Harvard, Stanford, & MIT Have All Invested in Cryptocurrency Funds

Breaking: Harvard, Stanford, & MIT Have All Invested in Cryptocurrency Funds

At least five more university endowments have invested in cryptocurrency funds, suggesting that the “herd” of institutional investors is finally beginning to place at least a small bet on the nascent asset class.

As first reported by The Information, a cadre of major educational institutions including Harvard University, Stanford University, Massachusetts Institute of Technology, Dartmouth College, and the University of North Carolina have each invested in at least one cryptocurrency fund through their respective endowments.

Citing an unnamed source familiar with the investments, the publication reported that these five university endowments have invested tens of millions of dollars in these funds, which in turn invest in both physical cryptocurrencies and equity in cryptocurrency companies.

CCN previously reported that Yale University, which controls the second-largest university endowment next to Harvard, had allocated a portion of its $29.4 billion in assets into two cryptocurrency funds operated by Andreessen Horowitz (a16z) and Paradigm.

Even with these investments, the six universities that are now said to have invested in crypto funds still have very little exposure to this asset class. Nevertheless, the fact that they are engaging with the market at all could help legitimize the space.

As The Information journalist Jon Victor explained:

“A move by endowments into funds that will directly bet on cryptocurrencies signals a major shift in investor sentiment toward the asset class, in the same way that institutions over the past decade became more willing to invest in private tech companies. Backing from such closely watched institutions could help validate cryptocurrencies, which are still considered too risky by many institutional investors.”

Cryptocurrency investors and analysts such as Mike Novogratz had long predicted that a “herd” of institutional investors would power the next bitcoin bull market. Ari Paul, a cryptocurrency fund manager and a former portfolio manager at the University of Chicago’s endowment, said in April that he believed that a number of institutions were interested in investing in cryptocurrency but were waiting for major names such as Yale to make the first move so that they would have an “excuse” to do so themselves.

Notably, though institutional investors are generally viewed as having a more sober view of cryptoassets than retail investors, a recent survey by Wall Street strategy firm Fundstrat found that institutions that have already invested in cryptocurrency are actually more optimistic about bitcoin’s near-term prospects than retail investors.

Josiah Wilmoth

Josiah is an assistant editor at CCN. A former ancient and medieval literature teacher, he has been reporting on cryptocurrency since 2014. He lives in rural North Carolina with his wife and children. He holds investment positions in bitcoin and other large-cap cryptocurrencies. Follow him on Twitter @Y3llowb1ackbird or email him directly at josiah.wilmoth(at)ccn.com

‘Big Four’ Auditor PwC Has 400 Crypto Specialists on Staff

Mainstream: ‘Big Four’ Auditor PwC Has 400 Crypto Specialists on Staff

The bigger the business or industry, the more financial services and specialization it requires. As the crypto industry grows up and more firms establish themselves, important services such as auditing and tax consultancy become increasingly necessary. Traditional auditing and consulting firms are answering the call by hiring crypto specialists in droves.

According to an article in the Financial Times, some of the biggest auditing firms in the world like EY and PricewaterhouseCoopers (PwC) have taken on hundreds of new clients involved in cryptocurrencies in the recent past, and as a result PwC, in particular, has brought on as many as 400 blockchain experts in an effort to successfully serve these clients and their unique needs. Ralph Weinberger, who leads their global network assurance methodology group, told FT:

“We are devoting significant resources to how we might provide audit services in not just cryptocurrency, but blockchain.”

The regulatory atmosphere surrounding cryptocurrencies and blockchain assets has hardly even begun to shape. In many regions around the world, there is no regulation at all, meaning that companies doing business there are often operating under a shroud of uncertainty. In countries like the US, regulations can be confusing and have yet to fully realize themselves, so much so that the IRS was recently told to be much clearer in how it handles cryptocurrencies.

Major auditing firms are hiring hundreds of blockchain and cryptocurrency specialists.
The job of companies like PwC is to help companies be in compliance and properly meet their tax obligations. Crypto exchanges and mining outfits are not the only companies which can benefit from the blockchain experts at auditing firms – virtually any company that exposes itself to crypto at all will need some form of guidance as regards the tax situation. Even simply accepting bitcoin as a payment form can be confusing for traditional companies used to transacting strictly in fiat currencies.

PwC appears to desperately want to lead the way, likely recognizing the potential size of the blockchain industry moving forward. They have an entire subsection of their site devoted to it, in which they explain that they’re ready to help.

