As the first Bitcoin fund in the history of the United States, Pantera Capital raised a total of US$164 million from 2018 to 2020, most of which flowed into Bitcoin. For this financing, Dan Morehead said that the growth potential of decentralized finance may exceed Bitcoin. In addition, the recent investment in Globe seems to imply that Pantera Capital has begun to pay attention to the cryptocurrency derivatives market. In the future, they may focus on these two investments. An emerging financial sector.
Author: Pantera Capital co-founder Dan Morehead
Compilation: Carbon chain value original team
Before the text begins, let’s talk about the US election.
Judging from the current situation, the Democrats will enter the White House, but the Republicans will control the Senate-which means that the United States will continue to be divided, and both parties should put more pressure on the Fed and require it to expand its balance sheet. As the Fed turns on the “money printing machine”, prices of many commodities will rise accordingly, such as gold, real estate, stocks, and even Bitcoin.
The following figure shows the comparison of the Fed’s total assets and Bitcoin price trends from April 2018 to the present (Source: Federal Reserve’s official website):
It feels like Bitcoin is going to rise.
(Carbon chain value note: Rising refers to the fact that there are more and more bulls in the market, the market sentiment is super optimistic, the market continues to rise or even accelerate, and finally leads to the market collapse. This concept is the famous economist Edward Yadney in 2016 Proposed in a blog in 1988.)
01 Bitcoin shortage
In a letter sent by Pantera Capital to investors last month, the cryptocurrency venture capital firm proposed that Square’s Cash APP had purchased 40% of the newly minted bitcoins during its 30 months of operation. Another concern is PayPal. They also recently launched a bitcoin transaction service that allows customers to buy, sell, and hold cryptocurrencies directly in their PayPal accounts. This move has had a huge impact in the cryptocurrency market.
In fact, what makes the Bitcoin community proud is that in the 12 years since its birth, the number of Bitcoin users has grown to 100 million, but after PayPal enters the market, this scale will soon expand to 400 million, because PayPal has 300 million active users. As previously demonstrated by Pantera Capital (expected to be more detailed and comprehensive in the December investor letter), this Bitcoin market rebound will be more sustainable than in 2017, because this bull market and One of the biggest differences compared to that year is that many people can invest in Bitcoin directly through PayPal, Cash APP, Robinhood and other channels.
Buying bitcoins used to be very troublesome. You need to provide a passport to take a selfie, and then wait a few days or even a week for the account to be activated, and the daily transaction limit will also be limited.
But now, 300 million people have real-time access to Bitcoin, Ethereum and other cryptocurrencies!
The result is obvious-a new round of bull market has come!
PayPal’s cryptocurrency infrastructure provider chose Paxos, but before PayPal integrated cryptocurrency services, the cryptocurrency exchange itBit operated by Paxos actually had relatively stable trading volume. The figure below shows the comparison of the Bitcoin transaction volume trends between PayPal and itBit. The white curve represents itBit:
The horizontal dashed line in the above figure represents the sum of the supply of newly minted bitcoins and the original transaction volume of itBit. If this growth trend continues, then in just a few weeks, the number of bitcoins purchased by PayPal will exceed all new bitcoins. Minted Bitcoin.
Here you may ask a question, where do trading platforms like Cash buy Bitcoin from? In fact, they will buy bitcoins from trading platforms with limited supply and pay higher purchase prices-this is what is happening in the bitcoin market, when other large financial institutions start to imitate Square, PayPal and Robinhood, The Bitcoin market supply and demand relationship will become more imbalanced, and the only way to solve the imbalance between supply and demand is to increase the price.
02 Pantera Capital’s entry capital performance
In the past period of time, Pantera Capital has invested part of its funds into decentralized financial agreements and some crypto projects that support free trading. This investment strategy has also brought considerable benefits. Pantera Capital mainly provides institutions and high-net-worth individuals with fast and safe access to Bitcoin, as well as the purchase and custody of Bitcoin services, with low average daily liquidity and service fees.
03 Look at the Bitcoin price deviation from the ten-year trend
There was a saying among Wall Street traders in the 1980s: “The harder the transaction, the better the market.” The meaning behind this sentence at the time was that when market orders are more difficult to buy or sell, In the long run, the market prospects are better-although this sentence is not 100% truth, when you see more and more people start to consult investment and financial advisers whether they need to buy some bitcoins, similar ideas will always be Come to mind.
