Bitcoin investment by sovereign wealth funds still faces obstacles, analyst says

Convincing the world's sovereign wealth funds about the advantages of investing in bitcoin still poses challenges, according to an analyst.

In early March, rumors spread that Qatar's sovereign wealth fund, the Qatari Investment Authority (QIA), might potentially invest in the bitcoin market. This speculation arose when it was reported that one of the Emir of Qatar’s private jets landed on the island of Madeira for the Bitcoin Atlantis conference.

Could sovereign wealth funds invest in bitcoin?

However, Fadi Aboualfa, head of research at Copper, questioned the likelihood of any sovereign wealth fund choosing bitcoin over fixed income or more traditional assets during capital allocation. For instance, Aboualfa questioned why sovereign wealth funds would invest in bitcoin rather than the security of five-year bonds, which can offer 5-6% annual returns risk-free.

"You need someone with a lot of power and conviction to push through and give the go-ahead for sovereign money into bitcoin," Aboualfa told The Block.

In the case of the QIA bitcoin investment rumors, Aboualfa said the nation would be better off using its uncaptured gas to mine bitcoin. "That would be growth in terms of revenue against natural resources that they already have and are not being used, and the most expensive part of mining bitcoin," he added.

Disentangling from the dollar-dominated financial system

However, Aboualfa suggested that bitcoin could potentially appeal to countries seeking to disentangle themselves from a dollar-dominated global financial system.

Countries, "especially those whose reliance on the West might be more than they want it to be, especially in regard to payment networks," may look to bitcoin because "blockchain and digital assets are giving them some increased level of control and mitigation of geopolitical risks. This could eventually, in the long, long run, circle back to sovereignty of money which right now is only bitcoin," he added.

Despite doubts about sovereign wealth funds worldwide investing in bitcoin, one analyst cited signals indicating that these financial institutions are showing interest in the digital asset sector.

Indications of sovereign wealth fund interest in digital assets

"One element of the institutionalization of crypto, which surely appeals to sovereign wealth funds, and also family offices, is the new tooling used for sophisticated portfolio managers," cryptocurrency derivatives trader Gordon Grant said.