Editor’s Note: This is the third of a three-part series exploring the world of cryptocurrencies and crypto-assets on the tri-campus. The first part of this series covered student involvement, and the second covered risks and valuation techniques. The final segment will cover investment recommendations and University connections to the space.
A gaggle of finance students chats about ethereum on the second floor of Hesburgh library. To some students, this chatter might sound like a foreign language, but should more students consider the possibility of investing in the crypto asset world?
Finance professor Bill McDonald advises students to take a small position, emphasizing that crypto assets are risky but provide a learning opportunity.
According to the Pew Research Center, 16 percent of Americans say they have invested in or traded cryptocurrencies. Future crypto firm employee Brad Whitton says portfolio diversification and inflationary benefit are two possible advantages that may have motivated these purchases.
Adding to historic volatility, regulation poses a risk to cryptocurrencies. Future crypto asset industry employee and current senior Brad Whitton and McDonald agree that regulation is the greatest risk.
“I think regulators are still kind of trying to figure out how to regulate it. It has properties of being a commodity, a currency, and also an asset,” Whitton said. “All of those things are regulated by different entities, so the government is trying to figure out how to go about that now.”
Even to regulators, cryptocurrencies remain an enigma, and the United States could take steps that would severely undermine the value of even the most well-established crypto coins.
“They could make it much more difficult to own crypto. They could make it very cumbersome from a tax perspective,” McDonald said.
McDonald also mentions lack of accessibility as a potential risk. Platforms like Coinbase have made trading easier, but there is still a risk that an owner could lose their key, or password, losing access to all their crypto assets.
Even the tradition-rich University of Notre Dame has felt the impact of cryptocurrency’s rise to modern fame.
Notre Dame has received Bitcoin donations and offered multiple classes on crypto assets and blockchain technology.
McDonald taught the university’s first crypto asset course on Bitcoin in 2015, worth only one-credit hour. “We were one of the first undergrad institutions to offer a crypto course on campus, and it was simply because I thought it was an interesting thing taking place,” he said.
Today, the Masters of Finance program includes a short course on crypto assets. Patrick Flynn teaches courses on blockchain in the department of computer science engineering that he chairs and John Shim includes a few sessions on crypto assets and blockchain technology in his finance courses.
In 2017, the University received a Bitcoin donation from Chad Cascarilla, a 1999 Notre Dame alumnus and founder of Paxos, a blockchain infrastructure platform that prides itself on a good relationship with regulators and the potential to revolutionize the financial system by making transactions more efficient and accessible around the world.
The department of computer science engineering originally planned to distribute the Bitcoin gift to students and study subsequent economic transactions; however, Flynn said they shifted course after considering Bitcoin’s price volatility, high transaction costs and lack of adoption in everyday transactions.
In 2017, the department liquidated the Bitcoin and created a research endowment to fund cryptography and blockchain research projects.
Flynn said he sees more potential in the non-currency applications of blockchain, a “distributed, write-once” technology he finds “technically extremely clever.”
“I find the cryptocurrency per se to be the least interesting technical part of the wave,” he said.
Funds from the blockchain research endowment support university research and educational programs, including an undergraduate blockchain club recently established by Brad Whitton.
The Blockchain Club of Notre Dame plans to focus on educating students about technology applications outside of Bitcoin and similar cryptocurrencies.
Despite the high risk, McDonald recommends students interested in finance purchase at least a few crypto assets, which could include cryptocurrencies. He says that when you put money on the line, you pay more attention to the ever-evolving space. “All our finance majors need to be exposed to it,” McDonald said. “I think it’s the technology that you need to be familiar with, and if it all fails five years from now, you can look back and laugh at it, but you should still know something about it.”
McDonald does not recommend crypto-related holdings as a primary asset, instead suggesting that interested students reasonably contribute up to 5% of their total portfolio to crypto assets.
Even with this portfolio weight, McDonald said researching which crypto tokens to invest in remains important since almost anyone can create a coin on the open space software.
“The trick when you’re investing is to identify a token which has an interesting strategy and also know something about the team who’s putting it together,” McDonald said.
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