2 days ago
Booming Bitcoin muscles into an old-school investment club
Stodgy equity mutual funds have been bleeding cash for years, losing out to cheaper and often better-performing alternatives. But a niche subset are now finding an unlikely lifeline from a next-generation booster: Bitcoin.
ADVERTISEMENT The digital token's 100% surge over the past year appears to have given a handful of fund portfolios in the $9 trillion actively managed sector a lift. Of the 10 funds invested in Bitcoin via exchange-traded funds, seven have beat their benchmarks by an eye-popping average of 22 percentage points in the 12-month period through July. And while stock picking also played a hefty role in that outperformance, Bitcoin beefed up returns and provided some an outsize bump, according to Bloomberg Intelligence's David Cohne, who compiled the data.
One of those funds — the Kinetics Internet Fund (ticker WWWFX), which has about half of its $348 million in assets allotted to two Grayscale Bitcoin ETFs — trounced its benchmark, the S&P 500 Index, by 23 percentage points over that period, with the token-linked products responsible for most of its total return, the strategist found.
While the crypto industry's reputation as a space rife with illicit activity has ignited controversy about exposing portfolios to its best known token, Bitcoin's stupefying gains year after year — even when accounting for brutal drawdowns — have become too hard to ignore. And while many equity mutual-fund managers are still restricted from owning it under investment mandates, those looking for an edge over the multi-year uptrend in stocks have come to see the digital coin as a high-risk, high-reward tool.'It gives them an opportunity to increase their performance a bit,' said Cohne. While the list of mutual funds holding crypto is far from expansive, he expects it to grow — thanks to a wider acceptance of the industry into the financial mainstream.
ADVERTISEMENT Recent legislation has created a favorable regulatory landscape, helping crypto gain a greater foothold in the financial mainstream. Citigroup Inc. and JPMorgan Chase & Co. are among Wall Street institutions touting their efforts to break into tokenized deposits and stablecoins, while a new breed of Bitcoin accumulators — modeled on Michael Saylor's Strategy — are raising capital to purchase and hold cryptocurrencies on their balance sheets. Unlock 500+ Stock Recos on App
The ability to add Bitcoin-linked assets has become especially relevant now, as appetite for active mutual funds continues to fade: more than $280 billion has exited active equity mutual funds so far this year alone, bringing outflows going back to 2020, including 2025's figure, to a staggering $2.3 trillion, according to data compiled by BI.
ADVERTISEMENT An analysis from Bitwise — which runs its own Bitcoin ETF, among other products — suggests that if a traditional portfolio of 60% stocks and 40% bonds were readjusted to include a 5% allocation to Bitcoin, it would have returned more than 200% in the 10 years ending 2024. That compares with a roughly 96% gain clocked by the 60-40 crypto-focused ETFs have drawn in around $75 billion since the start of last year, according to BI-compiled data. Spot-Bitcoin ETFs, in particular, are a key beneficiary. These products, which hadn't existed in the US prior to last year, offer investors a cheap and easily tradeable way to get exposure to the digital coin.
ADVERTISEMENT Patient Capital, a $2.2 billion investment manager, has held a position in one such ETF — Fidelity's FBTC — which it bought for its Opportunity Fund starting late last year.'One thing that differentiates our funds is our flexibility to do unique things and our willingness to invest in attractive opportunities early in their life cycle,' said Samantha McLemore, chief investment officer at the Baltimore-based it's common for mutual funds to have specific limitations that may curtail them from diving into the crypto realm. Patient Capital had to overcome 'constraints' to invest in Fidelity's Bitcoin ETF, according to McLemore, who said a fund's prospectus 'must allow such investments.'
ADVERTISEMENT Those with tech-adjacent mandates, like Kinetics' internet fund, could make the case that digital assets fit into their policies, BI's Cohne if a mutual fund manages to add Bitcoin products to its lineup and beat the market, it doesn't guarantee inflows. Of the 10 funds that own Bitcoin ETFs, only three have seen inflows so far this year, data compiled by Cohne showed.
'Unless fund companies can convince investors that a higher fee is worth it,' he said, 'they will need to consider lowering their fees even more to stay competitive.'
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