 We're massively bullish on Bitcoin. We got a ton of Bitcoins and it maybe could go to a million. But that is 100X from here. That's really the edge of possibility. But DeFi, it could go to 400 billion. There's no reason that couldn't happen. So you have Bitcoin maximalists, you have people that are just passionate about ETH or whatever. We're investors. We invest in things that seem cheap and once they get too expensive, we sell them and buy something else that seems cheap. What is the first thing that comes to mind when you hear the words crypto trading? 24-7 monitoring, loads of different coins, charts, nonstop order placement, rapid changes, lots of time and sleepless nights. It's time to simplify it. Take advantage of crypto volatility without making it your full-time job. Automate your trades with TradeSanta platform. Just go to the website, tradesanta.com, register in a few simple steps and use trading bots to execute known trading strategies for you. Creating a bot takes you no more than five minutes. Yes, it's really easy. Look how it works. First, you connect your exchange using API keys and then you configure your bot using templates or from scratch. Just choose coins to trade, strategy, set target profit and you're ready to go. Turn the bot on and let the trading begin. User-friendly interface and instant user support from Santa's helpers allow you to solve any emerging issue. TradeSanta, automated trading, made simple. Hi everyone, I'm Giovanni. Welcome back to our show. Today I'm joined by Dan Morehead, founder and CEO of Pantera Capital. How are you doing, Dan? Great, thanks for having me on the show. Pantera Capital is among the oldest crypto investment firms and among the largest institutions owning cryptocurrency. It has over $500 million under management across three venture funds and four cryptocurrency funds. In 2018, Pantera reported a lifetime returns of over 10,000%. So Dan, can you tell us a bit about your background and how you got to found Pantera Capital? Yeah, I started out my career as the first asset-backed securities trader at Goldman Sachs. It's now a wild turn of events that I'm trading asset-backed tokens so the world comes full circle. I then went and spent years trading global macro with Julian Robertson at Tiger Management. And when Tiger wound down its investing for outside investors, I found a Pantera Capital. That was 17 years ago and we typically traded normal hedge funds, about a billion dollars of opportunistic global macro style hedge funds. And in that we're always looking for disruptions or opportunities that have very asymmetric risk reward profiles. There've been things like Russian privatization in the 90s and Argentine farmland and Tesla motors. Just every once in a while, a trade comes up. In 2011, my brother introduced me to Bitcoin and I thought about it, I thought it was really cool, thought it'd be interesting if it happened but I didn't actually do anything. And then a year or so later, Pete Berger Fortress and Mike Novigratz, friends from college in Goldman, asked what I thought of Bitcoin and I went in and we started talking about it and I essentially went in for a coffee and never left. I was like, this is the most fascinating trade I've ever seen. And since then, eight years or whatever, fully focused on Bitcoin, I think it is the second half of my career that I'll be spending focused on crypto. You have around $500 million worth of crypto under management. Can you tell us a bit about how Pantera Capital's portfolio is constructed? Yeah, first thing to think about is we do have three different token funds. The digital asset fund trades liquid tokens like Bitcoin, XRP. And then we also have funds that trade pre-auction ICOs and a Bitcoin fund. Combined, we have about 63% in Bitcoin when you combine all three funds. Since we started the fund management industry in the US, we have separate funds for each thing and now a lot of managers just kind of have one big fund that has everything in it together. Our view in the digital asset fund is dynamic. We're always increasing or decreasing our exposure to Bitcoin. During the first weeks of the crisis in March, we decided to massively increase our exposure to Bitcoin because Bitcoin typically performs very well in stressed markets. When the market's gapping down, Bitcoin does better than the smaller cap altcoins. But that typically lasts only about 31 days and then after four months, the correlation with the S&P and the dominance of Bitcoin normally fades. And we're actually seeing that now. Bitcoin peaked at 67% of the market in late March and it's been fading. We think Bitcoin's gonna go up a tremendous amount and we own, as I said, 63% of all of our crypto token holdings are Bitcoin. But we think the smaller cap tokens, the things smart contract oriented, DeFi oriented, they're gonna outperform Bitcoin. Bitcoin's gonna go way up. Those things are gonna go up even further. So your bullish position on altcoins hasn't always been reflected in the performance of Pantera's funds. According to internal material revised by CoinDesk, all your altcoin-based hedge funds lost double digit in 2019 while the Bitcoin fund was up 10,000%. Can you comment on these numbers? Yeah, so when you're trading, you have to decide whether you're early or wrong when you have a position that isn't working. And we have been invested in a lot of DeFi protocols for many years and it wasn't working previously. The world does change very quickly in the last couple of months. The world's kind of woken up to DeFi and the capitals float into space. So the negative performance we saw last year has been flipped completely the opposite. Our digital asset funds up 123% this year. Bitcoin's up about 60. So our