its custodian.It is important that pensions get this right, as it is unlikely that the Gods will be sending another lifeline.