The cryptocurrency market has performed very well recently, but the price of Bitcoin still has not broken through the historical high, and it is far below the ten-year logarithmic trend. In the logarithmic trend line, if the data starts The speed of increase or decrease is very fast, but it quickly stabilizes, then the logarithmic trend line is the best fitting curve, and the increase or decrease is relatively fast at the beginning and gradually flattened.
The current Bitcoin price is about $18,000, which is 52% lower than the long-term regression. This trend will push the price of Bitcoin to $37,000. Relative to the spot transaction price, the $18,000 Bitcoin is about 22% lower than the all-time high-it is clear that Bitcoin is not overvalued! (In the follow-up, we will discuss more about the fundamentals of Bitcoin in the excerpts of the interview with “What Did Bitcoin Do?”)
Another aspect that needs attention is: Bitcoin prices are rising, are there signs of hype? This question can actually be answered by searching for the word “Bitcoin” on Google. In the cryptocurrency market bubble in 2013 and 2017, Google search was a very critical market evaluation indicator, whether it was a soaring bitcoin market price or a subsequent reversal. In the recent market dynamics, you will find that the trend of Google searching for “Bitcoin” has not changed much, so the “suspicion” of market speculation and manipulation can basically be ruled out.
Investment predators Stanley Druckenmiller (Stanley Druckenmiller) and Bill Miller (Bill Miller) start buying Bitcoin
If you start to study “smart money”, you can’t be smarter…
Stanley Druckenmiller is one of the most successful macro hedge fund managers in the world. He is the tenth and most successful successor selected by Soros for the “Quantum Fund”, Stanley Druckenmiller Duquesne Capital Management Co., Ltd. was opened in 1980, and currently has approximately US$12 billion in assets under management. Bill Miller is the manager of the Legg Mason Value Trust. He helped the fund grow from 700 million US dollars to 12 billion US dollars. Many people think he is by far the greatest fund manager one.
Recently, Stanley Druckenmiller and Bill Miller talked about Bitcoin on CNBC programs, and they both expressed bullish views “coincidentally”. Since both of them are legendary investors, their views are likely to move the market and may stimulate more institutional investors to invest in blockchain assets.
“As one of the value store options for millennials and high-net-worth individuals, Bitcoin is a very attractive asset class, and, as we know, these people own a lot of Bitcoin. Bitcoin has been born since its inception. It’s been 13 years, and with the passage of time, Bitcoin is gradually becoming a brand. At this stage, I do own gold many times more than Bitcoin. But frankly, if my bet on gold works, then The effect of betting on Bitcoin may be better because Bitcoin is more scarce and less liquid.”-Stanley Druckenmiller, CNBC, November September 2020.
“Bitcoin price is indeed very volatile, but I think the stability of Bitcoin is improving every day… I think that every bank, every investment institution, every high-net-worth company will eventually come into contact with Bitcoin, or similar Digital assets are just like exposure to gold and other similar commodities in the past. The story of Bitcoin is very simple, it is the relationship between supply and demand. The supply of Bitcoin is growing at a rate of 2.5% every year, but the growth rate of demand has exceeded this number. The supply of coins is also fixed.”-Bill Miller, CNBC, November 6, 2020.
Some institutional investors entered the cryptocurrency industry under the influence of the global macroeconomic background (we will discuss the views of Galaxy Digital founder and billionaire Mike Novogratz below), such as Mike Novogratz, Paul Tudor Jones, and Alan Howard. Investors who focus on the global macroeconomic background are beginning to pay attention to Bitcoin.
However, this transaction asymmetry gives institutional investors the opportunity to obtain a large amount of Bitcoin. Compared with other ordinary investors chasing Bitcoin purchase transactions around the world, the transaction scale of institutional investors is several orders of magnitude larger-Bitcoin Currency is probably the most asymmetric transaction we have ever seen.
In March 2014, at the second blockchain summit held by Pantera Capital, Dan Morehead, the co-founder of the crypto venture capital, said:
“The value of all bitcoins in the world is about the same as the market value of Urban Outfitters, a manufacturer of jeans and dormitory decorations, about $5 billion, which is really crazy, right?”