view is Bitcoin's gonna do very well but altcoins are gonna perform even better. In a June letter to investor, you stated that decentralized financial protocols are going to prove better investments than tokens merely used as means of payment and store of value. Why do you think so? Yeah, so we're very bullish on crypto because there are hundreds of use cases. When a technology is disruptive, they call it a category killer. Blockchain's a serial killer. It's gonna go through dozens and dozens of different industries, revolutionize so many different things. One of them is store wealth and digital gold that's awesome. But then there's also DeFi and so many other use cases. The way I would say it is, it's already done a great job as store wealth. Bitcoin has a $215 billion market cap. That's great, it's already achieved that well. Whereas the other use cases like DeFi are still just in their nascent state. DeFi has a market cap now of about $4 billion. If you're looking at Bitcoin at $215 or DeFi at $4 billion, it seems like DeFi is cheaper. It's a very huge important use case. And from here, like you said, our first fund is up 17,000%. That's awesome. I don't think you can go up 100X from there. It's just at that point you're getting to $20 trillion. That's getting very, very large relative to the world or money or all the different scales you could put on it. But DeFi, it could go to $400 billion. There's no reason that couldn't happen. So you have much more upside, I think, in these small coins, DeFi protocols. Okay, that's an interesting point of view, although it contradicts what the Bitcoin maximists say. For instance, Dan Held from Kraken was with us in a recent interview. He said that Bitcoin was the only valuable project in the crypto space and that all the other coins, including DeFi, didn't prove their utility yet. Blockchain tech sucks. It's terrible. It makes so many trade-offs to build Bitcoin that it is basically ineffective for almost anything else. And he also said that Bitcoin has the potential to go up to $1 million in value. So what's your counterargument to that? Oh, you know, I want to say we're massively bullish on Bitcoin. We have a ton of Bitcoins and it maybe could go to a million, but that is 100X from here. And to me, that's kind of, you know, that's really the edge of possibility because you're getting into a number that's 20 trillion and all money on earth is only 100 trillion, you know? So you're really getting to a huge thing at that point. So I think it's possible and it's not like I'm just saying it can't happen, but I think it's much more likely that the entire DeFi space goes up 100X over the next five years than Bitcoin. And again, it's not to take anything away from Bitcoin. Bitcoin's great, we own 63% of it, it's awesome. It's just these other protocols have much more upside because they just haven't been proven. Bitcoin's 11 years old, you know, it's done a lot. DeFi is basically just starting to happen. Right, and what about coins that are used as means of payments, cross-border payments, like for example, XRP? Are these projects worth Pantera's attention? I would say is there are some people in this industry, they're almost religious about their belief and it has to be just one token and one use case and one, you know, thing. And so you have Bitcoin maximalists, you have people that are just passionate about ETH or whatever, we're investors. We invest in things that seem cheap and once they get too expensive, we sell them and buy something else that seems cheap. And so we're investors in seed investors in Ripple. We love what they're doing. I agree, that's another use case we haven't talked about. Cross-border money movement's a huge issue. There's hundreds of millions of people that migrate around the world to earn money, to send back to their families. The 140 year old strongest player in the space, Western Union, they charge on average 8%. And for us in finance, you know, 800 basis points, whatever, it's just a number. For the migrant, that's a month's wages. They have to spend an entire month working to pay their remittance company. And with cryptocurrency, you can send it essentially free and essentially real time, but not everyone knows how to download BitcoinQT on their laptop and all that stuff. So they're willing to pay companies that help them do that. And we're invested in a dozen or so companies around the world that help migrants send money, you know, across borders. And you know, that's a great example of how blockchain is really coming of own in this crisis. The companies we're invested in have seen over 100% growth since the beginning of the pandemic, because it's hard to send money via traditional means now, you know, banks are closed, you know, all these things are becoming harder, whereas with crypto, you can send it, you know, natively on the internet. So if you had to mention three D5 projects that Pantera is betting on at the moment, what would those be and why? Oh, we're early investors in the Ampleforth and they're as well just kind of getting known and people are realizing that their stablecoin has some really cool properties. And so that's one we're very interested in. We love ZeroX as well, seed investors in that project and they are now as well taking off. So those are two of the projects that, you know, we've been invested in and trying to help for years and just kind of whatever reason it's all come together just recently. In your July letter to investors, you reply to one of the most common argument against cryptocurrency, which is their high volatility. You said that volatility is a good thing on asymmetric investments such as Bitcoin, which you compare with other investments you did in the past, such as