Why Is Harvard's Endowment Jumping Into Crypto?

Harvard University's investment arm, Harvard Management Co., has jumped into the crypto market at a time when several experts say surging crypto prices are about to collapse again. Harvard University’s $39 billion endowment has reportedly joined two other investors in spending a cumulative $11.5 million to back Blockstack Inc., a crypto-company seeking to raise $50 million for its digital-token offering. Meanwhile, technical indicators suggest that the volatile cryptocurrency space could see its recent gains reverse quickly, per a detailed Bloomberg story.

Why Digital Coins Could Crash Again

  • Bloomberg Galaxy Crypto Index is at its most overbought since hitting a record last year
  • Index has climbed about 25% this month to its highest level since January 2018
  • After hitting that high of $1,667, it proceeded to fall more than 65% in the three months following

Source: Bloomberg

Crypto Wins Institutional Money

According to a regulatory filing, Harvard Management and other institutional backers have purchased roughly 95.8 million of Blockstack tokens. The company’s network was built by computer scientists at Princeton and allows engineers to develop secure applications for things like documents and blogging.

The news presents a win for the cryptocurrency space, which has been vying for funding from deep-pocketed backers. Initial coin offerings, the digital currency market’s answer to an IPO, have largely tanked, and the price of popular coins like Bitcoin remain a whopping 75% off highs. Reeling in institutional money has been viewed as a milestone for the cryptocurrency space as it attempts to work past regulatory uncertainty, and investor fears concerning various issues like fraud, money laundering and market manipulation.

Crypto-Company Offers 'Stacks' Coin

Blockstack’s new funding will reportedly be used to continue development of the company’s decentralized computing network, which uses the digital currency. Blockstack’s digital coins, called Stacks, reportedly function as an accounting mechanism in which they track the economic stake that holders of various private keys on the Stacks blockchain have in the network. According to the firm, it has applied with the U.S. Securities and Exchange Commission to offer the tokens within an A+ framework, which allows smaller companies to sell shares with limited disclosure requirements and receive backing from lower-tier investors even if the securities do no trade on a major stock exchange. If the application is approved, Blockstack says it would be the first SEC-approved qualified token offering of its kind, per Bloomberg.

Sell Signals

New interest in the digital coin space from institutional backers like Harvard Management comes as the cryptocurrency space experiences a moderate comeback. Bitcoin and Ether have both gained more than 25% in April, while XRP has rallied approximately 15%.

A technical indicator now indicates that the Bloomberg Galaxy Crypto Index, which tracks some of the largest digital coins including Bitcoin, Ether and XRP, is at its most overbought since hitting a record last year, per Bloomberg. The crypto-tracking index has climbed about 25% this month to its highest level since January 2018 when it hit $1,667 and proceeded to fall more than 65% in the three months following. Despite the recent rally, the index is still down close to 80% since it hit its all-time high.

Bloomberg Intelligence data supports crypto bears who suggest that transaction and exchange volume gains have been lackluster.

“A highly speculative market rallying on declining volume is not healthy. Typically you need good, strong volume and transactions to indicate an enduring trend,” said Bloomberg Intelligence analyst Mike McGlone. “Bulls appear to be grasping at straws or what best fits their more emotional less rational views, positions… The emotional enthusiasm the past week appears too extreme.”

It’s of interest to note that Harvard’s endowment racked up huge losses a few years back as a result of a few questionable investments, leading the investment arm to lay off half of its staff, per The Wall Street Journal. Since then, the endowment has experienced a massive management shakeup. Now, new leadership is trying out digital currency.

Looking Ahead

The massive endowment fund bet on riskier assets like Bitcoin, demonstrating the growing institutional interest in the cryptocurrency space.

Harvard isn’t the first institutional investor to get into cryptocurrency. Earlier this year, two Virginia-based pension plans invested in a venture-capital fund focused the blockchain and cryptocurrency space, per Bloomberg. Last year, Yale University also made a significant cryptocurrency investment.