The well-known New York Times reporter Nathaniel Popper wrote in the book “Digital Gold” published in 2015: “I think that Bitcoin will affect human society in a few centuries, just like the story of Planet of the Apes, Bitcoin’s impact on the world The impact is greater than Urban Outfitters.”
Although the market value of Bitcoin is similar to that of global beauty brands such as L’Oreal and Maybelline, there is still the issue of transaction asymmetry. The “interesting” thing is that Bitcoin and L’Oréal actually have surprising similarities. For example, L’Oréal describes its mission like this:
“At L’Oréal, our mission is to democratize beauty… In skin care, makeup, hair care and hair coloring, L’Oréal wants to provide the best, barrier-free and quality beauty services.”
Relatively speaking, Bitcoin’s mission is to democratize financial access, and the financial industry will become stronger under the push of Bitcoin.
05 For billions of people, Bitcoin has reached a record high
Participating in “What did Bitcoin do?” hosted by Peter McCormack In the podcast show, Dan Morehead, co-founder of Pantera Capital, said:
“We have to do these podcasts to explain to Americans and British people how Bitcoin works and why Bitcoin is very important. But for people living in Argentina, they don’t need to listen to this show because they already fully understand Up!”
Below, we will show you some important visit records in this podcast program. If you want to learn more, you can watch the entire episode on:
Question: Dan Morehead and Mike Novogratz, first talk about how you met each other?
Mike Novogratz: When I started to study Bitcoin, I called Dan Morehead because we wanted to go to Fortress to do some transactions, but I didn’t have much expertise in Bitcoin and didn’t have much time. Dan Morehead works from home. So I called Dan Morehead and said to him, “Dan, look at Bitcoin, and tell me what you think.” Two weeks later, Dan Morehead called me back and he said, “Brother, Bitcoin It will change the whole world. This is the coolest thing I have ever seen.” So, we started to buy Bitcoin. At that time, the price of Bitcoin was only $60-65. I might invest a quarter of my money in Bitcoin. Dan Morehead invested more money. There is also Pete Briger of Castle Investment Company, the three of us bought about 90,000 bitcoins.
In fact, we should invest one-third of our money in Bitcoin. If we invest so much money, the return on investment will now be greater, so this makes me feel that I missed a very important thing. But Dan Morehead has helped me a lot. Without him, I would not have the wealth.
Question: Apart from Bitcoin, are there any more exciting investments now?
Dan Morehead: Bitcoin eclipses everything else. In the next 20 years, I think blockchain is more interesting than any other investment. For a while, Mike Novogratz often called me and said, “Hey, what do you think of Brazilian Real?” I told him: “I will not consider anything else now, 100% is Bitcoin!”
Question: Recently, people seem to be less worried about regulatory issues. Are we no longer in the “strike hard” stage? Will Bitcoin be banned? Or is it subject to regulation?
Dan Morehead: I think Bitcoin should have passed that stage. There was a period of time when regulators and banks were considering whether to block Bitcoin transactions, but now the situation has completely changed. I think the most important thing is: China has launched its own digital currency, so now the game has just begun. Some people plan to suggest a blockchain-based payment system. China will build one, Bitcoin will build one, and Some other participants. The toothpaste has been squeezed out, and it will be difficult to squeeze the toothpaste in again.
Question: Earlier, a fund manager said that we just pulled the “trigger” that triggered Bitcoin, and we should buy some Bitcoin in January. I’m thinking, well, you may miss some actions from time to time, which is a big question for investors, when is the best time to buy bitcoin.
Dan Morehead: This seems to be a question that people have been discussing, but in fact, Bitcoin should be a long-term investment for decades. If you look ten years from now, it will not be too late to buy Bitcoin in January next year.
In fact, it took twenty years for the Internet to become mainstream, so it is not an exaggeration to say that. In the 1970s, people only had the TCP/IP protocol, and then it took us 20 years to build a browser, and finally access Google and Facebook on the browser. For Bitcoin, we are really in the early stages, as Mike Novogratz said, only 100 million people now own Bitcoin. But I think this is a good start, because in 20 years there may be 6 billion people owning Bitcoin, but it will take a long time to get to that moment. When we first set foot in the Bitcoin industry, the price of Bitcoin was not very high, but as the price rose, we felt as if we missed a lot of money, but what is more worthy of attention is that Bitcoin has been from 2011 to 2013 and has been there until now. Running smoothly. Ten years later, if we look back at history, we may not pay attention to these prices on the chart, because what you see at that time may be an asymmetric hockey development trend.
