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FINTECH: MBAs Are Exploring The Investment Case For Blockchain Technologies

Kraken case competition saw students place bets on bitcoin and ethereum

Sat Dec 31 2016

MBA students have been exploring the investment case for bitcoin and ethers, digital currencies that backers hope will disrupt the financial services industry.

Bitcoin exchange Kraken, in partnership with The Economist, recently hosted a case competition that revolved around determining the investment attractiveness of the two controversial and sometimes volatile cryptocurrencies.

While bitcoin's price has more than doubled in 2016, to about $975 this week, cyber-heists from large exchanges have made the currency's price swing wildly.

Kraken asked MBA programs from around the globe to prepare a video answering the question: “If you had $1m to invest across two blockchain technologies, bitcoin and ethereum, by buying bitcoins and ethers — the digital assets or ‘cryptocurrencies’ that power these decentralised computer networks — and you could not touch your investment for the next five years, how much of that $1m do you invest in each?”

Tulane University's Freeman School of Business beat 13 other business school teams to take first place, claiming the top prize of $10,000. Ryerson University's Ted Rogers School of Business came second and Brigham Young University's Marriott School of Business came third.

"We're very happy to have had the opportunity to witness some of the great brainpower that's out there coming through these MBA programs," said Jesse Powell, CEO of Kraken.

The Freeman School of Business team created a minimum-variance portfolio of 67% bitcoin and 33% ethers, based on historical-return data of the two cryptocurrencies. They validated their strategy using a multiple regression model, back-testing and a Monte Carlo simulation.

“This was an investment competition, so we knew we had to approach bitcoin and ether not as currencies but as a new class of assets, one that appreciates over time,” said team member Jon-Paul Navarro.

Bitcoin has become an established part of the business school curriculum since it first boomed in 2013.

Duke University's Fuqua School of Business and NYU's Stern School of Business, pioneered the classes in 2014.

Since then, attention has focused on a core part of bitcoin's technology — the blockchain, a distributed ledger that simplifies transaction processing — which has moved into mainstream finance.

“Developing high quality educational content on these topics can be extremely useful for MBA students. They allow our students to think through novel applications of a general purpose technology,” said Professor Christian Catalini at MIT Sloan. Since the spring of 2015, students at Sloan have been able to take an intensive three-day course on blockchain developed by Christian.

The blockchain courses are part of a broader bet on fintech by business schools, as large financial institutions and students demand graduates who understand and can work with novel financial technologies. Peer-to-peer lending, cross-border money transfers, financial analytics, and artificial intelligence are hot topics in the business school world.

“Technology continues to transform the business landscape at a breath-taking pace,” said Raghu Sundaram, Vice Dean of MBA Programs at NYU Stern. “Business education needs to innovate to keep pace with the rapid rate of change.”