Bitcoin ETF allocations in 13F filings are ‘just a down payment,’ Bitwise CIO says

Matt Hougan, CIO at spot bitcoin ETF issuer Bitwise, said the recently revealed bitcoin allocations of institutional investors from first-quarter 13F filings were just a “down payment.”

Most professional investors take six to 12 months to evaluate crypto, according to Hougan, following a pattern of due diligence, personal allocation, isolated client allocations and platform-wide allocation phases.

“Beginning about six months after the initial allocation, many firms begin allocating across their entire book of clients, with allocations ranging from 1-5% of the portfolio,” Hougan wrote in a note to clients on Tuesday.

“The great promise of bitcoin ETFs is that they can open the door for professional investors to buy bitcoin en masse, dramatically increasing the pool of capital investing in the asset,” he added.

What are 13F filings?

13F filings are quarterly reports filed with the SEC by institutional investment managers with at least $100 million in equity assets under management. The filings provide a view of the manager's stock holdings at the end of each quarter.

However, 13F reports only require the disclosure of long positions in U.S. equities and options on equities. They do not require the disclosure of short positions, so they only provide a partial view of an investment manager's overall portfolio strategy.

Professional investor ownership of spot bitcoin ETFs

Earlier this week, Bracebridge Capital emerged as a top holder of Ark Invest’s ARKB and BlackRock’s IBIT spot bitcoin ETFs, also holding a significant allocation of Grayscales GBTC. Its combined spot bitcoin ETF holdings were valued at $434 million as of March 31.

The State of Wisconsin Investment Board also revealed a $163 million stake in BlackRock and Grayscale’s spot bitcoin ETFs.

Hougan also highlighted Hightower Advisors, the number two RIA firm in the U.S., owning $68 million worth of the spot bitcoin ETFs, as well as Cambridge Investment Research, Sequoia Financial Advisors, Integrated Advisors and Brown Advisory, with $40 million, $12 million, $11 million, $4 million allocations, respectively.

“All told, 563 professional investment firms reported owning $3.5 billion worth of bitcoin ETFs as of last Thursday. By the time the May 15 filing deadline arrives, I suspect we may end up with 700+ professional firms and total AUM approaching $5 billion,” he said, adding that the scale of ownership was “off the charts” for new ETFs.

“What is also notable is the sheer number of holders that each has so far,” Bloomberg ETF analyst Eric Balchunas said earlier this week. “IBIT is up to 250. That's bonkers for the first quarter on the market.”

In comparison, the gold ETF launch in 2004, considered the most successful ETF launch in history, gathered $1 billion in its first five days, with 95 professional firms invested in the product at its first 13F filing, Hougan said.

‘Incredibly bullish’

Retail still dominates the holdings, with professional investors accounting for just 7-10% of the ETFs’ $50 billion assets under management so far. However, that is likely to increase considerably given the pattern of institutional investor adoption, he argued.

Using the example of Hightower Advisors, its current spot bitcoin ETF allocation amounts to just 0.05% of its assets. However, if they were to follow the typical pattern of behavior Hougan outlined, a 1% allocation in time would equate to $1.2 billion from a single firm, leaving him “incredibly bullish” from the initial 13F filings.

“Multiply that by the growing number of professional investors participating in the space, and you can begin to see what’s behind my enthusiasm,” Hougan concluded.