There are many people in the market who have a negative attitude towards Bitcoin. They believe that Bitcoin has no intrinsic value. Here I would like to cite an example of the American master of abstract expressionism, Jackson Pollock, whose work was originally regarded as When some house paint and canvas were put together, many people in the industry felt that those artworks were only worth $40, but what about 70 years later? On January 3, 2006, Jackson Pollock’s “Drip Painting” “1948 No. 5” auctioned the highest price for a painting in the world, reaching 140 million US dollars. Bitcoin is only 12 years old, and it may not have the value of Jackson Pollock’s art, but it will become a reality in 20 years from now.
Question: What is your opinion on MicroStrategy’s USD 450 million purchase of Bitcoin?
Dan Morehead: I think this is great. It is difficult for you to be the first person to eat crabs, but it is not difficult to be the twelfth. As long as a large investment institution enters the market, it will lower the friction barriers for other institutional investors to enter the market. If the cash and assets in your company’s balance sheet start to depreciate, and the yields on bonds and stocks become negative, then it is recommended that you invest 1% or 2% of your assets in Bitcoin…
Bitcoin is the most asymmetric investment transaction I have ever seen. Mike Novogratz and I have been trading foreign exchange before, and finally the return on investment was less than 20%. Sometimes the foreign exchange market makes money and sometimes loses money, which is the same as Bitcoin. . So in that case, why not invest some money in assets that may grow 50 times? USD/JPY cannot rise more than 50 times, but Bitcoin can. So for MicroStrategy and other institutional investors, it is reasonable to choose some bitcoins on the balance sheet and get a high return. Maybe they can get a higher return than stock investment.
Mike Novogratz: I have been thinking about the narrative of Bitcoin. JPMorgan Chase recently recognized that “Bitcoin is digital gold.” Compared to Ethereum and many other new crypto projects, Bitcoin is already a finished product, but JPMorgan Chase is still studying Bitcoin. There is no need to make any changes to Bitcoin, and the same is true for Bitcoin in five years. The only thing to consider now is whether Bitcoin can be widely adopted. Therefore, we decided to bet on Bitcoin. The current market value of Bitcoin is only 2% of gold. The market value of Bitcoin is now about 300 billion US dollars. What is gold? 13 trillion or 12 trillion? If it is 13 trillion, the market value of Bitcoin is about 2% of gold, and if it is 12 trillion, it is 2.5%.
It is not difficult for the market value of Bitcoin to grow to one-tenth of gold. We are not saying that the market value of Bitcoin will reach 80% of gold in three years, but it is easy to reach 10%. This means that the price of Bitcoin will touch $65,000 or 70,000 USD. Many people will say that Bitcoin can reach 500,000 U.S. dollars or 1 million U.S. dollars. This goal will of course be achieved, but it cannot be achieved overnight, so I set the Bitcoin target price range from 50,000 U.S. dollars to 65,000 U.S. dollars to 70,000 U.S. dollars. I don’t Expect pie in the sky. I think Bitcoin may “eat” part of the gold market, but the gold market itself is also expanding.
Dan Morehead: …Speaking of gold, I want to talk about shells first. In the past, people used shells as a store of value, and then gold, but the value of gold has long been more than 10% of shells, and it has replaced shells as currency. In the long run, Bitcoin may be 50 times that of gold. There is no reason why it can only be a small part of gold-because today’s gold may be yesterday’s shell.
Gold has a history of 5,000 years. It did not replace shells overnight, but we can see the same world from gold. If we look back at the present 30 years later, maybe the balance sheet of the central bank will be There is Bitcoin, not as it is now, where every central bank uses gold as a reserve asset.
Question: What do you think will happen in the cryptocurrency market in the next 18 months? And what should people pay attention to?
Dan Morehead: I don’t have a crystal ball, no one can predict the future, but I want to tell you something:
1. For the Federal Reserve Bank and the National Savings Bank who wish to hold cryptocurrency on behalf of their clients, the Office of the Comptroller of Currency (OCC) has finally opened the door. According to the regulatory agency’s announcement on July 22, the U.S. Office of the Comptroller of the Currency allows national banks of all sizes and the Federal Reserve Association to custody cryptocurrencies, and declares that such custody services are a modern form of tradition related to custody services. Bank activity.
