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Will Yale’s Investment in Crypto Lead to More Institutional Investors?

Last Updated March 4, 2021 3:47 PM
Joseph Young
Last Updated March 4, 2021 3:47 PM

This week, CCN.com reported that Yale, the prestigious Connecticut-based academic institution, has invested in a $400 million crypto fund operated by veterans in the digital asset and finance space.

Coinbase Inc. co-founder Fred Ehrsam, former Sequoia Capital partner Matt Huang, and billion dollar crypto hedge fund Pantera Capital ex-employee Charles Noyes reportedly launched a new cryptocurrency hedge fund called Paradigm after raising more than $400 million from various investors.

The $30 billion endowment in Yale is led by David Swensen, who invested an undisclosed amount in Paradigm, following the establishment of the institution’s vision to allocate 60 percent of its assets in alternative assets by the end of 2019, like crypto.

Why is Yale’s Move to Crypto Significant?

Yale and Swensen operate one of the largest college endowments in the global market. For three decades, the Yale endowment has outperformed every academic institution within the US, allowing Swensen to beCOME the most-watched and influential figure in the market of institutional investors.

In June, billionaire investor told Erik Schatzker at the Bloomberg Invest Summit in New York that the entrance of a major institutional investor into the crypto market will lead to other major firms accumulating cryptocurrencies like Bitcoin and Ethereum at a large scale.

“It won’t go there ($20 trillion) right away. What is going to happen is, one of these intrepid pension funds, somebody who is a market leader, is going to say, you know what? We’ve got custody, Goldman Sachs is involved, Bloomberg has an index I can track my performance against, and they’re going to buy. And all of the sudden, the second guy buys. The same FOMO that you saw in retail [will be demonstrated by institutional investors],” explained Novogratz.

Critics of the market have said that the investment of Yale in Paradigm is not as significant as a direct investment in crypto through custodian solutions like BitGo, Coinbase, and potentially, Goldman Sachs, Citigroup, and Morgan Sachs.

However, Paradigm is not a fund with a wide scope of interest. It is a cryptocurrency hedge fund found and operated by the industry’s veterans, and an investment in a crypto-only fund portrays the interest of Swensen in cryptocurrencies as an alternative asset.

The lack of correlation between major digital assets and the broader financial market allow cryptocurrencies to operate as robust and reliable stores of value, especially in a time of economic uncertainty.

First Major Institutional Investor Happens to be the Biggest

Yale is the first major institutional investor to invest in the crypto market through its main $30 billion endowment. The first large institutional investor to publicly invest in the crypto market through a hedge fund happened to be the biggest academic institution in the US alongside Harvard and possibly in the world.

If the entrance of Yale into the crypto market triggers FOMO amongst institutional investors, in the mid-term, the cryptocurrency market will see a rapid improvement in valuation and market development.

Some reports have suggested that a large number of institutional investors are already involved in the market through over-the-counter (OTC) markets, given the increasing volume of OTC markets in the US and Asia operated by firms like DRW.

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