Harvard Invests Heavily in Bitcoin, Holding $443 Million Stake, Outperforming Gold 2-to-1

Harvard University has significantly increased its Bitcoin ETF holdings, making a notable shift in its investment strategy. The school now holds $442.8 million in the iShares Bitcoin Trust, positioning Bitcoin as its largest disclosed investment. This article explores Harvard's move into cryptocurrency and the implications it carries for the university and the market.

Key Takeaways

Harvard University has increased its Bitcoin ETF holdings by 257%, totaling $442.8 million.
The university's investment in Bitcoin is at a 2-to-1 ratio compared to gold.
A recent market correction has led to reduced value in Bitcoin holdings.
Criticism surrounds Harvard’s investment, focusing on its environmental impact and Bitcoin's limited usability.
The future path of Bitcoin remains uncertain amid market fluctuations and ETF outflows.

Harvard Bets Big on Bitcoin With $443M Stake, Outpacing Gold 2-to-1

Harvard's Major Commitment to Bitcoin

Harvard University has expanded its Bitcoin ETF holdings by a remarkable 257% during the third quarter, making the iShares Bitcoin Trust its largest publicly disclosed investment, valued at $442.8 million as of September 30.

Matt Hougan, Chief Investment Officer at Bitwise, noted that alongside this investment in Bitcoin, Harvard also increased its gold ETF holdings by 99%, bringing them to $235 million. This means that Harvard is allocating twice as much to Bitcoin as it is to gold.

The $443 million stake in Bitcoin represents about 0.75% of Harvard's total $57 billion endowment, placing the university among the top 20 largest holders of the BlackRock-managed Bitcoin fund.

Market Timing Challenges for Harvard

Unfortunately for Harvard, this significant investment in Bitcoin came just before a sharp decline in the cryptocurrency market. Since the end of the third quarter, Bitcoin has seen a downturn of over 20%, dropping from $114,000 to approximately $92,000.

Harvard Bitcoin - Bitcoin Chart

Based on this downturn, Harvard could face a potential loss of 14% on its recent Bitcoin purchases if it bought at the lowest point in July, resulting in an $89 million loss on their new position alone.

While these losses are small compared to Harvard's vast endowment, there are concerns about the university's annualized returns that have underperformed compared to some of its Ivy League rivals. Harvard achieved an 8.2% return, ranking ninth out of ten elite schools in a comparison by Markov Processes International. For the fiscal year ending June 30, Harvard reported an 11.9% gain, falling short of MIT's 14.8% and Stanford's 14.3%.

Stanford finance professor Joshua Rauh explained to The Harvard Crimson that both Bitcoin and gold are often seen by investors as hedges against potential failures in the international monetary system or the US dollar. However, he warned that the extent to which either option protects investors is uncertain and depends on various scenarios.

Contradicting Views from Academic Experts

Harvard’s hefty investment in Bitcoin starkly contrasts earlier predictions made by members of its economics faculty. In 2018, Kenneth Rogoff, a Harvard professor and former IMF chief economist, predicted that Bitcoin would likely trade at $100 rather than reaching $100,000 within a decade. He suggested that the removal of illicit activities like money laundering and tax evasion would diminish Bitcoin’s transaction uses significantly.

Recently, Rogoff acknowledged his earlier miscalculations in his new book, Our Dollar, Your Problem, admitting he was overly optimistic about effective cryptocurrency regulation in the US. He noted he hadn't anticipated a scenario where regulators could hold large amounts of cryptocurrencies without facing significant consequences.

Despite the growing acceptance of Bitcoin, Harvard's approach has attracted criticism. MarketWatch columnist Brett Arends labeled the investment an "environmental catastrophe," pointing out that Bitcoin's global computing network consumes more electricity than some entire countries each year. Additionally, Stanford professor Darrell Duffie expressed surprise at the investment, emphasizing that Bitcoin does not offer dividends and has limited functionality as a payment method.

The Uncertain Future of Bitcoin

Currently, Bitcoin is facing challenges with directionality amid ETF outflows and weakened market sentiment, leading to questions about its ability to reclaim the $100,000 mark.

In just five weeks, over $2.7 billion has exited Bitcoin ETF products. Arthur Azizov, Founder and Investor at B2 Ventures, commented on the current market landscape, describing it as “a market that has lost its anchor at the exact moment it needed stability.” He noted the disconnect between traditional markets and Bitcoin's performance, highlighting that while the S&P 500 is up over 16% this year, Bitcoin is down about 3%.

Azizov also pointed out that a significant portion of Bitcoin is being held at a loss, meaning that moves toward the $96,000 to $100,000 range may prompt selling from holders looking to break even.

With approximately $3.35 billion in Bitcoin options set to expire around the $91,000 area, traders remain cautious. Azizov stated that “only a strong move above $100,000 could flip the script, restore confidence, and pave the way for $120,000 and higher.” Conversely, if this does not occur, a more significant pullback to the range of $82,000 to $88,000 may be necessary to once again try breaking the $100,000 barrier.