South Korea Pension Funds Buys Crypto

South Korea Pension Funds Buys Crypto

December 12, 2023 by Editor's Desk
There have been a lot of developments in the crypto markets in the last couple of days. Most of them revolve around traditional financial institutions accepting and adapting to crypto. This in turn means that crypto markets are more stable and somewhat more regulated. The latest crypto news from South Korea is a part of
South Korea Pension Funds Buys Crypto

There have been a lot of developments in the crypto markets in the last couple of days. Most of them revolve around traditional financial institutions accepting and adapting to crypto. This in turn means that crypto markets are more stable and somewhat more regulated.

The latest crypto news from South Korea is a part of the same pattern. Korea’s pension fund has just made a large investment in crypto and it’s the first government agency of that size to do so. We’ll dive deep into the decision and try to explain why it matters for every crypto investor.

The Purchase

National Pension Service (NPS), a Korean pension fund, has bought shares of Coinbase, worth $20 million. This was announced by NPS and the U.S. Securities and Exchange Commission (SEC). With this purchase, NPS has bought over 280.000 shares. That’s a bit more than 26 billion won (Korean national currency).

According to Coinbase, the shares are now worth over $27 million. This is a huge investment that will continue to produce profit in the years to come, as Coinbase has been on the steady rise for years now. The profit in the first quarter is therefore 40 percent.

How is Coinbase Doing?

Coinbase has proven to be one of the best investments in crypto in recent years. Its market cap is now 23 billion and this is only a part of the long-term growth that doesn’t show any signs of stopping soon. Shares of Coinbase have risen 4 percent in the last quarter and 177 percent in the last year.

This has made it one of the best investments in the world of cryptocurrencies, which aren’t always known for steady growth. The growth has led to an increased interest from traditional financial institutions.

Why is This Important?

The importance of this purchase goes beyond value, even though the value itself is substantial. Over the last few years, traditional financial institutions have tried to get into cryptocurrency. This shows that the wider market has accepted crypto as a valid investment and it’s no longer afraid of its volatility.

Pension funds are especially conservative when it comes to their investments as they need to consider the long-term interest of their interest. There are also political considerations to take in mind when it comes to taking care of the elderly. The fact that a pension fund has decided to take such a risk, shows that crypto isn’t as risky as it once was.

Criticism in South Korea

The move was criticized in Korea. The national assembly was convened on the matter and the delegates criticized the move on a few important grounds. The first is obvious and it’s that cryptocurrencies are volatile and that no one knows how much Coinbase would be worth in the years to come.

The second is that no one knows how the regulation regarding crypto will change and some claim it will be more restrictive than before. In the end, the Korean National Assembly was worried that crypto doesn’t produce profits on a regular basis and the value can only be gained if NPS sells it.

NPS Policy

The National Pension Service has a policy regarding crypto that was set when cryptocurrencies became a popular investment a few years ago. Simply put the policy was that it’s not allowed to buy crypto. This is still in effect and NPS hasn’t bought any cryptocurrencies so far.

The purchase we mentioned is different because NPS didn’t buy cryptocurrency, it bought a company that produces cryptocurrency coins. Some may argue that this is a pedantic and technical difference, but it’s enough to allow the purchase.

The Broad Picture

NPS didn’t enter into a risky arrangement with investment nor did it dramatically change its investment model. NPS holds over $750 billion in assets, at least it did at the end of June when they disclosed the information. The investment of $20 million is therefore not that significant in the grand scheme of things.

However, the move is still significant for symbolic reasons. It shows that Korea, which has an aging population is thinking about the future and finding ways to increase the yields of its pension fund in a new and innovative way.

Other Pension Funds

The decision made by NPS isn’t new in the world of pension funds. Other pension funds all over the world have already considered purchasing assets in crypto and some have done so.

The California Public Employees’ Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS) hold 242,922 and 234,492 shares of Coinbase, respectively. That’s about $16 million in crypto funds.

Houston Firefighters’ Relief and Retirement Fund (HFRRF) became the first U.S. pension fund to invest in cryptocurrencies, with a $25 million investment in Bitcoin.

There’s a difference between these investments. Even though the US funds are for public servants, the funds themselves are private. NPS is a public pension fund since unlike the US, South Korea has a national public pension fund, to which all employees contribute.

Shape of Things to Come

This isn’t a coincidence but a small piece of what’s to come. Cryptocurrencies have gone a long way. They were once seen as a small niche interest for the tech-savvy internet users, after that, they were a gamble for the risk-takers, and a way to pay for shady transactions online.

In the years to come, more pension funds will take part in crypto investments. Surveys in this regard show that at this point, most if not all pension funds are considering investments in crypto. This is seen as a way to diversify their portfolio.

Investment Funds

Once the pension funds, which are known to be as conservative as it’s possible to be, start investing in crypto, large investment funds will do so, as well, at least more openly and broadly than before. This is already noticeable in the moves made by BlackRock.

BlackRock has tapped Coinbase as a custodian for their spot Bitcoin ETF applications, with widespread optimism around the potential approval of a Bitcoin ETF.

Government-Issued Crypto Coins

Another step in the wide acceptance of cryptocurrencies as a legitimate payment method and investment will be for the national banks to start issuing their own crypto coins. These so-called stable coins already exist in a way when they are issued by private companies but tied to the value of existing fiat currencies.

The Biden administration has announced that it’s planning to create such a currency and it’s been the talk of the crypto world ever since. However, no concrete plans were made, and the Republican Congress is against the idea.

To Sum Up

A South Korean pension fund has purchased stocks in crypto companies. This is an innovative move as most government-run pension funds don’t invest in crypto as it’s seen to be risky. The fund has purchased shares rather than actually buying the currency to go over the regulations. The purchase was criticized by the Korean parliament.

This is a part of the broader move towards normalizing cryptocurrency investments and accepting them as a part of the business world. This is done by governments and big businesses alike and it’s a trend that will continue in the years to come.