The University may have invested endowment funds into cryptocurrency, specifically Bitcoin, potentially joining some of its peer institutions such as Harvard, Yale and the University of Michigan, according to a report by CoinDesk. 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 on whether or not we hold specific investments,” University Spokesperson Brian Clark wrote in an email to The Herald.
The portfolios of investments overseen by external managers are often copyrighted and kept secret in order to maintain their competitiveness, explained Vice President and Chief Investment Officer Jane Dietze, former Investment Office Chair Joe Dowling and Investment Office Managing Director Joshua Kennedy in a 2019 op-ed in The Herald.
In layman’s terms, “cryptocurrencies (are) like airline miles, except easier to transfer,” Professor of Computer Science 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 trade them for other assets” such as money or miles on other airlines.
Bitcoin first emerged in 2009, and was popularized to the public by an anonymously written article titled “Bitcoin: A Peer to Peer Electronic Cash System.” In 2010, 10,000 Bitcoins were valued at the price of two pizzas, and since then, the currency has only grown in value. Multitudes of other cryptocurrencies have been developed since Bitcoin’s initial popularization, but cryptocurrency remains volatile in its ever-shifting value and tends to be a frequent target of theft.
The Herald spoke to two professors in the University’s economics and computer science departments about how investments in cryptocurrency might change how the endowments of higher education institutions are managed.
Herlihy believes that universities have previously avoided investments in cryptocurrency because of unpredictable fluctuations in its value.
“Until recently, I expect most institutional investors considered cryptocurrencies too volatile and too unregulated to be taken seriously,” Herlihy wrote. “Over time, as risks associated with cryptocurrencies become better understood and better regulated, it becomes more plausible to consider them like any other asset. I am sure that any institution that invests in financial instruments involving cryptocurrencies will exercise due diligence and due caution, so I don’t think it’s likely to be a big deal.”
Cary Krosinsky, adjunct lecturer for Institute at Brown for Environment and Society, on the other hand, believes that the success of the endowment relies more on those who run it and not what it is invested in.
“The Brown endowment is the best run 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, such as 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’s endowment is rooted in its recent success, as the University’s endowment saw a return of roughly 12.1 percent just last year, The Herald previously reported.
“I expect the Brown endowment to do what’s right for the University both now and going forward,” Krosinsky wrote.
Most universities joining this investment trend have only allotted a small portion of their endowments to cryptocurrency, CoinDesk reported. Additionally, these investments have only just begun in the past 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 already been a very successful investment” based on the University’s recent endowment growth.
When 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 encouraged universities to keep up with market changes and demands, particularly the shift toward green energy.
“Given the pandemic, it is critical that endowments keep up with where markets are heading,” he wrote. “This includes investing alongside the low carbon transition which will only accelerate from here, (and) this includes innovations being seen in the climate tech and healthcare (venture capital) spaces.”
Though Herlihy is not sure whether cryptocurrency will ever become popular as a form of day-to-day 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, fluctuating up and down in price like rare Beanie Babies in the early 2000s.”
In terms of the general market, “the rise of decentralized finance will eventually lead to using at least some kinds of cryptocurrency as a genuine medium of exchange,” he wrote.
For investments in higher education, cryptocurrency will most likely just be “another asset class, like stocks or bonds,” Herlihy added. How cryptocurrency affects the growth of endowments that are invested in it will largely depend on the future of cryptocurrency itself.
“Cryptocurrency will have profound long-term effects on the economy,” Herlihy wrote. “I teach an undergraduate class on cryptocurrency and blockchains because it is a fascinating research area, combining stories of true crime, financial ruin, naked greed and folly and, yes, actual science.”