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Cracking the Crypto Code

March/April 2020

By Kirsten Hilgeford

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CBOs continue to have more to learn in order to seize upon the potential of the evolving digital asset space.

Cryptocurrency is coming to the higher ed community. Moderator Kenneth Souza, director of foundation investments, University of South Florida, Tampa, guided a discussion of digital assets in the Feb. 6 session “Digital Assets: A Transformational Opportunity for University Treasury and Investments” at the NACUBO 2020 Endowment and Debt Management Forum, Washington, DC. Molly Shields, director of business development for Fidelity Digital Assets, and Avichal Garg, partner at Electric Capital, offered insights into the current state of cryptocurrency and its appeal to investors.

Engagement Lags Increasing Interest

The digital assets ecosystem is certainly maturing but is still in its nascent stages, Shields said. In the past year she has had an increasing number of introductory and educational conversations with higher education institutions, endowments, and foundations about what is happening in this space and options for engaging with cryptocurrencies such as Bitcoin. Regarding the question of how much institutional capital is committed to this space, Garg similarly noted that a handful of firms as well as university and large healthcare endowments have invested in crypto, and last year saw a notable increase in interest in this space. However, investment has been relatively small compared to endowment size.

Donors who want to give cryptocurrency are beginning to approach schools. While many schools are registered to receive crypto not just for donations but also for tuition payments, it was clear from onsite audience polling that CBOs still need to know more about cryptocurrency in order to be further ahead of the curve in accessing and implementing this emerging technology. Among the approximately 40 attendees who responded to the live poll, none indicated that his or her school has implemented a system in which cryptocurrency can be used for donations or payments to the school. By comparison, 15 percent of respondents have made an allocation to digital assets personally. In response to the question of whether their university endowment has invested in digital assets or advanced blockchain technology, 20 percent said “no,” 2 percent said “yes,” and 28 percent said “not sure.”

A Need-Driven Asset

Bitcoin is the first, largest, and likely most recognizable asset in the growing category of cryptocurrency, which relies on underlying blockchain technology and includes other digital currencies such as Ethereum, Bitcoin Cash, and Litecoin. (For more on blockchain technology, read “Chain Reaction” in the July/August 2019 issue of Business Officer magazine.) Bitcoin was developed, “as a means of transferring value from one party to another without the need for a trusted intermediary or middleman to complete this transaction,” said Shields. “It’s borderless. It’s leaderless. It’s global. It’s self-sovereign.” As such, cryptocurrencies are especially attractive to those who don’t have access to a traditional financial system or banking relationship, or for those who live in a country where the currency is unstable.

According to Garg, it is no longer just the early adopters who are entering the crypto space, but people recognizing the ease and utility that crypto provides. Just as internet technologies were a clear fit for communications, so too is blockchain a perfect fit for money movement because it is private, data safe, accessible, and synchs immediately.

Future Possibilities

As an investor, Garg described himself as excited that the trade-offs of cryptocurrency are the inverse of those of the internet. Internet users have exchanged their privacy and data for platform performance, but “crypto turns this dynamic on its head,” said Garg. Anytime a platform does the opposite of a previous generation of platforms and a lot of developers flock to it, there is the opportunity for substantial disruption. While financial firms have historically been some of the most influential companies, cryptocurrency and its associated technologies may just be able to disrupt their status as such because, Garg said, “the world tends to move toward utility and efficiency.”

Shields noted that one factor that may be keeping potential investors from engaging in the crypto space is the fact that the system for regulating digital assets is still developing. In its conversations with legislators and rulemaking bodies, Fidelity’s in-house government relations team has found a curious and interested audience that is taking the time to understand the asset class before making broad and sweeping decisions about regulations. Once more guidance on cryptocurrency is released, Shields believes institutions will start to feel more secure about stepping into this space.

KIRSTEN HILGEFORD is associate editor, content, Business Officer.

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