Let’s say you have a wad of money lying around, and you want to create as large a splash as possible with it. You’ve emptied the usual hiding spots, and have raised $20,000. Now you take the proceeds, convert them to $1 bills — and spread them around the floor. Twenty thousand of them. Each bears the same relationship to the total as a penny to $200.
In walks a friend. He suggests that if you have that kind of bread lying around, you can throw a buck or two into cryptocurrency, like Bitcoin. It so far has the feel of gold dust. It isn’t really going anywhere, but if you have an advanced degree from an Ivy League school, you feel better at taking the fling. Someday, some corner of the market could explode, and you’d at least have enough for lunch, a few drinks and the tip.
Harvard University has already taken such a risk. It put 0.05 percent of its endowment (about a dollar out of $20,000) into Blockstack PBC, a company that’s even planning a “token” filing soon with regulators.
Harvard can afford it. Its investment in 95.8 “stacks tokens” is hard to value, but the school’s Crimson newspaper quotes experts who peg it at around $11.5 million. Top schools cast their nets far and wide to beef up their endowments, which are the backbone of everything from operating budgets to spending on new professors, buildings and scholarship money.
The school can’t hope for much. One financial guru has already suggested any crypto investor should spread it around, since most crypto-startups have a high chance of failure. Moreover, more outfits are entering the rumble, with names like Bitcoin, Litecoin and Degocoin. Digital currency specialists made themselves unique by spreading the technology for digital currency around, avoiding a central bank.
It’s a gamble on the lure and aroma of success. Like any random investor, Harvard is sticking its toe in the water, trusting that it won’t get bitten off. That wouldn’t amount to more than a nosebleed, but such a place doesn’t endure bad publicity well. Other top schools have been tarnished by the now-festering admissions bribery scandal.
Harvard has had a rough few years lagging behind competing schools. Its Harvard Management Company has been beset by sluggish performance. Its in-house staff has been seen as too expensive, and it’s engaged in a shake-up, all under the threat of a new “endowment tax.” An endowment growing by less than, say, 10 percent annually, would produce fear, loathing and calls for revolution amongst the faithful. Harvard recovered to 8.1 percent by 2017, still far behind Princeton at 14.2 percent.
These endowments are built to epic levels, with Harvard topping out at $31 billion. That’s not bad for a pot that started with a clergyman’s $1,285 and a pile of books. Full professors there pull down an average of $221,000 annually.
Few investment funds would allow themselves to risk more than 1 or 2 percent of assets in the crypto world, but it still has that “non-yet-popped” feel to it. Alternative currencies still depend on acceptance for survival, and the Holy Grail hasn’t been found yet. Regulators like the Securities and Exchange Commission are unswayed by Grail sightings. That blocks new entries from widely-traded public markets.
But the magic of odds is simple: very few advertise a “zero” chance. Hope springs eternal, and if you one day stood atop a crypto fortune, you’d be making the rounds of all the late-night talk shows, complete with a couple of glittering coins.
Blockstack PBC made its first appearance in 2013, straight out of the thought labs at Princeton and Stanford. Co-founder Ali Muneeb came complete with a Ph.D. in distributed systems. His start-up counts Y Combinator, Lux Capital, Union Square Ventures and independent “angels” as investors.
But name power and invested capital, as well as the drawing power of a “decentralized computing network,” hasn’t pushed it across the line yet. For that, it will need exactly the same confidence that the dollar bill or British pound sterling already have. It will need enough confidence that it can be freely traded to win acceptance where it counts.
The reason institutions like Harvard throw random bits of money at far-flung investments is more than the draw of the latest gamble. It is first, to get the advantage of insider learning at such a breakthrough. More importantly, in the event Blockstack PBC, Bitcoin or cryptocurrency does break through, the early investors will be noticed in the winner’s circle.