Pension Funds Must Adopt Bitcoin To Avoid Insolvency

OpinionThe U.K.’s recent pension fund crisis has revealed the only solution for such entities: adopting Bitcoin as soon as possible. This editorial is by Mickey Koss, a West Point grad with an economics degree. He served four years in the infantry, before transferring to the Finance Corps. I’m going to use CalPERS as a proxy for your general retirement system. According to investopedia, CalPERS invested about a third of their money in bonds with a target annual yield of 7%. Fixed income bonds are known as bonds due to their predictable coupon payments. They are used for income and not capital gains. The Treasury Average Interest Rates as of September 30, 2020Recycling a chart I created in one of my previous articles — Let’s assume that the weighted average coupon rates on government bonds are 2% to simplify the math (because it is according the Treasury). If pension funds are to earn 9.5% annually on the rest of the money without fail, they will need to pay a 2% income rate. Otherwise, they risk not being able fund their pension payments. There is no room to make mistakes. What happens if you feel the pressure and still need to buy mandate bonds despite the loss of income? You begin to increase your positions. This is a strategy that almost wiped out the UK’s pension sector just a few weeks back. The Washington Post provides a good overview of the situation. However, the essence of the situation is that pensions were forced into levering their positions to increase yields. Greg Foss, my spirit animal, says that if you can lever a position 3x, it can increase your yield by 2% to 6%. However, leverage cuts both ways. A 50% loss can turn into 150%, which will eat into your other investments and positions. This is exactly what happened in Britain, requiring a bailout to stop pension fund liquidations and systemic impacts on the banking and lending systems. Enter bitcoin, stage left. Instead of using leverage to increase yield, I believe pension funds will be forced into alternative investments like bitcoin to grow their fiat-denominated assets and service their pensioners. Recently, I wrote an article about the debt spiral concept. Although central banks are raising interest rates right now, they won’t be able to do so forever. This will inevitably lead to pension funds being redirected back into the low-yield environment which caused the systemic problems. There is no risk that Bitcoin will be liquidated. Bitcoin does not require leverage. Pension funds can use bitcoin to boost their returns instead of taking risky bets and perpetuating the culture moral hazard. This is a natural progression as more asset managers realize that it is their responsibility to pay pensioners what they promised. The dominoes will fall if one sets the precedent. Don’t be the last. This guest post is by Mickey Koss. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.Tagsterms:AdoptionPension FundUnited Kingdom


Add a Comment

Your email address will not be published. Required fields are marked *