Russia's privatization or Argentina's farmlands. So can you explain what do you mean by asymmetric investment and why volatility is good for such an investment? Yeah, so most investments that a typical investor does, you can kind of make or lose about the same amount of money. If you invest in a normal stock, it might go up 30%, but it might go down 30%. And so your upside and your downside are roughly the same. They're kind of in the same ballpark. Asymmetric bets are ones where your upside is just so much bigger factors or maybe orders of magnitude bigger than your downside. Cryptocurrency is the extreme example of that. But those other examples you mentioned, I went over to Russia in 1990 when they started privatizing and ultimately invested in Gazprom. The entire market cap of Russia was $12 billion. And as a global macro investor, I was like, hey, it's a super highly sophisticated, nuclear capable country valued at $12 billion. It just seems way too cheap, right? Yeah, it could have gone to zero, right? The whole market could have lost $12 billion in market cap, but it could have gone up to billion, or trillions of dollars of value. And that's ultimately what it did. So I'm often looking for trades like that. I was an early investor in Tesla Motors when it was around a billion or two. Market cap, if they're gonna revolutionize the entire transportation sector, yeah, you could lose a billion or two, but it could go up now 150 billion. So I'm always looking for trades like that and crypto is by far the most extreme of those. The perspective I would have is that cryptocurrencies are like options. I used to always say they're like a call option on the future payment rail to the world. And that is one way to think about it, that if you own something, that your worst case is you lose one time's your money, but if it actually works and it does become the payment rail to the world, you have tremendous upside. So you can make multiples, maybe orders of magnitude of your money. And so when you have something like that, you want volatility, you want the markets to be very volatile. The more recent perspective on it and how the option analog is relevant today is it's to some extent also a put option on paper money. Governments around the world are printing so much paper money, the value I think is gonna go down tremendously actually relative to things that can't be quantitatively eased like gold or Bitcoin. And again, there, if you own an option, you want volatility. And we've seen that over the years, Bitcoin has relative to normal asset classes, crazy volatility and that scares a lot of people away. They say, hey, I don't wanna invest in Bitcoin because it's too volatile. The reality is there's massive booms and bubbles and then there are busts. But when you net it all out, it's always going up. And in all but one of the years since Bitcoin was founded, the low for each calendar year has been higher than the previous lows. And yes, there have been several 90% bear markets in crypto that happens, but it always happens from a much higher high. So even these really bad bear markets and right now we're still down 50% from its highs in 2017, we're still way higher than we were previously. We're higher than we were a year ago and a kind of fun stat about Bitcoin is everyone that's held Bitcoin for three and a quarter years has made money. And I'm not aware of any other asset like that. You can't say that about gold or housing or stocks or whatever, you know, it's been very, very long bear markets and sometimes assets never recover their highs. Whereas in Bitcoin, they always historically at least has always recovered its high within three and a quarter years. So defending Bitcoin from those criticizing it for not producing cash flows, you said, quote, there is no cash flows in Euro, US dollar either. It is just a bilateral exchange rate. Euro, USD goes up or down based on the amount of people that want to use US dollars versus euros and vice versa. Still, I think that there is a major difference here because both Euro and the dollar are backed by the respective central banks, hence their fundamental value, while Bitcoin isn't backed by any institution. So what would be your response to this counter argument? Yeah, you get that argument a lot. And I had a fun conversation with one of my TigerCup friends who's a big TNT investor. And he said, you know, we don't trade Bitcoin because there's no cash flows. And I was like, well, the Euro against the dollar is not any cash flows to discount, but there's, you know, I've spent 30 years trading that and it's a huge industry. So you have to view it as either a bilateral exchange rate or a stored wealth or utility token. All three of those perspectives I think are useful. When you trade currencies like the Euro against the dollar, there's some data like current account deficits, interest rates, and that's what people use to determine whether they want to be long the Euro or short the Euro. That's the same with cryptocurrencies. There's tons of information on the number of transactions, the fees that are being paid to the transaction processors, the number of GitHub commits. You know, there's a ton of data. So it's actually quite similar. The other perspective is, you know, gold doesn't have any cash flows. It's just the inert elements. You know, it's been around for billions of years, but people store a ton of wealth in it because it's worked for 5,000 years. You know, Bitcoin's only worked for 11 years. So it's not, it doesn't have the same five millennia of history, but it has worked. And so, you know, every year, more and more people want to store their wealth in Bitcoin. And that's a way to view the value of Bitcoin. And if it's useful for