Why are Banks, Hedge Funds and Pensions Buying Spot Bitcoin ETFs?

2024 has seen major institutional players, including hedge funds, banks, and pension funds, show a growing appetite for spot Bitcoin ETFs. This trend cements the significance of the shift and the wider acceptance of Cryptocurrency investments among investors. 

Big players like Morgan Stanley have invested heavily in the Cryptocurrency market. This comes at a time when such types of investments have yet to be their cup of tea in the past. Morgan Stanley purchased the Grayscale Bitcoin Trust ETF (GBTC) for $270 million (£212 million). This comes at a time when over $17 billion (£13.36 billion) in withdrawals were realised since the launch of spot Bitcoin ETFs in January. Because of its expensive management fees, GBTC continues to be the largest spot in the Bitcoin ETF.  

Typically, this trending investment is not limited to banks alone. Hedge funds like Steven Cohen’s Point72 Asset Management, Paul Singer’s Elliott Investment Management and Millennium Management led by Israel Englander also jumped on the spot Bitcoin ETFs vehicle. Furthermore, it is also reported that market makers like Citadel Securities and Susquehanna International Group were among the big buyers in the first quarter, with Susquehanna holding a whopping $1.3 billion (£1.1 bn) in GBTC.

Sumit Roy, a senior analyst at etf, believes this movement could indicate that hedge funds and large banks have different approaches to investing in Cryptocurrencies. Hedge funds are probably setting themselves up for direct profits from Bitcoin’s market fluctuations, even though banks may be buying these ETFs on behalf of their clients. 

Roy states, “Since spot bitcoin ETFs are now accessible, institutional investors’ involvement in the space is not surprising, given that Cryptocurrency is a sizable asset class with a value of approximately $2.4 trillion (£1.8 trillion).”

However, the filings did not clarify whether these investments have been profitable as they lack the exact purchase dates of the securities. These 13F documents only provide a snapshot after the quarter ends, which includes the approximate number and value of shares and maybe other investment instruments like puts and options.

It becomes more interesting when you realise the trend has even reached conservative investors such as pension funds. It is reported that entities like the State of Wisconsin Investment Board have also ventured into spot Bitcoin ETFs during the first quarter. 

In totality, investor interest in spot Bitcoin ETFs has recovered, with $642 million (£504 million) in new inflows over the last two weeks—a reversal from the previous outflows. The fact that this increase is congruent with a roughly 10% rise in the price of Bitcoin suggests that investor optimism has returned. 

More institutional interest in Cryptocurrencies, especially through spot Bitcoin exchange-traded funds (ETFs), indicates a wider acknowledgement and appreciation of the potential of digital assets. The involvement of these big players may open doors for even greater acceptance and integration of Cryptocurrencies into conventional investment portfolios.

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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used for legal, tax, investment, financial or other advice.