“PwC sees enormous potential for blockchain in financial services. We’ve developed the strategic and implementation capabilities necessary to help financial institutions, technology companies and startups take advantage of this transformative technology. Our global team of experienced business, technology and regulatory leaders can help you identify how blockchain can benefit your organization and how to rapidly move these initiatives forward.”

There are few, if any, large native crypto tax or auditing consulting firms. One that comes to mind is Libra, who recently completed funding, but the question remains as to whether they will be able to serve crypto clients in quite the same, complete manner of PricewaterhouseCoopers and other traditional firms who are modernizing with an eye toward cryptos.

P. H. Madore

P. H. Madore can most often be found solving a problem that involves small children, electronics, or both. He has written for CCN since 2014. Visit http://pay.phm.link to contact him or contribute to his gadget fund.

The Blockchain and the Final Newsletter

Executive Summary

This is my final newsletter. While it was a worthwhile personal effort to invest my time in preparing a monthly document on the markets and the economy for interested readers, the number of paid subscribers just did not rise to the level to make this business endeavor a profitable one. So with a bit of regret, I write this with the lasting belief that there were one or two nuggets within my words that helped make a positive difference in the investment selections and actions you may have undertaken over the past year.
The year 2017 has been a memorable one. From a markets perspective it defies logic for this seasoned investor. I began buying and selling stocks in the early 1980’s. The ebbs and flows I have seen during the past 35 or so years have included some incredible changes. They have been invaluable lessons for me, an education that was self-taught and borne of a simple passion to solve the puzzles of the equity markets, and to do so profitably. While the journey has been wild, I have been fortunate enough to achieve the peace of mind that comes with doing what you are most happy with in life and to have done so profitably.

I initially planned to write a comprehensive final report that covered in detail the market and economic factors that help me form a perspective on what the future may hold. After pondering this for quite a while, I changed my mind. Why did I do so? Because, the substance of what I would have written would convey the same over-riding view that I have expressed before; we are in a dangerous and highly over-valued market, a perspective that is supported by fact and history. You should know that if there are elements of the market or the economy that you would like me to write about and share with you directly, please know I would be happy to write to you individually to ensure my last newsletter ultimately meets with your expectations, even if in more than one communication.

So, what am I going to write about that I believe is meaningful and worthy of a final sharing of the ideas that run through this mind? Clearly, it is about the Blockchain and the phenomena known as Crypto-Currencies. I believe we are at an inflection point in history, and the substance of that perspective deserves to be the headline and the entire theme of this closing missive. I hope you enjoy it!


The Connolly Financial Advisors Last Newsletter, January 2018

Excerpt from October 4, 2017 Connolly Financial Advisors Economic and Market Report

Inflation and Money

One consistent theme that is being seen in every report I read, other than what the OECD data shows, is that prices are rising across industries on almost all raw materials. I know for me it is very true in my personal life. For example, my home insurance renewal invoice arrived this month. The annual premium was 16.4% higher than last year. I did not change the policy or file any claims, it was simply a pure price increase. In other areas of my home life, I see property taxes, broadband services, varied subscription based services, and food all rising more than 5% year-over-year. Inflation is alive and well. A single slice of pizza cost me $3.50 last week. New home prices are now greater than they were in 2007. With rising prices evident and more anticipated, I must ask, where is the income growth to meet the rising expense growth? From my vantage point, U.S. household incomes have just recovered to the level that existed in the year 2000. Leverage and Central Bank Quantitative easing have fueled price increases, but the flow-through to incomes is generally lagging, and with the CBs reducing their monetary accommodation, a large and unknown outcome exists, which is what happens when the historic monetary stimulus is no longer there as a support after trillions of dollars have been pumped into the world economies. Present expectations for the Federal Reserve tightening are focusing on a reduction of reinvestment in debt assets over the next twelve months to the tune of $300 billion; split $180 billion in treasury securities and $120 billion in Mortgage Backed Securities.

Continuing with the comments on the Fed, a look at the money supply growth and the velocity of money show tightening that the market has ignored. Consider the downward trajectory of M2 money supply growth over time and the recent inability to break above 2% growth for the past 52 weeks as measured in quarterly change:

A potentially significant warning sign

The chart above is a weekly snapshot going back to before the 2008 financial crisis. The green line is the upper band of the DJIA measured over a 16 week period. The red line is the lower band. The yellow line is the weekly close of the DJIA.

Looking at the green line during the collapse of the equity markets in 2008/09, the market moved significantly below the upper band in a manner that was unique. When the market hit bottom and started to reverse to the upside, it proved its bottoming was complete when the upper band was forced to move dramatically lower to meet the weekly closing index. That was an incredibly important buy signal.

