The University may have invested endowment funds in cryptocurrency, particularly Bitcoin, potentially joining some of its similar institutions such as Harvard, Yale and the University of Michigan, according to a CoinDesk report. The University has neither confirmed nor denied the investment.
“The vast majority of our investments are managed externally, and given the agreements in place with our investment managers, we do not report publicly whether or not we hold specific investments,” the spokesperson wrote. Brian Clark University in an email to the Herald.
Investment portfolios overseen by external managers are often copyrighted and kept secret in order to maintain their competitiveness, explained Jane Dietze, former vice president and chief investment officer, Joe Dowling, former chairman of the board of directors. ‘investment and Joshua Kennedy, managing director of the investment office, in a 2019 editorial in The Herald.
Put simply, “cryptocurrencies (are) like airline miles, except easier to transfer,” computer professor Maurice Herlihy wrote in an email to the Herald. “Like airline miles, a cryptocurrency is not issued by a government, and… (they have) value as long as people are willing to exchange them for other assets” such as cash or miles on other airlines.
Bitcoin first appeared in 2009 and was popularized to the public by an anonymously written article titled “Bitcoin: a peer to peer electronic payment system. In 2010, 10,000 Bitcoins were valued at two pizzas, and since then the currency has only grown in value. Multitudes of other cryptocurrencies have been developed since the initial popularization of Bitcoin, but the cryptocurrency remains volatile in its ever-changing value and tends to be a frequent theft target.
The Herald spoke to two professors in the University’s economics and computer science departments about how cryptocurrency investments could change the way higher education institutions’ endowments are managed.
Herlihy believes universities have previously avoided investing in cryptocurrency due to unpredictable fluctuations in its value.
“Until recently, I expected most institutional investors to consider cryptocurrencies too volatile and too unregulated to be taken seriously,” Herlihy wrote. “Over time, as the risks associated with cryptocurrencies become better understood and better regulated, it becomes more plausible to view them like any other asset. I’m sure any institution that invests in financial instruments involving cryptocurrencies will exercise due diligence and caution, so I don’t think that’s a big deal.
Cary Krosinsky, an assistant lecturer at the Brown Institute for Environment and Society, on the other hand, believes that the success of the endowment depends more on those who run it, not what it’s invested in.
“The Brown endowment is the best endowment in the world,” Krosinsky wrote in an email to the Herald. “The key is the people, not only (those) who work for the endowment, like Jane Dietze and Joshua Kennedy… but also the alumni who want to give back to the University” through donations.
Krosinsky’s faith in the University endowment is rooted in its recent success, as the University endowment has seen a return of approximately 12.1 percent last year, The Herald previously reported.
“I expect the Brown endowment to do what’s right for the University both now and in the future,” Krosinsky wrote.
Most of the universities that join this investment trend have allocated only a small portion of their endowments to cryptocurrency, CoinDesk reported. In addition, these investments are only just beginning last year.
Krosinksy “would only be surprised if a significant percentage of an endowment was invested in” cryptocurrency, he wrote. “Otherwise, it looks like it would have been a very successful investment by now,” according to recent growth in the University’s endowments.
Asked about the future of cryptocurrency in higher education, as well as the overall changes in investment trends among top U.S. higher education institutions, Krosinsky urged universities to follow the changes and demands of the market, in particular the switch to green energy.
“Given the pandemic, it is essential that endowments keep pace with changing markets,” he wrote. “This includes investing alongside the low carbon transition that will only accelerate from here, (and) it includes innovations seen in the climate technology and health spaces (venture capital ). “
While Herlihy is not sure whether cryptocurrency will ever become popular as an overnight form of exchange, its growth could impact the future of investing.
“Cryptocurrencies have so far not been successful as a medium of exchange, at least at the retail level,” Herlihy wrote. “Instead, Bitcoin has become famous as a speculative instrument, the price of which fluctuates up and down, like the rare Beanie Babies in the early 2000s.”
Regarding the general market, “the rise of decentralized finance will eventually lead to the use of at least certain types of cryptocurrency as a true medium of exchange,” he wrote.
For higher education investments, cryptocurrency is likely to be just “another asset class, like stocks or bonds,” Herlihy added. How cryptocurrency affects the growth of endowments invested in it will largely depend on the future of the cryptocurrency itself.
“Cryptocurrency will have profound, long-term effects on the economy,” Herlihy wrote. “I teach an undergraduate student course on cryptocurrency and blockchains, because it is a fascinating area of research, combining stories of real crime, financial ruin, naked greed and madness and, yes, real science.