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Why Did Finance Giant MassMutual Buy $100 Million in Bitcoin?
On December 10 2020, traditional finance giant MassMutual unveiled a buy of $100 million worth of Bitcoin. The company did the purchase through New York’s NYDIG, an investment outfit “dedicated to Bitcoin” and which is currently managing a $2.3 billion treasure chest of Bitcoin and other cryptocurrencies.
The company said the step was inspired by the need for a “measured yet meaningful exposure to a growing economic aspect of our increasingly digital world.” MassMutual joins a wave of institutional investors flocking to Bitcoin at a rate never seen before in the currency’s 12-year history.
Not long ago, Bitcoin was laughed out of big companies’ ledger books and relegated to the retail crowd. Right now, there’s a new headline nearly every week announcing the latest institutional jump into Bitcoin. What’s precipitating the sudden surge of interest in Bitcoin by institutional money?
The Details on the MassMutual Buy
MassMutual bought Bitcoin for its general investment account. The $100 million allocation is a tiny speck in the company’s vast general investment account of $235 billion.
MassMutual is just the latest institution to make a significant allocation to Bitcoin as Square, PayPal and Microstrategy have all made huge investments in the space.
Why MassMutual’s Bitcoin Purchase Particularly Matters
MassMutual investing in Bitcoin is notable for a couple of reasons. First, the company is a conservative investor, meaning it goes for investments that are traditionally low-risk. CEO Roger Crandall told Yahoo Finance that the company gravitates towards tried-and-tested investments such as real estate and private and public equities. For such a company to plow $100 million to the notoriously volatile Bitcoin signals a changing attitude in the conservative segments of finance. The company itself recognizes the unprecedented nature of the move, noting in the released statement: “We are proud of this incredible moment in the history of both Bitcoin and the insurance industry.”
Next, the company’s foray into Bitcoin could inspire similarly risk-shy companies, e.g., insurance and pension funds, to take a shot at Bitcoin. A team of strategists over at JPMorgan told Bloomberg that demand for Bitcoin in these investment classes “could rise in the coming years” as they “follow MassMutual’s example.” They added that even though such companies’ allocations to Bitcoin would unlikely ever be high, their collective contribution “could be significant.”
They reckon that “if pension funds and insurance companies in the US euro area, UK, and Japan allocate 1% of assets to Bitcoin,” it would pump approximately 600 billion of demand into the market.
A String of Institutional Bitcoin Bets
MassMutual joins a long line of institutional investors who are jumping into the Bitcoin bandwagon. Jack Dorsey’s payment company Square bought $50 million worth of Bitcoin back in September. CFO Amrita Ahuja said the initiative resulted from the “believe that Bitcoin has the potential to be a more ubiquitous currency in the future.”
Business intelligence company MicroStrategy currently holds over $1 billion in Bitcoin after a raft of buys in recent months. The latest was an injection of $10 million in Jan this year, which CEO Michael Saylor revealed added approx. 314 bitcoins to make up a total of 70,784 bitcoins. Saylor also announced the company plans to “invest additional cash flows in Bitcoin” in addition to exploring more ways to acquire more. That is part of the company’s overall corporate strategy, he added.
UK’s Ruffer Investment Company in December made a $745 million bet on Bitcoin. That amount represents roughly 2.5% of the company’s assets. The company said Bitcoin “acts as a hedge to some of the monetary and market risks that we see.”
And on Jan 20, BlackRock signaled entry into Bitcoin by filing two prospectuses with the SEC. It looks like the firm is greenlighting two of its funds – BlackRock Global Allocation Fund Inc. and BlackRock Funds V to invest in Bitcoin futures. BlackRock is currently the world’s biggest asset management firm, with $8.7 trillion worth of assets under its management.
Hedge fund company SkyBridge Capital also recently invested $25.3 million in Bitcoin as the first round of investment in the currency. It was also the first step to establishing a Bitcoin fund for its investors.
These are just a few of the mainstream institutional investors that are jumping on the Bitcoin bandwagon.
Universities Also on Board for Bitcoin
It’s just not institutional investors piling into Bitcoin – universities have also been quietly acquiring the currency. The endowments of Harvard, Yale, Brown, and the University of Michigan have quietly been acquiring Bitcoin in the past year, according to a new report. University endowments constitute funds and other assets donated to colleges and universities to support their various goals. The endowments of these universities must have seen extraordinary potential with Bitcoin.
This development is not entirely unexpected. Bitcoin has been in the sights of high-profile universities for a while now. Back in 2018, Harvard, Stanford, Dartmouth College, and University of North Carolina backed at least one cryptocurrency-related funds. The move this time around – one of investing in Bitcoin directly, is a major endorsement of the currency.
Why the Fuss?
Institutional money’s recent surge of interest in Bitcoin is attributable to a few factors. First, the coronavirus pandemic exposed more plainly the weaknesses of the legacy financial system. As governments printed more or inject more money into the economy to ease citizens’ economic burden, so did inflation fears rise.
In such times as these, investors are looking for better-grounded investments, and Bitcoin couldn’t have proven more timely. The cryptocurrency’s hard-coded supply makes it resistant to whimsical supply manipulation. Second, thanks to its distributed nature, governments don’t get to make arbitrary decisions about how it’s run.
Due to its limited supply (21 million), Bitcoin has earned itself gold-like status and is seen as a more reliable, long-term store of value that’s a bulwark against inflation. SkyBridge’s Anthony Scaramucci has even asserted Bitcoin is “better at being gold than gold is at being gold.” And new technologies are being rolled out to optimize Bitcoin’s speed and resilience, positioning it even better for the future. Michael Saylor has evocatively described it as a “house of cybernetic hornets protected by a wall of encrypted energy.”
Closing Thoughts
Bitcoin is slowly going mainstream, and we love to see it. Even institutions traditionally accustomed to more ‘sensible’ investments are taking the plunge. 2020 opened an entirely new wonderful chapter for Bitcoin and by how things look, this one will stick for a while.
