MassMutual made history as it was listed as the first insurance company to invest in bitcoin. Mike Novogratz, the billionaire CEO of Galaxy Investment Partners, described this as the most important news of the year when it comes to bitcoin. We do not know whether it will indeed become the most important, but no one can deny that it is a milestone.
Who is MassMutual?
MassMutual is an American giant founded in 1851, with 5 million customers and according to the Fortune 500 list, is 93rd among the largest companies in the United States based on total revenue.
Specifically, it bought $100 million worth of coins. The amount may sound large, but it is only a small percentage in front of the $235 billion it oversees.
But it has a huge special weight. Insurance companies fall into the category of conservative fund managers. They are not the kind of investors one expected to enter the cryptocurrency space. Moreover, history shows us that whoever took the first step never stopped there.
MassMutual bought the bitcoins through NYDIG, a New York-based fund management company that manages $2.5 billion in bitcoin and other cryptocurrencies.
In addition to buying bitcoin directly, it acquired $5 million in shares in NYDIG, formerly known as the New York Digital Investment Group. Of particular interest is how Ross Stevens, its founder, and chairman, admitted that other insurance companies have expressed interest in buying bitcoin through his company.
The increase in institutional investors
The case of MassMutual revealed something that was not widely known. U.S. insurance companies don’t need Fed approval to buy bitcoin. They are supervised by each State individually and are allowed to invest a small part of their funds in any asset they wish.
Maybe we still haven’t seen anything from the insurance industry. Maybe we’re still at the beginning. We’re not claiming it. JP Morgan says so in a report published by Bloomberg.
It suggests, yes, well-read, that insurance companies and pension funds transfer 1% of their funds to bitcoin. How much do they calculate? At $600 billion. Suffice it to say that the entire capitalization of bitcoin, even with the latest rise, is 400 billion.
Why now? Because now faith in the achievements of digital technology has met with strong concern about the macroeconomic environment.
Perhaps those who claim that the risk lies in not owning bitcoin at all are right.
Insurance companies in particular are at an impasse over their investment options.
Traditionally they invested in zero-risk government bonds, the small interest of which was sufficient to cover their operating costs and to make a satisfactory profit. But they are trapped in the trap of negative interest rates.
As long as governments “print” on this scale, banks and insurers are transformed with bond accumulators at negative interest rates. A result? They’re shrinking their balance sheets. These bonds will be converted into profitable assets if interest rates rise. How likely is that?
Side effects of negative interest rates
Anyone who buys a bond at a negative interest rate not only does not receive any something in return for the risk they take to lend someone, but also pays on top of it to make you… the price of financing it. If you keep it up to maturity, the chance of losing money isn’t just great. It is for sure.
Sure, unless along the way he finds an even bigger sucker!
In the magical world of modern financial engineering, the best gains are achieved in refined ways. How can you win with negative interest rates?
If interest rates fall even further. In that case, as long as you find someone willing to accept to buy your bond with even more loss. And whoever buys them, will he lose for sure? No, of course not! As long as he finds an even bigger sucker!