While a potential new law in North Carolina will clear the way to invest up to 5 per cent of the state’s $127 billion retirement money in digital assets, state treasurer Brad Briner tells Top1000funds.com he won’t be piling into bitcoin anytime soon.
Despite the enthusiasm around digital assets, propelled by President Donald Trump’s vision for a national bitcoin stockpile, Briner says North Carolina Retirement Systems is a “low-risk investor” and it “needs to see less volatility in the future for bitcoin to make sense”.
“We already have exposure to digital assets because we own the S&P and stocks like Tesla have essentially become bitcoin depositaries,” he says in an interview, reflecting on the fact that companies around the world have gone on a bitcoin buying spree and stockpiled the digital currency. Around 130 listed firms hold a combined $87 billion of bitcoin, according to data from BitcoinTreasuries.net.
“Maybe if the legislation is passed it will engender a period of low volatility in digital assets that will make it more compelling for a pension system like us.”
The bill, named the NC Digital Assets Investments Act, passed the legislature in the House and is awaiting Senate approval. Its supporters argue that bitcoin investments would enable North Carolina to generate positive yields while also positioning the state as a leader in technological innovation.
Briner says the legislative bandwidth is welcome, but the main reason for caution is that bitcoin does not behave positively in a crisis and is not resistant to shocks.
“Framing bitcoin as anti-fragile and an asset that acts as a hedge against monetary debasement is not quite right. I need to know what role it will play in the portfolio until we decide to put it in the portfolio.”
He also flags longer-term worries in the growth of digital assets.
“Digital assets are also a worry because the country is opening a pandora’s box by removing the dollar as the reserve currency. It is 30-years off, but this would have a profoundly negative implication for our country.”
Still, Treasurer Briner reflects that he is routinely surprised by how many people in a personal and professional capacity hold bitcoin.
“Every investment professional I know owns bitcoin in some capacity or another. It’s such an interesting innovation, and they want to pay attention to it. There is always controversy around new asset classes, and any new financial innovation meets resistance.”
Popular asset class
North Carolina is not alone in opening the door to digital assets. It is one of around 16 US states including Texas to have crypto bills under consideration while some have already dipped a toe. The $143 million State of Michigan Retirement System has invested in Bitcoin ETFs and the State of Wisconsin’s Investment Board which manages $156 billion in assets for the Wisconsin Retirement System was also an early institutional adopter of the newly approved Bitcoin ETFs.
At the end of last year, a report from pension specialists Cartwright said an anonymous UK pension fund had become the first UK fund to invest (3 per cent of its assets) in cryptocurrency for the first time.
Elsewhere, Abdiel Santiago, CEO and chief investment officer of the Fondo de Ahorro de Panama, Panama’s $1.5 billion sovereign wealth fund, is also keenly watching the market develop from the sidelines.
In 2022, Dutch investor APG’s chief economist Thijs Knaap and senior strategist Charles Kalshoven argued against investing in crypto. They said that long-term investors need to invest in assets that generate cash flows – stocks that pay dividends, bonds that pay interest and real estate for which rent payments are received. Cryptocurrencies, they argued, do not generate any cash.
“The only way to make a return on cryptos is to sell them to the next investor who is willing to pay more than you did. In the meantime nothing happens, to us that makes investing in cryptos unattractive as well as unpractical,” they said.
Knaap and Kalshoven argued that although pension funds do invest in other assets without cash flows (commodities and gold, for example) these assets have other appealing characteristics.
“We know, based on data that sometimes goes back hundreds of years, how, for example, gold, moves along with the general price level and thus provides a good hedge against inflation,” they said. “Bitcoin doesn’t have a 200-year history, and neither does it have a strong correlation with other assets. Well, lately maybe with stocks, but that provides no diversification to our portfolio and no hedge against anything. So, in short: crypto currencies provide no cash flows and no hedges. From a technical investment perspective we therefore don’t see a reason to invest in them.”
Details of the Act
North Carolina’s provision limits investments to mutual fund equivalents of cryptocurrencies and prevents direct purchases of specific currencies.
Key provisions of the Act stipulate that digital assets must be exchange-traded products with a minimum average market capitalization of $750 billion over the past twelve months. The bill also outlines strict guidelines for the maximum investment allocation, sets standards for their custody and investment management, and clear definitions and standards are provided to ensure that only qualified digital assets are included.
The bill passed in a 71-44 vote with Democrats largely standing against the bill. Supportive representative Mark Brody said, “With the U.S. dollar facing periods of inflation and devaluation, it is prudent to explore this new breed of assets which can offer a viable hedge against inflation,” according a report of the Act’s passage detailed in the Carolina Journal.
“You’re investing in the hope that someone else will think whatever it is you bought is worth more than what you paid for it. Whether that’s a crypto, a stock, or a barrel of oil, it all works the same way,” said Republican Keith Kidwell.
North Carolina’s Investment Management Division employs 20 investment professionals and oversee both the pension fund and the Short-Term Investment Fund (STIF) and the Ancillary Investment Programs. Around 58 per cent of the portfolio is in growth assets, 34 per cent in rates and liquidity, 9.8 per cent to inflation sensitive and diversifiers and 2.1 per cent t multi strategy.
