Blockchain Bites: Universities Are Gaining Bitcoin Exposure as Institutional ETH Appetite Grows

Three stories

Overstock is looking to exit its blockchain-related investments, CoinDesk’s Tanzeel Akhtar reports. The online shopping giant that went in on crypto-hype will now spin out its blockchain-focused subsidiary, Medici Ventures, into a managed fund.

• Overstock will remain a limited partner, with the venture firm Pelion Venture Partners taking lead over the $45 million fund, if approved. Overstock will also retain a direct minority equity interest in the blockchain technology firm tZERO Group.
• Following the announcement, Overstock shares (NASDAQ: OSTK) were trading 11.28% higher at $75 in Monday’s pre-market session.

Janet Yellen is the 78th U.S. Secretary of the Treasury. Approved by the Senate on Monday, the former Federal Reserve chair will oversee an office with a host of crypto-related rules on its plate. This includes an 11th hour Trump administration proposal to increase surveillance of private wallets. The controversial, and perhaps illegally, short comment period on that one has just been expanded.

• Yellen made a stir last week after raising “particular concerns” about cryptocurrency’s links to criminal activity. While she hasn’t spoken at length about the industry, she has expressed zeal for crypto's potential to “improve the efficiency of the financial system.”
• Indeed regulators worldwide are expressing nuanced views of crypto, with Bank of England Governor Andrew Bailey saying crypto (“as originally formulated") has failed as a currency, but that digital innovation is here to stay.
• “We’re right still to debate stablecoin, we’re right to debate central bank digital currency. Those issues, I think, are very much up for grabs,” he said, at Davos.

As BoE’s Bailey snubs crypto qua crypto, it’s important to note all the ways he’s already wrong. Crypto works for payments, though perhaps it’s not the first choice for plush “first world” economies. But it’s plenty powerful for those who are cut off from the financial system.

• For instance, CoinDesk’s Anna Baydakova reports Alexey Navalny, Vladimir Putin’s most vocal critic, has raised 657 BTC in donations over the past five years.
• And lest we not forget about Julian Assange and the dissident WikiLeaks nonprofit. To date WikiLeaks has received more than 14 BTC, not counting other crypto donations. Rachel-Rose O’Leary touched on the subject when discussing advancements in privacy tech, in a recent CoinDesk op-ed.

At stake

It’s all about the allocation…

Yesterday, it was reported that universities, including several in the Ivy League, have been quietly purchasing bitcoin directly on Coinbase for their endowments.

Harvard, Yale, Brown and the University of Michigan are among those thought to be buying, an anonymous source told CoinDesk’s Ian Allison. No university confirmed the rumor, several refused to comment. It’s currently unknown how well-endowed these university BTC holdings might be.

Harvard and Yale have $70 billion in assets between them, and the total endowment pot is estimated to be $600 billion as of 2017.

“If I had heard that three years ago, I would have said it was wrong,” said Ari Paul, co-founder of BlockTower Capital and previously an investment manager for the University of Chicago. “But a lot of institutions are now comfortable with bitcoin. They understand it and can just buy it directly, as long as it’s from a regulated entity like Coinbase, Fidelity or Anchorage.”

ARK Investment Management CEO Cathie Wood echoed that thought, saying she believes more companies will load their balance sheets up with bitcoin. She told Yahoo Finance on Saturday that several executives at publicly traded firms have broached the subject with her: Should we follow Square?

Square, the fintech darling led by Twitter CEO Jack Dorsey, purchased approximately 4,709 bitcoin in October. That initial $50 million investment is now worth roughly $150 million. MicroStrategy is perhaps the most visible public company that treats its cash reserves as waste water and bitcoin as its baby (it’ll never throw its BTC out with the bath). It now holds a total 70,784 bitcoin.

Rothschild Investment Corporation also increased its bitcoin exposure, buying 24% more shares of the Grayscale Bitcoin Trust, disclosed yesterday. The $1.4 billion investment manager isn’t holding bitcoin directly and has long experimented with holding and dropping bitcoin. (CoinDesk and Grayscale are both owned by Digital Currency Group.)

Funnily enough, CoinDesk’s Danny Nelson reports a Canadian VR firm bought BTC as a “long-term” investment, but sold last week apparently on false rumors of a bitcoin “double-spend.”

Institutional exposure isn’t limited to bitcoin as more and more legacy financial firms take an interest in ether (ETH), the native currency of Ethereum.

In its 2020 annual report, Coinbase noted “a growing number” of its institutional clients have taken positions in ether. “The case for owning ethereum [ether] we hear most frequently from our clients is a combination of, first, its evolving potential as a store of value and, second, its status as a digital commodity that is required to power transactions on its network,” according to the report.

Denis Vinokourov, head of research at digital asset prime broker Bequant, told CoinDesk markets reporter Muyao Shen that some of this ETH buying could be an indirect way to get exposure to decentralized finance.

“Not everyone is comfortable with the risks that are still associated with DeFi, but the hyper growth of these projects boosts activity on the Ethereum network and, thus, supports capital appreciation,” he said.

Indeed, the total value locked in all DeFi protocols and applications hit a new high watermark of $26 billion on Sunday, according to DeFiPulse, primarily driven by ether’s price appreciation.

Market intel

Bitcoin has shed a few thousand dollars, dropping approximately 7% day over day, bringing the larger crypto market with it. CoinDesk’s Omkar Godbole reports that some $4 billion worth of BTC options are set to expire on Friday. It’s expected that Deribit, the largest crypto options exchange, will set a new record of 102,162 contracts, worth about $3.5 billion, closed.

• "Over 80% of the Deribit-based Jan. 29 expiry open interest is set to expire out-of-the-money, or worthless," Godbole notes. This will likely cause volatility leading to month’s end, as traders hedge their positions. He breaks it down here.

Quick bites

• BEACH-FRONT SANDBOX: Hawaii's Digital Currency Innovation Lab is accepting applicants. (CoinDesk)
• HYBRID MINING: A U.S. man turned his BMW into a miner. (CoinDesk)
• BE AWARE: Substack is being used to spread crypto scams. (CoinDesk) 
• MULTIVERSE MONEY: “It's 2028 and central banks, Big Tech companies and the ‘deplatformed’ are establishing their own worlds of digital money,” Marcel0 Prates explores. (CoinDesk op-ed)
• WYRE WIRED: Stellar Foundation invests $5 million in the blockchain payments firm. (CoinDesk)
• BAKLAVA FOR BITCOIN: Decrypt interviews an OG bitcoin retailer.
• MINING TOKENS: Five major bitcoin miners tokenize their hashrate on BTCST (Modern Consensus)
• NFT LIQUIDITY: Is it a problem? (Jake Brukhman – Mirror)
• STELLAR SIGNAL? Casey Newton on the battle inside Signal. (Platformer)
• TAKING ON BIG TECH: With Bitcoin’s technology. (NYT)
• HYPERVENTILATING REGULATORS? Goldman Sachs CEO Lloyd Blankfein goes off on bitcoin. (CNBC)

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