people for storing wealth, they'll keep doing it. Right, still, gold might have zero cash flow like Bitcoin, but gold is used to make jewelry, for example. People are wearing it, while Bitcoin can't be used for these sort of things. No, you can do a lot of other cool things though. You can send money around the world. You can put property titles on Bitcoin. You can do a lot of cool things. And I'll come back to your first kernel of a thought there is that there's no intrinsic value. There is some intrinsic value to gold that you know, you can do dental fillings and you can do jewelry, but the vast majority of gold is held just purely for monetary reasons. This is not for other reasons. And you say that, you know, paper currencies are backed by the government. With the exception of being able to extinguish tax liabilities, there's no other thing that a currency can do, you know, that Bitcoin can't do. And so there isn't really any backing. There used to be, right? Of course, $10 bills used to be exchangeable into silver. You used to be able to convert any US currency into gold at $32 per ounce. Obviously, they printed so many pieces of paper they could no longer exchange pieces of paper for gold at $32 per ounce. And now it's, you know, $1,900 per ounce. And even the fun one is in the United States, we've debased the currency so much that the metal currencies are now worth much more as metal than they are as representative money. And in my lifetime, the silver colored coins used to be silver and now they're made out of really cheap metals. And even pennies used to be made out of copper, but they've printed so many of them that they're more valuable now to be melted down and just used to make wires or whatever one wants to do with copper. And when people talk about there's no intrinsic value, if you try and access the intrinsic value in a penny, it's a federal felony with five years in prison. So, you know, although you could say there's intrinsic value in money, you can't access it. And my best example of that would be the intrinsic value of a Jackson Pollock painting is 40 bucks. It's some canvas and some house paint, but it has a 70 year track record of being a good store of wealth. And so, Bitcoin's only has an 11 year track record, but there's no requirement that it has some kind of physical tangibility. If it is good at storing wealth, more people will use it. And that's basically why the price goes up. The more people that want to use it to do some things to our wealth or whatever it is they're doing, makes the price go up. Okay, and that leads to my following question. You have great confidence in DeFi projects and other altcoins. However, before those projects prove their value, it might take quite a while. And as your friend Mike Novogratz said in a recent panel in our YouTube show, the most big funds are likely to buy Bitcoin and not alts because alts right now do not pass the liquidity test. So how would you respond to this argument? Oh, I think, you know, Mike's right in the sense that investors always begin with Bitcoin and there are some that, you know, trade it around actively. But if you're viewing it like most people that this is a five to 10 year holding period, it's kind of like venture. You know, when you invest in a venture startup, you don't expect to be able to liquidate it tomorrow. You expect to hold it for a long time. And so I don't think that I'll dissuade investors from buying into these smaller projects. You know, our end investors are investing in our funds that invest in these projects and are willing to hold it, you know, typically for periods of years, we typically offer quarterly or, you know, daily liquidity on token funds, but so few people access that it's easy to hold things for multiple years. Okay, so let's switch topic to price prediction now. Analysts at Pantera Capital predicted that Bitcoin will hit $115,000 in August 2021 based their analysis on the stock to flow model. So you are a little bit more cautious. You said that Bitcoin will hit $100,000 in two years. So can you explain the rationale behind your prediction and the discrepancy between your personal prediction and Pantera's prediction? Yeah, so there's two ways you can project into the future or what the price of crypto will be is one is to look at what's happened during all the previous haveings. And they've had big impacts on price. And if you take the stock to flow from the first two haveings and extrapolate it out to the third, it would imply a price of $115,000 dollars per Bitcoin in August of next year. And the logic on that is the first having had a massive impact. There's only 10 million Bitcoins outstanding. We were going from 50 every 10 minutes to 25. And so it was about 16% of the entire stock of Bitcoins were being pulled out of the market. That had a huge impact. The second having obviously the having bit was half as big but the stock was even bigger. So it was only a third as impactful in terms of the stock to flow. It was about 5% of the existing Bitcoins being removed from the supply. And that had one third the impact on price might have been a coincidence, but it's a nice coincidence. And then this one will be about a third as big as the prior one. So if it has that same ratio of an impact it would imply that Bitcoin would go up to $115,000 next August. That is also putting it back on its nine year logarithmic trend. And again, the past doesn't have to predict the future. So I'm not saying, you know, bet 100% of your life savings on a binary option that expires on 115 next August. I'm just saying it's highly likely Bitcoins will rally a ton over the next few years. And those are decent benchmarks. And it's been on that pace so far in the three months since