What it describes as the first ever defined benefit (DB) portfolio allocation to Bitcoin is being made today by pension and investment advice Cartwright, as it also looks to push the digital currency as a workplace savings proposition and a staff retention tool.
The unnamed DB scheme is allocating 2 to 3 per cent of its assets to Bitcoin, buying in today when the price stands at around $65,800.
Cartwright, which also advises businesses, family offices and charities, says it is the first foray into Bitcoin by a DB scheme.
Glenn Cameron, head of digital assets at Cartwright says the allocation is being made after a lengthy consultation with the scheme’s trustees, where ESG, investment case and security were all addressed at length.
The firm has set up an arrangement where the private key, the 256 character pin code that accesses the vault holding the Bitcoin, is split between five independent institutions.
Cameron says: “The logic is that it is an asymmetric investment opportunity. If you put in 2 per cent, the maximum you can lose is 2 per cent – if it goes to zero. But the upside is potentially significant. If you look at the correlations of bitcoin with 14 other asset classes, the 60-day correlation centres around zero. Investors need certain investment horizons, and it needs to fit within their risk appetite.”
Cameron believes Bitcoin is at the beginning of a two-decade long growth cycle, in part because of its scarcity. He says the supply of gold increases by 2 per cent a year whereas Bitcoin increases by 0.83 per cent, with new supply halving every four years and stopping when 21 million Bitcoins are reached, at which point supply will freeze.
The firm is also looking to launch a Bitcoin workplace savings proposition – Cartwright Bitcoin Employee Benefits, which will enable employers to pay Bitcoin into wallets created for their staff. Employees will get four training videos, explaining how to use and access the coins their employer is giving them. The solution is being tested internally and Cartwright says it has five companies looking to sign up to the offering.
Challenged as to the financial wellbeing risks of engaging employees in saving in a single asset class that carries great volatility, Cameron says: “Staff can buy shares or ETFs that are leveraged, at any time. We explain to people this is a long term savings vehicle. This is money you are saving for a minimum of eight years – two bitcoin cycles. Putting in money on a monthly basis has not proven risky so far. Over 15 years anyone who has pound-cost-averaged monthly for more than a year has never been down.”
Cartwright is also looking to offer Bitcoin as an equivalent to a restricted stock unit, as an incentive to key staff within unlisted companies.
“If you are an unlisted company you can’t give shares because you are illiquid. But you can do it with Bitcoin – we call them restricted bitcoin units, held in an escrow account and the employee gets them after three years.”
Cameron adds that it will spearhead Bitcoin as a means of doing cross-border payments and within corporate holdings, a strategy used by more than 10,000 companies in the US.
“On the cross-border payments side we are going to be able to give businesses the ability to send money around the world cheaper than with banks,” he says.
Challenged on the ESG characteristics of Bitcoin and the high energy use in making them, he says: “The government and Bank of England hate the fact people may start to use Bitcoin rather than their currency. That is why we hear it is bad for the environment. KPMG and the Institute of Risk Management have published reports showing how it isn’t. It costs about $80,000 dollars to mine one Bitcoin at standard energy tariffs but you can buy one for $66,000. How do they do this? Because they buy cheap energy. No Bitcoin miners use grid energy – they use renewables – in fact they are subsidising the cost of the energy, by using energy that would have otherwise been wasted – 58 per cent is renewable energy and the sector will be carbon neutral by 2032.
“Another common challenge from trustees is that it is used by terrorists and criminals – But a UN report has shown that 5 per cent of criminal transactions in national currencies. In Bitcoin we know that it is 0.36 per cent. We say that Bitcoin is the best ESG asset in the world.”