Joining a growing market, Yale is investing in cryptocurrency funds, according to a Bloomberg report published earlier this month.
The Yale Investments Office has allegedly backed two Silicon Valley cryptocurrency funds, Paradigm and a16z crypto. Both venture funds were recently established and plan to invest in cryptocurrency assets and digital currencies, according to their websites.
But Yale is not the only university that has placed a bet on digital currency. Earlier this month, The Information, a technology-oriented news outlet, reported that the University’s peer institutions, including Harvard, Stanford and MIT, have also invested their endowments in cryptocurrency funds.
“Cryptocurrency is an area of technology that appears to be useful and appears to have a future, with big banks like Goldman Sachs and JPMorgan already investing heavily,” Charles Skorina, an investment executive recruiter, told the News. “It does not surprise me that [Yale’s investment in cryptocurrency] has received so much publicity. Because of Yale’s impressive track record, everybody would like to know what Yale is doing. If Yale is investing in cryptocurrency, then others will invest as well.”
Historically, the Investments Office has seldom revealed information about its investments. University spokesman Tom Conroy and director of external communications Karen Peart declined to comment. Representatives from Paradigm and a16z crypto also did not respond to requests for comment.
After a rapid ascent in 2017, the cryptocurrency market tumbled this year. The price of Bitcoin, widely considered the king of cryptocurrencies, has plummeted more than 50 percent in 2018. And last week, the value of all cryptocurrencies suffered an $18 billion loss in just three days, according to a CNBC report.
But Skorina said the success of the Investments Office is largely a result of its unconventional investments, like those in cryptocurrencies.
When Chief Investment Officer David Swensen assumed his position at the helm of the Investment Office in 1985, endowment offices across the country were almost exclusively trading stocks and bonds. But Swensen invested in real estate, private equity and venture capital — an approach to investing endowments now known as the “Yale Model.” Since then, Yale’s endowment has ballooned to almost $30 billion, the second largest of any American university.
“The job of any investor is to explore new opportunities,” Skorina said. “Investing in cryptocurrency funds is an opportunity that Yale’s Investments Office thinks is worth pursuing.”
Over the past few years, cryptocurrencies have captivated Wall Street bankers, computer coders and teenagers alike. Transactions with paper money are often monitored by banks: If one person sends another person $5, the $5 flows through a bank before the transaction is complete.
But digital currencies, including Bitcoin, scrap the need for financial middlemen. Instead, transactions are monitored and validated by computers across the world through the use of Blockchain, a public ledger of ownership that ensures each Bitcoin or other digital currency has only one owner. Proponents argue that cryptocurrencies may someday replace traditional money mediums.
Shyam Sunder, a professor at the Yale School of Management, said investing in cryptocurrencies — which only exist as entries in a computer record — is different from investing in material objects such as real estate or private equity.
“When you invest in cryptocurrency, you are not trading anything of substance,” Sunder said. “You are trading on people’s expectations. You are making a bet, taking a gamble, that somebody else will think that this lottery ticket is worth more in the future than I pay for it today.”
Yale economics professor and Nobel laureate Robert Shiller noted the volatility of Bitcoin’s value at the World Economic Forum in Davos last February. At the forum, he described the world’s most popular cryptocurrency as an “interesting experiment but not a permanent feature in our lives.” He claimed that the Bitcoin “bubble” reminded him of the Dutch tulip mania in the 17th century.
Shiller told the News that because Yale has diversified its portfolio by investing in various asset classes, any investments in cryptocurrency funds would not constitute a large chunk of the endowment.
“I have great respect for the Yale Investments Office, and if they are [investing in cryptocurrency funds], it must mean they have good reasons,” Shiller said. “I think that the cryptocurrency narrative is very strong, meaning contagious, far bigger than the narrowly defined technology itself.”
According to a survey administered by NEPC Investment Consulting in February, 96 percent of endowments and foundations do not invest in digital currencies.
Lorenzo Arvanitis | firstname.lastname@example.org