Sovereign Wealth Funds (SWFs) are quietly building
Bitcoin
During market downturns, investors tend to hold Bitcoin and see price drops as buying opportunities, despite Bitcoin's well-known volatility. Mubadala Investment Company in Abu Dhabi and the Luxembourg National Agency for Investment Funds (FSIL) are examples of this cautious strategy, accumulating Bitcoin through regulated entities like BlackRock. The iShares Bitcoin Trust (IBIT) has been particularly noteworthy in FSIL's initiatives for 2025 according to a report by Forbes. They have committed to investing only 1% of their €745 million portfolio. Investing in Bitcoin through ETFs reflects both strategic interest and operational caution.
Binance exchange new user permanent 20% fee rebate registration link.
Binance official registration:https://www.binance.com/join?ref=XSGEK3VL
This accumulation strategy targets specific price thresholds; for instance, funds like Mubadala and FSIL have indicated that they will actively purchase when Bitcoin's price is below $90,000. Their allocation ratios are intentionally kept low—typically only 1-2% of the total portfolio—highlighting their intent to hedge rather than speculate. This decision in Luxembourg also aligns with its broader alternative asset strategy, with cryptocurrency currently accounting for as much as 15% of its portfolio, as the country strives to become a European cryptocurrency hub under MiCA regulations.
However, Bitcoin's role as a portfolio diversification tool faces challenges. Recently, the correlation between Bitcoin and risk assets has increased, meaning that during market pressure, it tends to decline alongside stocks rather than act as a traditional safe haven. This was particularly evident when Bitcoin fell to a seven-month low below $90,000.
Triggered an outflow of $523 million
BlackRock's IBIT set a record for single-day sell-offs. This volatility complicates the strategies of sovereign wealth funds, as indicated by risk-averse investors shifting to gold after Bitcoin peaked in October.
Complicating matters, the 'Bitcoin treasury' that drove $50 billion in Bitcoin purchases over the past year is currently trading below its net asset value, indicating a weakening of short-term purchasing momentum. While sovereign wealth funds view the downturn as a buying opportunity, their limited allocation ratios (capped at 1-2%) reflect their recognition that Bitcoin remains a high-risk, high-reward asset. The cautious attitude of U.S. regulators, including the Federal Reserve's skepticism regarding tokenization applications, adds another layer of uncertainty. Currently, the increased holdings by sovereign wealth funds indicate institutional confidence in Bitcoin's long-term potential, but also highlight the existing rift between Bitcoin and traditional risk management.
The empowering role of BlackRock and volatility exposure
BlackRock has become a key driver of institutional adoption of Bitcoin through its iShares Bitcoin Trust (IBIT), which became BlackRock's largest revenue source in 2024 following the launch of a spot Bitcoin ETF. By September 2025,
IBIT
Managing $104 billion in digital assets—growing faster than any traditional fund—leveraging BlackRock's reputation and distribution network to attract regulated Bitcoin investments. This has made Bitcoin a mainstream asset class in global portfolios, even though the product's performance remains susceptible to market volatility.
When Bitcoin's price fell to a seven-month low below $90,000, IBIT saw an outflow of institutional funds amounting to $523 million in a single day, marking the largest outflow since its launch in 2024, highlighting the risks posed by volatility.
According to Reuters
This sell-off reflects a broader profit-taking trend after Bitcoin peaked in October, with funds managing Bitcoin reducing institutional purchases and investors turning to gold. Bitcoin fund managers purchase as much as $50 billion in Bitcoin annually, but currently, their net asset value is below market expectations, dampening Bitcoin's short-term upward momentum.
Custodial partnerships like Coinbase Prime can reduce operational risks.
Responsible for security and compliance matters
For IBIT, regulatory fragmentation remains a significant challenge, as custodial solutions vary across jurisdictions. While BlackRock's scale has reduced friction for investors, residual risks remain: custodial service providers face constantly changing regulatory scrutiny, and if regulatory policies remain unclear, institutional adoption rates may stagnate.
For investors, IBIT serves as a typical example, demonstrating that although institutional products lower the barriers to entry, they also inherit Bitcoin's extreme volatility. The $523 million outflow underscores that even well-selected channels cannot eliminate market volatility; thus, despite BlackRock's risk mitigation advantages, investors must proceed with caution.
Regulatory barriers and strategic caution
When sovereign wealth funds focus on Bitcoin, they face several significant obstacles beyond investor enthusiasm. The uncertainty of U.S. regulatory policies is a major barrier to the broader adoption of Bitcoin. The current policy vacuum has led to market fragmentation, creating numerous challenges for long-term sovereign investments. As an assessment report points out, Bitcoin's inherent volatility and speculative nature render it fundamentally incompatible with reserve management strategies, unlike more stable assets. The uncertainty alone in regulatory aspects is sufficient to offset the efficiency gains that blockchain could bring and exacerbate the systemic risks in national portfolios.
The price volatility of Bitcoin sharply contrasts with traditional safe-haven assets like gold or government bonds. Monthly fluctuations in gold typically remain in single digits, while Bitcoin's volatility often reaches double digits, making it difficult to serve as a stable store of value or hedge against crises. This extreme volatility makes it nearly impossible for sovereign wealth funds to achieve precise liability matching, as they prioritize capital preservation over speculative gains. The essence of Bitcoin as a scarce digital commodity does not address the fundamental challenges that national entities face in accounting and risk management.
The asset allocation of sovereign wealth funds remains strictly limited, reflecting their cautious attitude. Evidence suggests that only a small portion of assets (typically 1-2% of portfolios) is allocated to Bitcoin or related instruments. Specific cases illustrate their cautious investment strategy:
The Wisconsin Investment Board invested $321 million.
During the same period, Abu Dhabi's Mubadala Investment Company also invested $436.9 million. These investments are targeted experiments rather than strategic adjustments. Previously, Bhutan held indirect investments in Bitcoin worth $1 billion, involving direct cryptocurrencies rather than regulated instruments, making it still an exception.
Geopolitical tensions have indeed enhanced Bitcoin's appeal as a hedge against systemic risks and currency devaluation. However, operational risks still persist. Custodial solutions for large sovereign assets remain unproven, and Bitcoin's decentralized nature complicates compliance with anti-money laundering regulations across different jurisdictions. The lack of a clear and stable regulatory framework in the U.S. governing custody, taxation, and reporting renders the adoption of large sovereign assets impractical. The sovereign wealth fund plans in the U.S. post-2025 continue to face operational delays, partly due to these unresolved policy issues.
