MassMutual Bitcoin Allocation Used To Generate Yield During Economic Stagnation

Will Nemirovsky -

MassMutual announced a purchase of $100 million worth of Bitcoin. The company is one of the largest insurers in the United States, with over five million clients. The announcement makes MassMutual the first large insurer to disclose Bitcoin holdings, and is a testament to the global lack of yield among safe investment opportunities.

  • MassMutual has been offering insurance products for over 169 years and has grown to over $30 billion in annual revenue. The company has over 11,000 employees and is the sixth largest insurer in the United States by assets. MassMutual invests capital out of its $235 billion general account. This account is funded by premiums paid by policyholders, and in turn is used to payout insurance claims. General accounts typically invest in low risk investments, because insurers must have the funds available to pay claims as they arise.
  • The $100 million allocation from MassMutual represents only 0.04% of the general account, but may not be the only allocation that the company makes. A spokesperson from the company noted that MassMutual “see[s] this initial investment as a first step, and like any investment, may explore future opportunities.” Further, the company cited the intention of remaining diversified and gaining “meaningful exposure to a growing economic aspect of our increasingly digital world” as motivation for their initial investment. MassMutual is hoping to increase the returns of a portfolio that is primarily allocated to low or even negative yielding securities, and Bitcoin may also shield the general account from outsized impacts of inflation.
  • Global interest rates continue to drop drastically during 2020, in an effort to fight the economic impacts of COVID-19. There is now a record $18 trillion of global debt with negative interest rates.  This represents 27% of all investment-grade debt. Notably, Spain’s 10-year bond traded with negative-yields for the first time ever on Friday. The instrument offered yields as high as 7% just a decade ago. These yields are expected to continue trending lower for the foreseeable future, as government agencies artificially inflate demand. The European Central Bank announced an additional $606 billion in bond buying to support economic recovery as many European countries face a new wave of lockdowns. These low yields come at a time of huge increases in the global money supply; the U.S. monetary base has increased by 48% since the start of the year, according to the Federal Reserve Bank of St. Louis.
  • Software company MicroStrategy, a notable Bitcoin investor, offered investors an opportunity for positive yield in a debt issuance this week. The company initially planned to sell $400 million worth of convertible senior notes to fund further Bitcoin purchases. However, the issuance was oversubscribed and ended up raising $650 million, despite being offered exclusively to institutional investors. At the time of issuance, the notes offered a yield of only 0.75%. Institutional investors’ willingness to accept such a low return on debt used for funding Bitcoin purchases speaks to both a lack of opportunities to generate return in the market, and a market sentiment that Bitcoin will continue to grow as an asset class.

Investors are desperate to generate nominal returns ahead of significant and inevitable inflation. MassMutual’s $100 million Bitcoin purchase represents a historic step for the industry, and was arguably Bitcoin’s best signal of the year. The allocation from an account that is characteristically risk-adverse redefines Bitcoin’s role in global markets. With low yielding debt likely to persist for many years, we can expect to see other asset managers allocate to Bitcoin as a way to boost returns and hedge against the inevitable inflation of all major fiat currencies.