State pension funds in the U.S. are increasingly paying attention to crypto assets, despite their volatility and regulatory challenges. For them, cryptocurrencies are becoming a new tool for diversification and yield enhancement. In the context of inflation and low-interest rates, crypto investments can serve as an alternative to traditional assets. Let's consider which cryptocurrencies have captured the attention of state pension funds in the U.S. and what strategies they are using.
Why are American pension funds investing in crypto assets?
In recent years, U.S. pension funds have faced serious challenges, including inflation and declining yields from traditional assets. Cryptocurrencies offer new growth opportunities due to their independence from government economies and high growth rates. Furthermore, many believe that cryptocurrencies have the ability to protect capital from inflation, making them attractive during periods of economic instability.
Funds are interested in crypto assets for the following reasons:
Inflation Resistance. Cryptocurrencies with limited issuance, like Bitcoin, can serve as protection against inflation.
Decentralization. Crypto assets operate independently of central banks and can remain resilient during economic crises.
Risk Diversification. Cryptocurrencies allow for diversification of the investment portfolio, reducing dependence on traditional assets.
Which cryptocurrencies have captured the attention of state funds in the U.S.?
Bitcoin (Bitcoin, #BTC )
Bitcoin is the primary crypto asset for pension funds in the U.S. The Houston Firefighters’ Relief and Retirement Fund was the first in the U.S. to acquire Bitcoin in 2021. They chose Bitcoin due to its limited issuance and growing recognition as 'digital gold,' making it a protective asset against inflation and attractive to long-term investors.
Analytics: Bitcoin remains the preferred choice for state pension funds, as it has the highest liquidity and long-standing reputation. Despite high volatility, Bitcoin shows a stable increase in value over long periods.
Ethereum (Ethereum, #ETH )
Ethereum attracts investors because of its blockchain platform, which allows for the creation of decentralized applications (dApps) and smart contracts. U.S. pension funds view Ethereum as a promising asset in the long term due to its leading role in the decentralized finance (DeFi) space and wide application in the digital economy.
Analytics: As the number of applications utilizing Ethereum grows, its market position strengthens. Although scalability issues and high fees are challenges, the transition to a Proof-of-Stake model has improved ecological performance, making Ethereum more attractive to funds adhering to sustainable investment principles.
Solana (#SOL )
Solana offers a fast and inexpensive platform for transactions, making it popular among DeFi and NFT application developers. Despite the risks associated with the project's youth and instances of technical failures, high-yield-focused funds are including Solana in their portfolios, hoping for its potential to become an alternative to Ethereum.
Analytics: Solana is attracting attention as an innovative platform with high data processing speeds and growth prospects. Pension funds that are inclined to take on higher risks may view it as a supplementary asset to Bitcoin and Ethereum.
#XRP (Ripple)
Despite ongoing legal disputes between Ripple and the U.S. Securities and Exchange Commission (SEC), some funds are considering XRP in case the legal issues are resolved positively. XRP offers fast and inexpensive cross-border transfers, making it a potential tool for global financial systems. U.S. pension funds are currently cautious about XRP, but its role as a possible catalyst in the banking sector remains significant.
Analytics: If Ripple's legal disputes with the SEC result positively, XRP could become an interesting asset for pension funds, especially in states with developed banking infrastructure and high demand for international transfer technologies.
Cryptocurrency Funds and ETFs
Some state pension funds prefer to invest in cryptocurrencies through funds or trusts, such as Grayscale Bitcoin Trust or cryptocurrency ETFs. This minimizes the risks of direct cryptocurrency purchases and facilitates compliance with legal requirements. Recently approved Bitcoin futures ETFs in the U.S. provide state funds with more convenient tools for investing in digital assets without the need to directly hold cryptocurrencies.
Strategies of American Pension Funds
Investing through Trusts and Funds
One of the most popular ways to invest remains buying shares in cryptocurrency trusts or stock indices, such as Grayscale Bitcoin Trust and ProShares Bitcoin Strategy ETF. This allows pension funds to navigate legislative complexities and diversify their portfolios with lower risks.
Long-term Approach and Diversification
Pension funds investing in cryptocurrencies often choose a long-term strategy based on diversification. Portfolios may include highly liquid cryptocurrencies like Bitcoin and Ethereum, as well as riskier assets like Solana and Polkadot.
Testing Cryptocurrency Instruments
Most American state funds are exploring investment opportunities in cryptocurrencies through small allocations, not exceeding 1-2% of the total portfolio. This minimizes potential losses and lays the foundation for subsequent investments if cryptocurrencies are recognized as stable assets.
Utilizing ETF and Futures Opportunities
With the emergence of Bitcoin futures ETFs, state pension funds have received a new tool for testing cryptocurrencies without the need for direct ownership. This is particularly relevant for funds with a cautious approach to new assets and minimal regulatory requirements.
