Bhutan’s Sovereign Wealth Fund Invests Millions in Bitcoin: But Why the Secrecy?

On April 17th, according to court documents, in the past year, the Royal Government of Bhutan’s sovereign wealth fund Druk Holdings&Investments has invested tens of millions of dollars in Bitcoin, Ethereum, and other digital assets, and it is a client of bankrupt cryptocurrency lenders BlockFi and Celsius, but it has never publicly disclosed these two points. It is reported that the fund holds assets of $2.9 billion. (Forbes)

Forbes: Bhutan’s sovereign wealth fund Druk has secretly invested tens of millions of dollars in cryptocurrency over the past year

The Royal Government of Bhutan’s sovereign wealth fund, Druk Holdings & Investments (DHI), has invested tens of millions of dollars in Bitcoin and other digital assets, according to recent court documents. As per Forbes’ report, this has come as a surprise to many, especially given the fact that the fund is a client of bankrupt cryptocurrency lenders BlockFi and Celsius, but has never publicly disclosed these investments. With assets worth $2.9 billion, why would the sovereign fund of Bhutan take such a significant risk in one of the most volatile markets today?

Why Would Bhutan’s Sovereign Fund Invest in Bitcoin?

With cryptocurrency prices on the rise, and Bitcoin having touched an all-time high of $64,863 last month, it comes as no surprise that investors around the world are looking to get a piece of the action. However, being a sovereign fund, the DHI has much more at stake than individual investors. The primary goal of most sovereign funds is to safeguard their country’s wealth for future generations, and for this, they need to focus on long-term investments. And digital assets like Bitcoin, despite being incredibly unpredictable, offer higher potential returns in the long run.
A significant factor for sovereign funds like DHI is also diversification. A lot of sovereign wealth funds worldwide​ invest in multiple asset classes like stocks, bonds, real estate, and commodities. Bitcoin and other cryptocurrencies represent a new and valuable asset class that can help diversify the portfolio, hedge against inflation, and potentially offer better returns than other traditional assets.

Why the Secrecy?

The real question here is why Bhutan’s sovereign wealth fund did not publicly disclose its investments in Bitcoin and the two cryptocurrency lenders. There could be two possible reasons for this.
Firstly, the cryptocurrency markets are unregulated and incredibly volatile. A sovereign wealth fund investing in them could be viewed as a risky move, and it may raise concerns about the fund’s ability to manage the country’s wealth. As DHI’s primary goal is to safeguard Bhutan’s wealth, the fund may have been apprehensive about this image.
Secondly, there could be political pressure. Bhutan is a small landlocked country located in the Himalayas, and its economy is heavily dependent on Indian aid. If India, Bhutan’s closest ally, has reservations about cryptocurrencies, the Bhutanese government may have been under political pressure to keep its investment in digital assets under wraps.

The Bottom Line

Sovereign wealth funds are always on the lookout for new and innovative investment opportunities, and cryptocurrencies have emerged as a lucrative asset class in recent years. The Royal Government of Bhutan’s decision to invest in cryptocurrencies may seem surprising, but it is not entirely unprecedented. Several other sovereign funds worldwide have been investing in digital assets for the past few years. The primary goal of these funds is to diversify their investment portfolio, hedge against inflation, and potentially reap higher long-term returns. The secrecy around the DHI’s investments in cryptocurrency lenders BlockFi and Celsius may raise concerns, but the Bhutanese government’s move shows how digital assets have grown in prominence in global finance.

FAQs

1. What is a sovereign wealth fund?

A sovereign wealth fund is an investment vehicle that pools sovereign states’ surpluses to invest them in diverse investments. These funds are typically created to secure the country’s long-term economic and financial stability, and the primary objective is to safeguard the wealth for future generations.

2. Why are more sovereign wealth funds investing in cryptocurrencies?

Sovereign funds invest to make returns for future generations, and with Bitcoin and other cryptocurrencies becoming more mainstream, it is possible to have higher returns on investments in digital assets. Cryptocurrency investing also offers diversification benefits for a fund’s portfolio and hedges against currency exposure.

3. How do sovereign wealth funds impact the global economy?

Sovereign wealth funds are becoming increasingly important in the financial world. These funds can contribute to financial stability, particularly in countries with volatile financial markets. Additionally, sovereign funds often invest in both emerging and developing markets, which can impact these economies positively by increasing foreign investment and providing capital for infrastructure and other projects.