Investors managing Michigan’s substantial public pension system are cautiously venturing into the world of cryptocurrency. Although the current allocation to Bitcoin and Ethereum is relatively modest, it signals the State of Michigan Retirement System’s willingness to explore territories where many similar funds have yet to venture.
As of late July, the State of Michigan Retirement System had approximately $6.6 million invested in Bitcoin, which is the most renowned form of cryptocurrency, according to Ron Leix, a spokesman for the state treasury. Additionally, the fund allocated $1.4 million to a Grayscale Ethereum ETF. Despite these figures appearing nominal in comparison to the overall fund, they reflect a growing interest in digital currencies.
This interest is part of a more significant movement. Over the past two years, the fund has invested around $45 million in cryptocurrencies, with remarkable returns. Leix confirmed that the state had not only recouped its initial investment but also generated an additional $39 million from its cryptocurrency investments. This performance has led to the phrase “to the moon” being used to describe Michigan’s assets in crypto parlance.
However, these investments represent a minuscule fraction of the fund’s total $107.5 billion assets. Despite the gains, there is no immediate intent to expand these investments significantly. “Cryptocurrency doesn’t play a major role in our investments,” Leix noted, indicating that a private company hired to manage part of the fund made the cryptocurrency investment decisions. “There isn’t an active strategy to invest in Bitcoin and cryptocurrencies.”
The company behind these decisions, ARK Invest, posits that cryptocurrencies represent a revolutionary paradigm shift in how people and economies utilize money. “ARK believes cryptocurrencies will contribute more dramatically and profoundly to the evolution of monetary systems than any other breakthrough in history,” states a section of the company’s website dedicated to its cryptocurrency strategy.
Despite this optimistic outlook, experts have highlighted the inherent risks of investing in cryptocurrencies. With only a few exceptions, such as the Wisconsin pension fund, which recently announced a more substantial investment in cryptocurrency, such investments remain rare among large pension funds. Bruce Babiarz, a spokesperson for the Detroit Police and Fire Retirement System, noted that their financial advisor, Wilshire Associates, has long studied cryptocurrencies but has not recommended investing in them.
The rapid rise in recession fears in early August led to a selloff in both stocks and cryptocurrencies. Bitcoin and Ether experienced significant declines, with Bitcoin falling 12% to $52,054 and Ether dropping 21%, hitting lows not seen in several months. Analysts have observed that cryptocurrencies are increasingly trading in tandem with stocks, which challenges the earlier belief that they could serve as a “safe-haven” for investors during uncertain times.
The U.S. Securities and Exchange Commission’s approval for exchange-traded funds to track the spot prices of Bitcoin and Ether has sparked considerable interest from conventional investors. Scott Baker, an associate professor of finance at Northwestern University, explained that cryptocurrencies are now becoming part of traditional retirement and investment portfolios. “The average crypto investor is actually more active in traditional equity markets as well,” Baker noted, dispelling the myth that crypto investors are predominantly risk-takers with little regard for conventional investments.
As for Michigan’s pension fund, the state’s investments in cryptocurrency are currently too small to make a significant impact, even in the event of a total loss. However, this could change. Wisconsin’s decision to invest over $160 million in a Bitcoin ETF might prompt other public pension funds to follow suit. Given Michigan’s healthy pension fund balance and robust returns, more public entities may begin to consider allocating a portion of their investments to cryptocurrency.
While the future of cryptocurrency investments in public pension funds remains uncertain, the cautious steps taken by Michigan could pave the way for broader adoption. The debate continues between supporters who foresee normalization and increased investment, and critics who call for stringent regulations to prevent fraud. The impact on Michigan retirees, reliant on returns from the state pension fund, remains minimal for now. Nevertheless, as the landscape evolves, public entities might increasingly look to digital currencies as part of their investment strategies, potentially reshaping the future of public pension fund management.
Free Press personal finance columnist Susan Tompor contributed to this report.
Reach Dave Boucher at [email protected] and on X, previously called Twitter, @Dave_Boucher1.
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