March 28, 2023
Bitwise Bitcoin Fund Increases Amidst Fears of Inflation

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Worries about out-of-control inflation has prompted accredited investors to pour millions into Bitwise’s Bitcoin Fund as a way to preserve the value of their portfolios. Last week, an amended filing with the Securities and Exchange Commission (SEC) showed that a total of $8.9 million had been raised by the asset manager for its Bitcoin Fund. This provides accredited investors in the United States with exposure to Bitcoin via a traditional product. This is the single-largest increase that has been seen in the assets that the fund has raised in its two years. A filing made in 2019 showed that the investment in the Bitcoin Fund had been $4.1 million, which means that the funds have more than doubled in the last year alone.

Bitcoin seems to have made progress in leaps and bounds in regard to its acceptance in the traditional investment community. Initially, there had been a lot of skepticism and resistance towards Bitcoin because of their volatility and decentralized nature. However, Matthew Hougan, the head of research at Bitwise, stated that the more immediate cause that had led to an increase in the fund’s size was because of concerns relating to runaway inflation. He said that clients of Bitwise are looking for a hedge against inflation due to the huge amount of fiscal stimulus, the Fed’s balance sheet’s unprecedented expansion and the significantly more dovish and new inflation policy of the Fed. 

He went on to say that in today’s market, the most efficient hedge against inflation that can be found is none other than Bitcoin. Central banks are governments are battling to keep the economy alive and going in the wake of the pandemic and their most favorite tool so far has been none other than fiscal stimulus. Initially, the Federal Reserve had reduced the interest rates to rock-bottom and had injected more than $2.8 trillion into the economy. 

In the run-up to the Presidential elections in November, Congress has put together another stimulus package worth $2.4 trillion. Jay Powell, the Fed chair said this month that it was unlikely for the central bank to tighten its monetary policy for the next three years at least. He said that they will probably even accept inflation above the target of 2% in order to compensate for the decline in consumer prices that had occurred during the peak of the coronavirus pandemic. According to Hougan, a lot of clients at Bitwise are financial advisors who are working for wealthy investors and they are themselves wary of the debilitating effects that inflation will have on their portfolio.

Therefore, a number of investors have begun to see the 21 million fixed supply of Bitcoin as a way of preserving value in the event that inflation occurs due to a loose monetary policy. There have been surges in demand experienced by other fund managers in the same area of well-heeled investors. $250 million had been invested in the three funds that are being operated by the New York Digital Investments Group (NYDIG) in the summer.

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