we predicted that. So, you know, I think Bitcoins, again, this is the back to the asymmetric question. I don't think it's a 50-50 shot whether Bitcoin's higher a year from now as it is today. So now I would like to ask you a personal question. How much of your net worth is in cryptocurrency compared to other traditional assets? Yeah, so it's a good question. I have the majority of my net worth in crypto and venture crypto because I spend all day doing this and I have very strong conviction that this is a great trade. Not even remotely saying that's what the average person should do because it's highly volatile, very speculative. Typical person should have a few percent of their portfolio in crypto. And then the second question is what else do I invest in? And like Mike Novogratz calls sometimes, talk about the Brazilian Real or whatever, I don't invest in anything other than crypto. Crypto is so captivating and has such better risk-reward characteristics than the S&P 500 or whatever else you could be trading that I haven't traded anything else for seven years. Okay, so you're basically saying that you don't own any traditional assets besides cryptocurrency? Yeah, the balance is essentially cash and real estate, things I don't have to think anything about. The only kind of active investments, the things I think about and I really consciously make are in crypto. Let's talk about macroeconomics now. So while some economists are predicting that it will take from 12 to 18 months for the US economy to recover from the COVID-19 crisis, you predicted it would take four years. So why do you predict such a pessimistic scenario and what implications will it have on the crypto industry in case it will actually play out? Yeah, I've been studying the global macroeconomics for 35 years and it seems very clear to me that this is gonna take at least four years to achieve the same level of GDP we had prior to the crisis. The only other world recession we've ever had is the global financial crisis in 2008-9. It's the first time in history that the entire world was in recession and to me that's a very small problem compared to what we're dealing with now. What we're doing now is just a much bigger and more complicated thing and we can go into that if you want but the punchline is that took three years to recover the high-end GDP and our estimate that you mentioned that it would take four years is from our April investor letter and if we really had to crunch the numbers I think it might take longer now given the policy responses and what's happening. So the notion that there's gonna be a V-shaped recovery and even some famous policy makers are talking about GDP being back to normal or achieving a new high even it was originally said this year or maybe next year I just unfortunately I can't even see how anyone could actually come up with that as an estimate. It looks like it's gonna take quite some time and then the implication for our industry is if it seems like in many countries like the United States the principal response to this invisible virus is to print more paper money and in the United States in June we printed more debt than we did in the first two centuries of our country's existence which is absolutely staggering and that amount of debt just creates a huge quantity of paper money and when you have more pieces of paper chasing the same assets like gold or Bitcoin it just obviously takes more pieces of paper to buy the same fixed quantity thing like gold or Bitcoin. And so if we're gonna keep doing it was 850 billion in June and the deficit now deficit in the United States is for this year is estimated to be larger than any of the deficits in the Great Depression and also larger than the average deficit during World War II obviously those were huge events and there's so many complicated things about this pandemic that I don't have any insight about but the one thing that seems fairly certain is it has to be putting pressure upward on the price of things like gold or Bitcoin where you can't make more of it. Okay so you're basically saying that a prolonged crisis is not positive for the crypto industry. I think it's almost certain to be very positive for the price of cryptocurrencies and again there's so much horrible stuff resulting from this pandemic that we're not touching on here but if we're just talking about the price of Bitcoin or the price of XRP or the price of E. It just seems like if you're printing literally trillions of dollars of more paper money it just takes more pieces of paper to buy anything of fixed quantity and we've seen you know, bounce of inflation you know, over the centuries. This one is not gonna show up in the price of goods and services because there's so much excess capacity of both labor and goods right now but it definitely will show up as inflation and the price of things. You're even seeing that obviously in the stock market the stock market is supposed to be reflecting the value of discounted cash flows right? We were talking about that earlier and I haven't checked it lately but Wall Street estimates were down 60% for corporate profits for this year and the stock market is almost at a new high. To me that is the clearest proof that there's a lot of money sloshing around the system and if there's just more pieces of paper to buy shares of say Hertz stock or the S&P in general it's the same with Bitcoin and other cryptocurrencies. That was awesome Dan, thanks for being with us today. Hey thank you very much, it's been a fun conversation. That was Dan Moorhead, CEO and founder at Pantera Capital. I'm your host Giovanni, if you like the interview hit the like button and subscribe to our channel. See you next time. Coin Telegraph, like, subscribe and hodl.