[Daily Alpha] Jersey City's Pension Fund Investment in Bitcoin ETFs: Analyzing the Impact of Fund Adoption on BTC
Jersey City's pension fund, which has approximately $450 billion in AUM, is set to invest in Bitcoin exchange-traded funds (ETFs), pending final approval from the U.S. Securities and Exchange Commission (SEC). The city's pension fund is updating its documentation to facilitate this investment, which Mayor Steven Fulop expects to be completed by the end of the summer. Fulop, a long-time supporter of cryptocurrency, believes that Bitcoin represents a promising investment opportunity and that blockchain technology is "amongst the most important new technology innovations since the internet."
Our Analysis
We will analyze the impact of Jersey City's pension fund investment by delving deeper into a similar scenario involving the Wisconsin's State Pension Fund which invested $164 million in BlackRock’s iShares Bitcoin Trust (IBIT) and Grayscale’s Bitcoin Trust (GBTC) between January 1 and March 31, 2024 which was revealed by a filing with the U.S. Securities and Exchange Commission in early May.
Source- YahooFinanceiShares Bitcoin Trust (IBIT) Stock Price, News, Quote & Hist…
The table shows substantial inflows into Bitcoin ETFs shortly after the Wisconsin investment was revealed leading the fund to become the world's largest Bitcoin fund with a valuation of $20 billion on May 29. The share price of IBIT rose from approximately $29.62 on May 1, 2024, to $39.16 on May 30, 2024, marking a significant rise of $9.54 or 32.1%.
The news about the Wisconsin fund's investment triggered approximately $1 billion worth of inflows from individual investors in May alone, during which the fund itself invested $160 million in these ETFs (2% of its total size, as quoted by Fulop). Assuming a similar percentage for Jersey City, with approximately $900 million (2% of $450 billion) invested in BTC, we can estimate an inflow of approximately $5 billion soon after it releases the ETF it has already invested in.
Fulop’s tweet: https://x.com/StevenFulop/status/1816452663191450015
This suggests that disclosure of institutional Investments by pension funds in ETFs can significantly impact the market in several ways. Such institutional investments can enhance market sentiment, boosting positive perceptions and confidence in the ETFs and their underlying assets. This, in turn, attracts more investors, both individual and institutional, as the presence of pension funds signals stability and long-term potential. The increased inflows and improved sentiment further contribute to the ETFs' appeal, reinforcing their attractiveness in the investment landscape.
Conclusion
Following a similar pattern to Wisconsin's State Pension Fund, Jersey City's pension fund investment could significantly impact the cryptocurrency market. This move might trigger increased inflows into Bitcoin ETFs, boosting their valuations and benefiting the pension fund through capital appreciation. Following, It could also enhance Bitcoin's legitimacy as an asset class for municipal pension funds, promoting broader institutional adoption. Additionally, this could improve overall market liquidity and drive higher prices for Bitcoin and related assets.