The Wisconsin pension fund added bitcoin to its balance sheets, purchasing more than $160 million worth of shares from two newly approved funds earlier this year.

US Securities and Exchange filings from the Wisconsin State Investment Board show that between Jan. 1 and March 31, it 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 about $64 million worth of another bitcoin ETF from Grayscale.

A SWIB spokesperson told WPR it does not comment on specific assets or acquisitions.

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Marquette University associate professor emeritus of finance David Krause said there is a distinction between buying bitcoin itself and buying shares of a bitcoin ETF. People can buy bitcoins directly and store them in a digital wallet, but Krause said to think of bitcoin ETFs more like a mutual fund. He said the ETF’s shares are tied to the price of bitcoin, but investors do not actually own the cryptocurrency.

Bitcoin ETFs, like those purchased by SWIB, were approved by the SEC on January 10.

“They are traded on exchanges,” Krause said. “So, they have liquidity just like shares. They are also regulated by the Securities and Exchange Commission. This gives investors some confidence that they are not dealing with directly purchasing an asset.”

While $160 million is a lot of money, Krause said it’s a small fraction of Wisconsin’s overall pension fund. At the end of December, SWIB held more than US$155 billion in assetswith the vast majority representing Wisconsin Retirement System assets.

“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 it not only offers quite strong returns – sometimes over periods of time quite phenomenal returns – but it also has diversification capabilities. It doesn’t move directly, in conjunction 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 get involved with bitcoin funds because it is considered one of the most highly regarded pension funds in the country.

“I can guarantee that most institutional money managers have realized this,” Krause said. “Pension Magazine highlighted this just a few days ago that Wisconsin did it. Therefore, I am quite confident that almost everyone who runs 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 investments in Bitcoin and cryptocurrencies.”

“SWIB’s investment could increase confidence among other pension funds regarding the legitimacy and potential of Bitcoin ETFs,” said Fedenia. “Seeing a well-regarded institution like SWIB take the plunge could alleviate concerns about volatility, regulatory risks and the overall investment thesis for Bitcoin.”

Bitcoin, which was created in 2009, is “mined” using high-powered computers to verify online transactions using cryptocurrency. Bitcoin mines consume substantial amounts of electricity. In addition to its volatility, critics have pointed to its energy consumption, wasteful electronics 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, the owners of a rural hydroelectric plant in Jackson County partnered with New York-based Digital Power Optimization to start a cryptocurrency mine at Lake Arbutus.

Editor’s note: WPR employees are participants in the Wisconsin Retirement System.

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