Honors Theses and Capstones

Date of Award

Spring 2022

Project Type

Senior Honors Thesis

College or School

PAUL

Department

Finance

Program or Major

Paul Honors

Degree Name

Bachelor of Science

First Advisor

Richard Kilbride

Abstract

Nothing has captured the attention of modern finance quite like cryptocurrencies and non-fungible tokens (NFT), whether it’s the massive skyrocketing price or the next day's sudden drop wiping out millions of dollars seemingly overnight. This paper seeks to understand cryptocurrencies and NFT's position in modern finance in terms of collateral. Specifically, the question that will be answered is should cryptocurrencies and NFTs be used as collateral? This question has relevance because widespread use as collateral would signify validation as an asset class that holds value. Some cryptocurrency brokers are making loans backed by cryptocurrency, but currently, no major banks are making cryptocurrency-backed loans. To answer the question, the study used real returns and prices for Bitcoin and Cryptopunk NFT collections to make assessments for the larger markets of cryptocurrency and NFTs. It was found that as expected that cryptocurrencies and NFTs did not currently make good sources for collateral in the current environment. As time progress it is very probable that this question may have to be revisited.

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