Michigan's massive public pension system dips its toes in the water when it comes to cryptocurrency

Investors overseeing some of Michigan's massive public pension system are dipping their toes in the water when it comes to cryptocurrency.

Some Michigan state pension funds are being invested in bitcoin and other cryptocurrencies by the fund managers they hire, state officials said.

As of late July, the State of Michigan Retirement System had about $6.6 million invested in bitcoin, the most well-known form of cryptocurrency, said Ron Leix, a spokesman for the state treasury. The fund also invested $1.4 million in Grayscale ethereum ETF, he said. Ethereum is one of the other most popular digital currencies.

But that belies bigger movement: Over the last two years, Leix confirmed the fund invested roughly $45 million in cryptocurrencies. The dividends are striking: Leix said the state already recouped its initial investment, and earned an additional $39 million solely from the cryptocurrency. In cryptocurrency parlance, Michigan's assets are "to the moon."

Of that return, Leix said investors returned about $20 million to the fund.

Yet the investments represent exceptionally small portions of the $107.5 billion total fund. And, despite any gains, there's no current push to dive deeper.

"Cryptocurrency doesn’t play a major role in our investments," Leix said, noting a private company hired to invest some of the fund made the cryptocurrency decisions.

"There isn’t an active strategy to invest in bitcoin and cryptocurrencies."

The company making these choices, an investment management company named ARK Invests, suggests cryptocurrencies offer a "new paradigm" for how people and economies use money.

"ARK believes cryptocurrencies will contribute more dramatically and profoundly to the evolution of monetary systems than any other breakthrough in history," reads a portion of the company's website explaining its cryptocurrency strategy.

Experts told the Free Press about the inherent risks associated with investments in cryptocurrencies. And apart from a few outliers — chiefly Wisconsin's pension fund, which announced a far more sizable investment in cryptocurrency earlier this year — cryptocurrency investment appears to remain rare among large funds of this nature.

The Detroit Police and Fire Retirement System’s outside financial adviser Wilshire Associates has been doing white papers on bitcoin and cryptocurrency for several years and has not advised pension systems to invest money in this area, said Bruce Babiarz, a spokesperson for the Police and Fire Retirement System of Detroit.

The city’s police and fire pension fund is not invested in any cryptocurrencies, Babiarz said.

The police and fire pension system’s board oversees the $2.7 billion fund, which serves some 8,000 retired police and fire retirees and some 3,000 active duty first responders.

The rapid rise in recession fears in early August has triggered a selloff in stocks, as well as cryptocurrency.

Bitcoin and Ether plunged in trading on Monday to hit lows not seen in several months. Bitcoin fell 12% to $52,054, heading for its largest one-day fall since November 2022, according to Reuters. Ether slid as much as 21% to its lowest since January. Reuters on Monday morning noted that Bitcoin has lost over a third of its value since hitting a record high in March.

Analysts noted that cryptocurrency is trading more and more in a similar direction as stocks, which undermines an earlier theory that cryptocurrency might be viewed as a “safe-haven” for investors in times of uncertainty.

Much remains to be seen in the days ahead, should recession fears continue to ignite.

Crypto markets saw a flurry built of interest from conventional investors this year after the U.S. Securities and Exchange Commission gave the go ahead for exchange-traded funds to track the spot prices of bitcoin and ether.

The currencies are at a far different place now than they were a handful of years ago: Increasingly, they're becoming a part of traditional retirement and investment portfolios, explained Scott Baker, associate professor of finance at Northwestern University.

"I think there is this strawman … everybody investing in crypto are kind of these crazy people, these tech bros or these people who are YOLO-ing their entire government savings into crypto," said Baker, who helped author multiple papers exploring who invests in cryptocurrency and what they do with any gains.

"What we saw was that … the average crypto investor is actually more than active in traditional equity markets as well."

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