The University of Austin, a new school opening later this year, has launched what it said is the first long-term endowment held in bitcoin, a unique involvement of cryptocurrency in higher education financing.
The endowment is being held in partnership with Unchained, an Austin-based bitcoin financial service whose founder and CEO, Joseph Kelly, donated the first two bitcoins to launch the campaign, equivalent to $138,000.
After securing its initial approval to launch from the Texas Higher Education Coordinating Board in November, the university plans to open this fall in the Scarborough Building downtown with 100 students. The private institution first announced plans to open in November 2021, pitching itself as a school against cancel culture and censorship and an innovative alternative to a national higher education model it said is broken.
The university seeks to challenge higher education norms, including by setting up the endowment in bitcoin, a form of digital currency that can be sold and exchanged without a bank. The decentralized model requires that the majority of the bitcoin network approve transactions, and the transactions are stored on a digital record called a blockchain.
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Chad Thevenot, the senior vice president for advancement and communications at the University of Austin, said the new school is growing its endowment resources and that this endowment will be part of a diversified portfolio with other stocks and assets to support the university’s future.
The new endowment will go toward the university’s general funding but will be kept in bitcoin for at least five years, he said.
The idea came when he and Kelly, whose office is across the street from the university’s headquarters, met for coffee chats and lunch. When Thevenot heard Kelly’s pitch about the endowment, he thought it was a great way to engage the bitcoin community.
“Bitcoin as an idea, as a phenomenon, captures the imagination of people at university; it captures the imagination of our students,” he said. “In that sense, there’s a natural lineup.”
The spirit of the University of Austin captivated Kelly, specifically how the university wants to help students become entrepreneurs. The partnership, he said, can “build a bridge between the communities.”
“The more I heard about what they’re trying to do in terms of really holding up the light to areas of censorship or issues (in the) higher educational system, a lot of people in the bitcoin community that we serve would also really benefit from hearing that message or benefit from knowing that UATX exists,” he said. “And then, like me, might get excited (and) contribute.”
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Universities have been accepting cryptocurrency for years but typically liquidate it to avoid volatility in its value. But by keeping the endowment in bitcoin, the university will demonstrate that it believes in its value as an asset, Thevenot said.
“We’re not worried,” he said about potential fluctuation in market value. “Every bitcoin that we get is more than $0. Because the alternative is zero bitcoin.”
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David DeMatthews, a University of Texas associate professor in the College of Education specializing in education policy, said the use of bitcoin as an endowment asset is new to him but isn’t surprising, as endowment portfolios typically consist of a number of different kinds of assets.
The $5 million is “not a substantial amount, considering what it might cost to open a university, but could be viewed as a way of marketing bitcoin and other types of cryptocurrencies,” DeMatthews said.
Cesare Fracassi, a UT associate professor of finance who researches and teaches about cryptocurrency, said the endowment held in bitcoin offers the benefit of attracting donors interested in cryptocurrency, but could face fluctuations in value over time similar to other tech stocks.
“Investing in bitcoin is as volatile as investing in Tesla,” Fracassi said. But he added that donating bitcoin has a tax advantage for donors over cash, similar to giving stocks and bonds to universities.
Though bitcoin’s value has dropped significantly in the past, it has also risen significantly, said Shimon Lazarov, the chief marketing officer at Unchained.
“Bitcoin has volatility, but it also has tremendous upside,” Lazarov said. “I think $5 million in five years can definitely easily 10x or 20x, if you look at the past of bitcoin.”
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Carla Reyes, a Southern Methodist University associate professor of law specializing in blockchain technology and the past chair of the Texas Work Group on Blockchain Matters, which sent an 84-page report of recommendations to the Legislature in 2022, said Texas is considered a top state in the industry largely due to tech hubs such as Austin.
Reyes said the university’s announcement is “very cool” and rare because the endowment will be held in bitcoin.
“Universities are very risk averse and very wary of accepting donations or even grant money in cryptocurrencies very broadly, and so I think it is probably exceptional for them to accept it and make a commitment to hold it for five years,” Reyes said, adding that Unchained’s management of the endowment should keep the payments safe, which she thinks is often a concern among universities.
Reyes expects that Texas will continue to innovate in technology and blockchain currencies because both the state and the industry share “an entrepreneurial, innovative spirit,” and Texas lawmakers, industry professionals and researchers are interested in seeing it progress. She hopes the announcement encourages other universities to form similar partnerships.
“Tokens and cryptocurrencies get a bad rap, one they don’t deserve,” Reyes said. “And I think if the universities don’t look past that to the real value of the technology and do the diligence to figure out partnerships … they’ll (miss opportunities for) grant money.”
With bitcoin, Thevenot said, “we want to take this kind of risk and be integrated with those kinds of communities in Austin.”
“It’s not just an asset,” he added. “It’s an ethos.”
This article originally appeared on Austin American-Statesman: Crypto to bolster university endowment? New private college experiment