Since then, the upper band has tracked closely to the DJIA weekly closes.

Since 2009, the lower band has at times shown gaps away from the Index, gaps that were ultimately closed by downward corrections in the index (see the red line gaps from the Index and the trigger points that caused the lower band to move up to meet the weekly close). Now focus on the most recent data. Starting 40 weeks ago the lower band and the index began to separate once again. This time the separation spread continued to widen beyond what historically would indicate a small correction was due. If you look at the most current point, the spread is roughy equivalent to the spread that existed in 2009 when the market finally reversed to the upside (4,000 vs 4,500 point spreads). Additonally, the magnitude of the spread for both periods are outliers, and in 2008/09 it preceded the bottom. This inidcator tells me we are close to a top and a sustained move lower, a move that will not be a typical correction in size, but will reflect a bear market.

The Connolly Financial Advisors Monthly Economic & Market Report

Equity prices have led economics and it is catch-up time, but what if the economy does not show up?  Have the volume of shares bought in rising stocks proven to be the right backdrop for continued confidence in more equity gains?  What risk premiums would you attach to this market?  Cash, Gold and Crypto-Currencies have been winners this summer, but will that continue?   Is it time to batten down the hatches as the horizon shows greater instability with each passing day?

Executive Summary

The year 2017 has seen the DJIA rise by 2,200 points through August 31, 2017.  An impressive positive performance.  With this magnitude of a gain, over 11%, would you expect the volume of activity in 2017 to confirm the gain by also showing higher volumes and much greater positive volumes, indicating broad participation and engagement in the market?  I would want to see that.  If we look at the same period in 2016, the DJIA index rose by 1,067 points, roughly half of what we have gained in the YTD 2017 period.  Now I really expect the 2017 data to be much better than 2016, given the greater Index gains.

What does the activity on the NYSE reveal?

Shares traded by month on the NYSE for 2016 and 2017 (in billions of shares):

It is surprising that in every month the volume of shares traded during 2017 are below the monthly shares traded in 2016.
What about the composition of the shares traded?  I would expect that the net volume in stocks that advanced in price for 2017 would be much higher than the net volume in 2016.  If this is the case it would make me less concerned about the overall volume decline that we see above.  So what happened?  In the YTD period through August 2017, advancing volume exceeded declining volume by 2.15 trillion shares.  In the YTD period through August 2016, advancing volume exceeded declining volume by 7.5 trillion shares.   WOW!  There is a disconnect here that is astounding to me.

What happens if we move away from stub periods that are less than 12 months in length, and look at the comparisons between years using the fiscal years September through October, from 2011/12 through where we are in 2017, with one month left to go in the fiscal year.  Will that help alleviate the concern that the one-off comparison above revealed?  Let’s see.

It is clear from the above that the current activity in 2016/17 is an anomaly.  The volume of net advancing shares per point change in the DJIA Index is significantly below the historic average, and indicates the weakness of money flows into advancing stocks overall during the current period.  This is of great concern to me and casts significant doubt as to the equity market’s support for current prices.

For the full report, email me at tjc@theconnollyfinancialadvisors.com

A signal of an internal change in the equity market’s strength

This is an annual view of the market internals.  It is a fiscal year chart running from Oct 1 through Sept 30.  It measures the change per day of the 24 day moving average in Issues and Volume on the NYSE.  Because of the excel set-up it presents itself in a backward fashion, with the most current point on the left side of the chart.  Each Oct 1 the chart resets to zero so you get a discreeet annual look at what is going on and the ability to compare years.  The downturn that is starting to show now should not be ignored.

A tale of two markets

There are times when there is a tale of two markets. Now may be one of those times. If we look at the past ten days of stock trading on the NYSE versus the point change in the DJIA for this period, we see an outlier event. Breaking the ten days into two groups of five days, the first being the back-end five days and the other being the front-end five days, we see a complete disconnect of internal stories between the periods. For the back-end five days, the DJIA rose 263 points with 153 net advancing stocks on net advancing volume of 51 billion shares. Sounds impressive until you compare it to the front-end five days. For the most recent five days, the DJIA declined 247 points, roughly offestting the back-end point gain. This is where the stories now diverge in a meaningful way. The number of net declining stocks for the front-end period was 4,084 companies on net declining volume of 1.2 trillion shares. Compare those internal statistics for a moment. It does seem the internal voting machine is heavily pointing toward the exits, even if the Index point change is lagging behind. Invest wisely……..