Bitwise analysis of Bitcoin ETF holders: $3.5 billion in institutional investors is just the beginning.

In a memo to investors, Matt Hougan, Chief Investment Officer of Bitwise, the issuer of the Bitcoin spot ETF, analyzed the holders of the Bitcoin spot ETF based on the 13F filings currently disclosed. According to the analysis, there are 563 professional investment firms reporting to hold a total of $3.5 billion worth of the Bitcoin spot ETF. However, Hougan pointed out that with the operational mode of institutional investors, this is just the beginning, and he is very optimistic about the prospects of the Bitcoin spot ETF.

Many Professional Companies Hold Bitcoin ETFs

A report analyzed all 13F filings for 11 publicly traded Bitcoin spot ETFs as of May 9, with a total of 563 professional investment firms reporting holdings in Bitcoin ETFs worth $3.5 billion. By the submission deadline of May 15, Hougan speculated that there may ultimately be over 700 professional companies with total assets under management close to $5 billion. Some of the iconic asset management companies included are:

• Hightower Advisors: Ranked second in the U.S. by Barron's, managing $122 billion in assets, they hold $68 million in Bitcoin ETFs.

• Bracebridge Capital: A Boston-based hedge fund managing funds for institutions like Yale and Princeton, they hold $434 million in Bitcoin ETFs.

• Cambridge Investment Research: With over 40 years of history, advising assets over $170 billion, they hold $40 million in Bitcoin ETFs.

• Sand Hill Financial Advisors: A $17 billion company headquartered in Towson, Maryland, they hold $12 million in Bitcoin ETFs.

• Integrated Advisors: Based in Dallas, with over 12,000 clients and managing $4 billion in assets, they hold $11 million in Bitcoin ETFs.

• Brown Advisory: A $96 billion company based in San Francisco, they hold $4 million in Bitcoin ETFs.

Unprecedented Scale of Professional Investor Holdings

For new ETFs, this level of holdings is unprecedented. Most ETFs only attract a few 13F filers in the first few months of trading. Bloomberg ETF analyst Eric Balchunas also noted the frenzy of large investors in Bitcoin ETFs.

With Bracebridge Capital having over 80% of their assets in Bitcoin ETFs, do hedge funds see arbitrage opportunities?

Comparing to the launch of gold ETFs in late 2004, which attracted $1 billion in the first five days, but had only 95 professional companies invested in the product at the first 13F filing, the success of Bitcoin ETFs is historic.

Retail Investors Still Hold Most of the Circulating Supply of Bitcoin ETFs

While $30-50 billion and 563-700 companies are significant success, Bitcoin ETFs manage $50 billion in assets, meaning professional investors only hold a 7-10% share.

Does this also mean that Bitcoin spot ETFs are "retail-driven" funds? Hougan believes that to some extent, retail investors indeed have a significant amount of capital invested in Bitcoin ETFs, which is a great option as it allows them to access these investments on terms similar to the world's largest institutions.

With Institutional Investor Operating Models, This is Just the Beginning

However, Hougan believes the above statement overlooks the key operating mode of institutions. He emphasizes that most investors follow the following pattern:

1. Due Diligence: Most professional investors need 6-12 months to evaluate cryptocurrencies. It is rare for clients to allocate immediately after the initial meeting.
2. Personal Allocation: Professionals make small personal allocations before allocating on behalf of clients. They prefer to test before bringing investors into the market.
3. Client-Specific Allocation: Next, these professionals typically allocate for a few clients—usually those actively inquiring about cryptocurrencies.
4. Portfolio-Wide Allocation: Starting about six months after the initial allocation, many firms begin allocating across their entire client roster, with allocations ranging from 1-5% of the portfolio.

Looking at this model, the recent allocations seen in 13F filings are just the beginning. For example, while Hightower Advisors may now have $68 million allocated to Bitcoin ETFs, which is great, it only represents 0.05% of their assets. If they follow the above model, the allocation will increase over time. Specifically, a 1% Bitcoin allocation in their portfolio equates to $1.2 billion—all from one company.

By multiplying this with the increasing number of professional investors entering the field, you can start to see the reason behind my enthusiasm.