Bitcoin, once considered a fringe innovation or a mere fad of technophiles, is now taking centre stage in the strategies of major financial institutions. Although it is not yet a real breakthrough, the leading cryptocurrency, with a capitalisation of $1.2 trillion, is experiencing a gradual and sustained adoption by the established players in global finance.
This institutionalisation gained momentum at the beginning of 2024 with the launch of ETFs in the United States. By mid-August, total assets held by the various issuing firms (BlackRock, Grayscale, Fidelity, etc.) had reached $54 billion. One striking figure: at the time, the giant BlackRock held 1.7% of the total supply of bitcoins, or just under $21 billion. Impressive sums accumulated in just seven months.
"1,100 major US financial firms held bitcoin in the second quarter, up 14% on the first quarter," points out Benoît Pellevoizin, France director of CoinShares, a European asset manager that also has its ETF in the US. "In the whole history of ETFs, Bitcoin ETFs are the ones that have got off to the best start," he adds.
Bitcoins held by US ETF issuers since January excluding the Grayscale trust (in dollars)
Bitcoins held by US ETF issuers including the Grayscale trust (in dollars) The popularity of Bitcoin ETFs is easy to explain. These products make it possible to acquire a synthetic version of bitcoin via a simple securities account, without having to worry about asset custody, which is handled by professionals (most often Coinbase). And best of all: ETFs are regulated by the SEC, the US financial watchdog.
"Having bitcoin in your portfolio means improving your resilience, diversification and performance," says Alexandre Stachtchenko, director of strategy at French exchange platform Paymium. "It is becoming abnormal for an institutional investor not to have an allocation in his portfolio. It is becoming risky not to be exposed, whether for financial or commercial reasons, because now that the offer exists elsewhere, the call for air has begun and customers can go and look elsewhere", he continues.
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But the boldest institutional investors have not waited for ETFs to gain exposure to Bitcoin.
💰 Grayscale was one of the first investment funds to offer a Bitcoin-based financial product, with the launch of the Grayscale Bitcoin Trust (GBTC) in 2013. This fund was recently transformed into an ETF to open up to a wider market.
💰 MicroStrategy, a US software company, was one of the first major listed companies to invest heavily in Bitcoin. Led by CEO Michael Saylor, it initially bought 21454 bitcoins for around $250 million in August 2020. MicroStrategy continues to accumulate them, becoming a symbol of Bitcoin's institutional adoption. By mid-August 2024, the company held more than $13 billion in bitcoins, putting it at the top of the list of global entities in own holdings.
💰 Block (ex-Square), a US payments company run by Jack Dorsey, acquired 4,709 bitcoins for around $50 million in October 2020. Jack Dorsey, a fervent supporter of Bitcoin, saw the acquisition as support for a digital currency that could become the currency of the internet. Since then, Square has strengthened its position (it holds $492 million worth) and integrated the cryptocurrency into its financial services, notably via Cash App.
💰 MassMutual, an American insurance company, marked a turning point in December 2020 by buying $100 million worth of Bitcoins, marking Bitcoin's entry into the traditionally conservative insurance sector.
💰 Tesla, the electric vehicle manufacturer led by Elon Musk, caused a stir in February 2021 by announcing the purchase of $1.5bn worth of Bitcoin in January that year. Although Tesla subsequently reduced its position (it currently holds just under $600m worth), the move was a pivotal moment in the institutionalisation of Bitcoin.
Interestingly, most of these deals took place between late 2020 and early 2021. With the exception of MicroStrategy, which continues to acquire Bitcoin on a regular basis, no other major company is buying Bitcoin directly today. Almost all institutional volumes now go through ETFs.
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"Whether institutional investors go through specialists and professionals or through structured products that correspond to their habits, this seems to me to be an inevitable market trend," analyses Alexandre Stachtchenko. "As long as we remain in a phase where financial exposure is the priority, there will be players prepared to pay a third party to take charge of custody and the associated risks. This is normal," he adds.
"Of course, this is not very much in line with the ethics of Bitcoin, in particular self-preservation," admits the expert. "But I think that, barring a major macroeconomic event, it's inevitable: the more adoption grows, the more newcomers, in significant proportions, will not want to encumber themselves. As long as the alternative of owning one's own is neither criminalised nor suspected of deviant tendencies, it's not a problem in itself."
Explosion of interest at major US banks The case of Goldman Sachs is revealing. On 13 April 2024, the investment bank, which manages $2,800 billion in assets, revealed that it held $418 million in Bitcoin ETFs, almost half of it in BlackRock's.
Other major financial institutions have also disclosed significant investments since the ETFs were launched in January.
Morgan Stanley, a US investment bank with $1.5 trillion under management, said it held $269 million of Grayscale securities in its deposits for the first quarter of 2024. Wells Fargo, a US bank with $603 billion in assets under management, revealed it had $120 million of assets in Bitcoin ETFs, mostly in Grayscale, in its second quarter report. JPMorgan Chase, another major bank with $2.9 trillion under management, also reported holding around $1.4 million in Bitcoin ETFs last quarter.
In addition to banks, other significant financial players have also invested heavily, such as the State of Wisconsin's public pension fund, which committed $164 million.
Europe lagging behind "There is clearly a before and after for Bitcoin ETFs in the US," comments Benoît Pellevoizin of CoinShares. However, success in Europe has been far less resounding. No major European investment bank has actively invested in this space. Although rumours are circulating that major asset managers, such as Amundi or DWS, are launching their own crypto products, nothing concrete has yet emerged.
In early May, an SEC document revealed that BNP Paribas had acquired shares in BlackRock's Bitcoin ETF for just under $42,000. According to our information , this transaction was carried out on behalf of one of the bank's clients. A meagre record compared with its US counterparts.
"In Europe, we are seeing interest in Bitcoin from family offices, particularly in Germany and Switzerland, as well as from some hedge funds, but that's where it stops for the time being," notes Benoît Pellevoizin. "Despite the boom seen in the United States, reputational issues are still holding back European financial players", he laments.
This sometimes leads to absurd situations, when banks refuse to execute orders from their clients, who are often wealthy, wishing to access Bitcoin ETPs (the European equivalent of American ETFs), even though the latter are perfectly regulated. "We are currently witnessing a real battle between asset managers, who have every interest in seeing this sector develop, and European banks, who are resisting offering these products to their clients", confides a good connoisseur of the sector.
Why would US banks be less reticent? "Money talks," he quips, pointing out that they don't hesitate to offer exposure to Bitcoin if it can make them money.
Bitcoin and cryptos Despite the delay by European institutions, the appetite for Bitcoin seems to be alive and well and is set to continue to grow. According to a survey of 250 institutional investors conducted at the end of 2023 by US exchange platform Coinbase, 64% of those who already hold cryptos plan to increase their allocation over the next three years. Even more interestingly, 45% of institutional players not yet holding cryptos plan to take the plunge over the same period.
And in many cases, Bitcoin is expected to be the overwhelming choice. "Bitcoin is out of category, it's not just another crypto, there's Bitcoin and there's everything else," says Alexandre Stachtchenko. "Bitcoin is savings; the rest is investment. Bitcoin stands out because of its narrative as an alternative asset, an anti-system store of value, digital gold, etc.", he assures.
"And when you consider that 80% of investments by Americans are actually managed by institutional players, compared with just 10% in the case of Bitcoin, you can see that there is still impressive room for growth," concludes Benoît Pellevoizin.
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