Institutional investors shift stance as Bitcoin ETFs spark increased crypto adoption

Institutional interest in cryptocurrencies is surging as Bitcoin ETFs gain traction, marking a significant shift in the financial landscape.

Despite skepticism from major financial figures like JP Morgan’s Jamie Dimon and Goldman Sachs’ Sharmin Mossavar-Rahmani, who have previously labeled Bitcoin as a “fraud” and “ponzi scheme,” institutional investors are increasingly allocating funds into the crypto space.

This growing adoption underscores a notable trend: financial giants are integrating digital assets into their portfolios, driven by both their own strategic decisions and the demands of wealth management clients.

Increased institutional holdings in Bitcoin ETFs

Recent SEC 13F filings reveal a robust increase in institutional investments in Bitcoin ETFs during the second quarter of 2024.

Notably, Goldman Sachs disclosed holdings exceeding $418 million in various Bitcoin-related ETFs, including BlackRock’s iShares Bitcoin Trust and the Fidelity Bitcoin ETF.

This shift is significant given Goldman Sachs’ historically skeptical stance on cryptocurrencies.

Morgan Stanley also reported holdings worth $188 million in spot Bitcoin funds, though this represented a decrease from the previous quarter.

The reduction was primarily due to the sale of shares in the Grayscale Bitcoin Trust, which has higher management fees compared to other ETFs.

Nevertheless, Morgan Stanley has empowered its 15,000 financial advisors to offer BTC ETFs to select high-net-worth clients, signaling a strategic move to integrate crypto exposure into wealth management.

According to Vetle Lunde, Senior Analyst at K33 Research, the 13F filings showed that 1,199 professional firms held investments in US spot Bitcoin ETFs by the end of Q2, an increase of 262 firms from the previous quarter.

“While retail investors still hold the majority of the float, institutional investors increased their share of total AUM by 2.41 percentage points, now accounting for 21.15%,” Lunde noted.

Sovereign wealth funds expand their crypto exposure

The rise in institutional holdings is not limited to major banks.

JPMorgan reported minimal crypto exposure with approximately $42,000 in Grayscale’s Bitcoin fund and $18,000 in the ProShares Bitcoin Strategy ETF.

HSBC and UBS have shown more significant investments, with HSBC holding nearly $3.6 million in spot Bitcoin and UBS maintaining around $300,000 in ETF holdings. Bank of America reported a collective holding of about $5.3 million, primarily from BlackRock and Fidelity.

Additionally, hedge funds such as Millennium Management, Capula Investment Management, Schonfeld Strategic Advisors, and Steven Cohen’s Point72 Asset Management have also reported stakes in Bitcoin ETFs.

Millennium Management, managing $68 billion in assets, remains a top holder despite trimming its ETF stakes from the previous quarter.

Sovereign wealth funds are also expanding their crypto exposure.

The Norwegian Sovereign Wealth Fund (NBIM) saw its indirect Bitcoin holdings rise by 62% since December 31, 2023, owning 2,446 BTC valued at $142.9 million by mid-2024.

This growth is attributed to increased investments in MicroStrategy, Marathon Digital, Coinbase, and Block Inc.

Despite this, Lunde suggests that the increase is likely due to sector weighting and risk diversification rather than a deliberate strategy to amass Bitcoin.

Similarly, South Korea’s National Pension Service (NPS), the world’s third-largest public pension fund, purchased 24,500 shares of MicroStrategy for $33.75 million, as per August 13 SEC filings.

Net assets under US Bitcoin Spot ETFs surge to $52 billion

The approval of Bitcoin ETFs by the SEC in January 2024 has been a watershed moment for the crypto market.

Total net assets under US Bitcoin Spot ETFs have surged to $52 billion.

Mathew McDermott, Global Head of Digital Assets at Goldman Sachs, described the launch of these ETFs as a catalyst for renewed momentum in the crypto sector.

A recent Global Digital Finance (GDF) survey revealed that 93% of institutional investors, including major finance firms across the US, Asia, Europe, and the Middle East, now handle Bitcoin in some form.

While 74% serve as custodians for Bitcoin, nearly two-thirds engage with it through ETFs or ETPs, and 54% involve Bitcoin in client trading.

Source: K33 Research

Elise Soucie, Executive Director of Policy and Regulation at GDF, highlighted that this year marks a pivotal shift towards institutional crypto adoption.

“The SEC’s decision to approve Bitcoin ETFs has significantly influenced the market, further driven by the strong performance of digital assets,” Soucie said.

Despite ongoing volatility and criticism, the growing institutional interest signifies a gradual acceptance of cryptocurrencies, shaping the future of digital finance and enhancing the mainstream integration of digital assets.

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