The “herd” of institutional investors that cryptocurrency bulls such as Mike Novogratz have perennially said is just over the horizon is finally making an appearance, as reports have emerged that one of the world’s largest university endowments has invested in two cryptocurrency funds.
Yale University Endowment Makes Cryptocurrency Play
Citing an anonymous source familiar with the matter, Bloomberg reports that Yale University, the Ivy League school whose endowment is the second-largest in higher education, has invested in Paradigm, a cryptocurrency fund founded by Coinbase co-founder Fred Ehrsam, former Sequoia Capital partner Matt Huang, and Pantera Capital veteran Charles Noyes.
Including Yale’s investment, Paradigm has raised $400 million to invest in the cryptocurrency space, making it one of the largest such investment funds alongside Pantera, Polychain Capital, and Andreessen Horowitz (a16z).
Concurrently, CNBC reports that David Swenson — Yale’s “Warren Buffet” — invested university money in Andreessen Horowitz’s $300 million cryptocurrency fund, which the firm announced in June. Notably, a16z said at the time that it does not intend to be a fair-weather investor.
“We have an ‘all weather’ fund. We plan to invest consistently over time, regardless of market conditions. If there is another ‘crypto winter,’ we’ll keep investing aggressively,” the firm said at the time.
Yale’s endowment currently stands at $29.4 billion, a record high, following a return of 12.3 percent during the fiscal year that ended on June 30. A majority of those assets, 60 percent, are directed at alternative investments. Over the past decade, the university has returned an average of 7.4 percent, beating the 5.5 percent average university endowment return by a sizable margin, according to the Yale Daily News.
Yale’s Move Gives Institutions ‘Excuse’ to Buy Crypto
Earlier this year, John Lore, founder of Capital Fund Law Group, suggested that academic institutions had begun to invest in cryptocurrency on a “limited basis for strategic reasons,” though he declined to name the endowments.
It’s not clear how much capital Yale contributed to Paradigm and a16z — and it should also be noted that the endowment has not confirmed the news publicly — but the size of the investment might not matter. Ari Paul, chief investment officer at cryptocurrency hedge fund BlockTower Capital and a former portfolio manager at the University of Chicago’s endowment, said in April that he thought it was “inevitable” that endowments would dip their toes into the cryptoasset space, a move that he said would convince other institutions to make similar bets.
“We’re in a bear market until new buyers are enticed,” he said. “Even a small dollar amount is legitimizing. If that happens, every family office says, ‘Oh, Yale’s in. That gives us the excuse.’”
Paul’s forecast is beginning to come true, at least per the reports. The next major step will be when, rather than entrust capital to digital asset investment funds, university endowments and pensions themselves begin investing directly in the cryptocurrency market.
A key hurdle toward realizing this has been the shortage of regulated cryptocurrency custodians, particularly among the respected Wall Street banks with whom endowments are comfortable working. However, as CCN.com reported, three of the largest investment banks in the U.S. — Goldman Sachs, Citigroup, and Morgan Stanley — are said to have been building out custody products for cryptoassets.
Meanwhile, Bakkt — the cryptocurrency wing of Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange (NYSE) — will begin offering physical warehousing for bitcoin in November, allowing institutions to easily trade BTC in a regulated environment overseen by one of the world’s largest exchange operators.
Billionaire macro trader Mike Novogratz, a longtime bitcoin bull who has nevertheless pared back his short-term price forecast in recent weeks, gave a speech in late 2017 titled, “The Herd is Coming,” in which he argued that institutional investors are not far off from making a significant crypto play. Throughout the current bear market, he has maintained that, although the cryptocurrency market has heretofore been driven by retail enthusiasm, the next rally will be fueled by institutions.
As CCN.com reported yesterday, Wall Street strategy firm Fundstrat recently conducted a recent poll of cryptocurrency investors which found that, perhaps contrary to popular perception, institutional investors are more bullish on bitcoin than their retail counterparts. According to the survey, a majority of institutions expect the flagship cryptocurrency to end 2019 above $15,000, an increase of about 130 percent from its present level below $6,600.
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Last modified: March 4, 2021 3:47 PM