ART unfazed by SEC’s bitcoin green light

Australia’s second-largest super fund believes cryptocurrency investments are unlikely to be the best use of members’ money.

In January, the Securities and Exchange Commission (SEC) announced approval for the listing and trading of several spot bitcoin exchange-traded funds (ETFs) in the US in what was considered a “watershed” decision for the asset class.

It followed numerous denials of such requests over the past decade on the grounds of market manipulation and investor protection.

Since the decision, average daily volumes for Australian crypto ETFs have expanded by some 800 per cent compared to the average daily volume over the past 12 months, with local crypto ETFs making up one-third of the total crypto ETF traded volume of 2023 in just the first two weeks of this year.

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Speaking to Super Review, Australian Retirement Trust’s chief economist Brian Parker acknowledged there was significant interest in bitcoin from the private equity and venture capital space and that the underlying technology backing these assets could be interesting from a business sense.

However, the $260 billion fund remains sceptical about committing member funds to the asset class.

“If I think about bitcoin, even if I have access to a bitcoin ETF, why should I buy it? It still doesn’t pay me any interest, it’s a highly speculative investment, I still can’t value it in any fundamental way, and I don’t know how it behaves over a number of economic cycles,” Parker said.

“I can’t be sure about whether it’s a risk-on asset or a defensive asset […] and so, it remains a very speculative area.”

According to the ASX’s Australian Investor Study 2023, some 15 per cent of Australian investors hold cryptocurrency and nearly 30 per cent of prospective investors are interested in investing in crypto in the next 12 months. The median amount invested in crypto is $5,100.

For ART, the decision to include bitcoin in a portfolio would require more information on its inverse and positive correlations to other asset classes along with understanding how it behaves across different market cycles.

“At that point, you might be able to make a decision as to whether to include it in a portfolio, but I don’t think we’re at that point yet,” Parker admitted.

“From the point of being a super fund, our job primarily is to invest in a range of assets that deliver both income and growth, and frankly, that still means that shares, bonds, private equity, property, private credit make a hell of a lot more sense than speculative digital currencies.”

Previously, a likely increase in capital inflows from institutional investors had been identified by market strategists as a major upside of the SEC’s decision this year.

“Big institutions [like] sovereign funds, wealth funds, pension funds, a lot of them don’t have an allocation to bitcoin because they didn’t really know how. A lot of them didn’t really want to go open up their own wallets with these custodians,” Global X Australia’s Marc Jocum told Super Review.

“They wanted an easy-to-use wrapper, such as an ETF or another fund, to be able to do it, so we could see a big institutional push into cryptocurrencies like bitcoin.”

Among these institutional investors, he suggested that super funds could also begin to explore the option.

“Super funds have a duty to their members and their trustees to act in their best interest[s] and to make sure they are growing the pool of wealth so they could definitely start exploring the space because it’s starting to emerge as a different asset class,” Jocum said.

“It’s not going to come in one wave, a lot of super funds prefer, and if you look at some of the things they’re investing in, it’s things like private credit that seems to be a lot of where the super funds are driving their attention.

“But you know, it could be that they start to see this as an emerging asset class.”

He also acknowledged the presence of a prevailing sense of “nervousness” regarding crypto that could hinder uptake among super funds.

“We saw the likes of the FTX collapse, there’s been a few security risks, it’s still 13- or 14-year-old technology. I think super funds will eventually get there, but it’s going to be a slow adoption,” Jocum said.

Last year, micro-investing app Raiz Invest launched an investment portfolio with a 5 per cent target allocation to bitcoin.

NZ Funds Management, too, has introduced a weighting of 5 per cent to bitcoin to its KiwiSaver Growth Fund and chief investment officer James Grigor said it would be likely to feature in more schemes in the next five years.