Where to invest in the next 5 years? Ethereum VS Bitcoin
Earlier this year, Kraken in partnership with The Economist, launched a contest that posed an important question to MBA programs across the country.
UPDATE: Winners of the Kraken contest have been announced:
- First place was awarded to the team from Tulane University's Freeman School of Business who created a minimum-variance portfolio of 67% Bitcoin and 33% Ether 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.
- Second place went to the team from Ryerson University's Ted Rogers School of Business who proposed a 69:31 investment ratio for Bitcoin and Ethereum respectively. According to the team, Bitcoin offered a higher expected value, but the volatility and speculative nature of cryptocurrencies indicated a need for diversification across platforms.
- Third place was awarded to Brigham Young University's Marriott School of Business who based their Bitcoin-heavy portfolio on the cryptocurrency's established presence in the market, stable functionality and finite supply.
- The People's Choice Award went to the team from Ryerson University's Ted Rogers School of Business after they received the most votes from the general public
You have $1M to invest across bitcoin and ether. You cannot touch your investment for the next 5 years. How much of that $1M do you invest in each? Why?
Kraken’s essential question is, “which is the digital asset of the future?” In response, 13 teams have participated by providing a detailed paper and a short video to express their findings. Through in depth research, detailed analysis, and educated speculation, each team has presented their case for Kraken and the crypto community to assess and vote on. Submissions will be judged on the following main points:
- The quality of analysis as presented in the video summaries or in-depth in the full written solutions
- The presentation quality of the video
- The final investment recommendation (best allocation of funds across bitcoin and ether
Kraken has incentivized the contest with cash prizes valued at $21,000 (USD). The 1st place winner will receive $10,000, 2nd place will be awarded $5,000, 3rd place will retain $3,000, and the People’s Choice to receive $3,000 as well.
Each team was asked to quantify their results as a percentage, granting them free range in how much or how little they would potentially invest the one million into each currency.
Below is a chart of the initial results of each participant.
|BYU Marriott School of Management||78%||22%|
|Creighton University, Heider College of Business||70%||30%|
|FIA Business School||70%||30%|
|Johns Hopkins Carey Business School||50%||50%|
|Middlebury Institute of International Studies||70%||30%|
|Porto Business School||20%||80%|
|Rutgers Business School||20%||80%|
|Ryerson University, Ted Rogers School of Management||69%||31%|
|Tuck School of Business at Dartmouth||91%||9%|
|Tulane University, Freeman School of Business||67%||33%|
|University of North Texas||60%||40%|
|Worcester Polytechnic Institute, Robert A. Foisie School of Business||0%||100%|
|Ivey Business School at Western University||[no investment]|
|Total Submission Sentiment||55%||45%|
Determining the findings took shape as grading systems to which the results were scaled, tallied, and quantified. The teams also employed financial tools such as Monte Carlo simulations, to make accurate projections of growth for both currencies over the next five years. No one team held bias over their decision making but rather employed mathematical strategies that broke down fundamental attributes such as
- Platform Stability
Upon reviewing the submissions, some distinct patterns began to emerge. All teams, with the exception of Ivey Business School at Western University, (no investment recommendation) invested some value into Ether. With a low of nine percent investment from Tuck School of Business at Dartmouth, to a high 100 percent investment from Worcester Polytechnic Institute, all expressed some if not significant investment value in ETH.
By scoring BTC and ETH through these attributes, teams were able to objectively manage data into their case studies, along with other real world factors such as commercial application, and projected growth affected by various trends in the crypto world.
Although Bitcoin is currently the number one cryptocurrency today, most teams expressed Ether’s potential to replace bitcoin as the network grows. With bitcoin having certain non-tech advantages over ETH, mainly it’s time on the market and the public’s familiarity, teams adamantly expressed their belief to place some, if not most of the speculative one million dollars into BTC, over the next five years. The reasoning behinds this stands that BTC currently has a higher monetary value over ETH and is expected to increase as much as 600 percent by 2020. The decentralization of bitcoin also played a factor in determining the growth of the currency, making it a safer bet to invest in, according to certain teams.
Ether did reign champion at Worcester Polytechnic Institute with 100 percent investment, with both Porto and Rutgers Business Schools tying in 2nd place with an 80 percent investment. Teams that assigned 50 percent or more of the one million into ETH, expressed Ethereum’s value as a whole rather than as mere currency. The consensus dictates that smart contracts and commercial monetization of the EVM (Ethereum Virtual Machine) make it a valuable commodity to invest in, an advantage over bitcoin. BTC was viewed as the more profitable currency, however it’s limitations beyond that was shared by many of the schools. “Ethereum’s nature makes it difficult for adaptors to understand the technology and for regulators to pass [legislation]”, according to BYU Marriot School of Management.
This sentiment was echoed in other papers and played a significant role in the investment strategy. For some teams, ETH’s short time in existence played a bigger role than others, while some saw the potential for Ethereum to become a major player not only as a currency, but also in part because of its unique ecosystem.
Charts and diagrams broke down costs and trading trends over several years displaying exponential growth of ETH as much as 550 percent by 2020. Regardless of the final results of each team, the potential of ETH to become profitable was shared by most.
We see this sentiment echoed in the paper from Worcester Polytechnic Institute:
Nathaniel Popper and many others have referred to Bitcoin as the new, “Digital gold.” Ethereum on the other hand primarily seeks to provide a way to record and store transactions, and this difference is the primary reason why we believe Ethereum is the better investment over the next five years.
With Bitcoin reigning in as overall champion at 55 percent of the total collective investment, the majority is in favor of investing more funds in BTC. This isn’t a landslide victory however, Ether’s average stake at 45 percent signifies excitement, a solid faith in the currency, and its successful growth. Simply put, the potential of ETH to become a serious market player is prevalent in the papers and should not be disregarded. With many banks already employing SWIFT transactions like those executed on Ethereum, the mainstream adoption of ETH is anyone’s guess over the next five years. While some teams played it more safe with their ETH investment fund, other teams contend that Ether will be the king of future digital currencies.
To view the team papers and submission videos visit http://blog.kraken.com/ and cast your vote.