2. China is promoting central bank digital currency;
3. 2.4 billion Facebook users may own the digital currency Libra;
4. 350 million PayPal, Robinhood, and Cash users can buy Bitcoin with one click and… we will get heart disease.
There was a saying among Wall Street traders in the 1980s: “The harder the transaction, the better the market.” Sometimes you think the cryptocurrency market has reached a high point, and then bite your teeth to buy a bit of Bitcoin. Making such a decision is not easy, but fortunately the market has continued to rise. If you asked me three years ago, would the Fed issue an additional $1 trillion? I would think that was a fantasy, but now this thing really happened! So I feel that Bitcoin is going to rise.
06 Deconstruct some problems in the current DeFi industry
In early November 2020, Pantera Capital held a conference call on the decentralized financial industry. At that time, it invited Alchemy co-founder and CTO Joe Lau and Acala co-founder and CEO Ruitao Sui. We will Some key contents of the meeting are summarized as follows:
Question: Some people say that DeFi is like the 2.0 version of the ICO bubble. Is that true?
Ruitao Sui: I think DeFi and ICO are very different. Fundamentally, you can see the actual usage of DeFi applications and DeFi protocols. I have many friends who are not in the cryptocurrency industry. I told them that I was using Compound and regarded it as a saving tool. What is happening on the blockchain now is like creating a “decentralized business bank”. You can make a lot of returns directly from the interest paid by the borrower under the premise that the stablecoin or funds are not affected…
But at the same time I want to emphasize that there will be some speculation in the DeFi industry in the short term, because any technology will have a period of speculation, especially for those very promising technologies. Speculation is inevitable. Recently, we have seen many stories of speculative value-added. Many DeFi agreements/projects have become very crazy in just one or two months, and then the heat quickly faded. I noticed that some DeFi agreements/projects have a high rate of return, but this crazy soaring state is unsustainable, and any hype is impossible to continue, but when these things disappear and the tide recedes, the real value will emerge.
For DeFi applications, or when investors evaluate specific DeFi agreements/projects, the three most important and must consider are:
1. The number of users actually served;
2. The actual value created;
3. Actual transaction volume facilitated.
Joe Lau: In the final analysis, DeFi wants to rebuild the entire financial infrastructure. In fact, DeFi has existed for several years. Ethereum as a platform has been around four to five years since it first appeared, but the financial infrastructure has been developed for centuries and has a history of hundreds of years. During this period, we Having established a bank and currency, and learned how to borrow and lend, many things cannot be invented overnight, right? More importantly, traditional finance cannot be transferred to other technologies overnight, so I think DeFi has great potential…
When we talk about DeFi prospects, you will find that what DeFi does is what we need-that is financial infrastructure, and DeFi will do this in a better way…
I think everyone needs to remember one thing, technological progress does not always show a “straight up” trend. Take the Internet as an example. In the 1990s, when the Internet had just started, people began to publish news on the Internet. At that time, many people felt that the Internet could not replace newspapers at all, and there were many problems. Then in 2000, the Internet bubble burst. People think that the Internet will eventually disappear. But twenty years later, the impact of the Internet on people’s lives has exceeded our imagination. With the advancement of technology, people will see more and more use cases, and I think a similar situation will happen with DeFi in the future.
Question: If DeFi is to become mainstream, what obstacles need to be overcome?
Joe Lau: I think DeFi does face some challenges in the development process. Many people are very excited about building projects on the blockchain, but to be honest, it is still difficult to achieve this. If we can speed up the speed at which developers build DeFi applications, the situation may improve. This is actually a virtuous circle:
Developers build applications→Apps introduce users→Users enter the market to stimulate developers to develop more applications→Technological progress becomes faster→The industry takes off faster
Ruitao Sui: I think that the Ethereum network may be one of the main bottlenecks in the development of the DeFi industry. At present, the Ethereum fees associated with DeFi transactions are very high-which means that unless you have strong funds, there is actually not much point in conducting DeFi transactions. . In essence, this is an Ethereum (scalable) performance problem, but I think this problem will be solved as the technology matures.
We are still in a very, very early stage. There are many counterintuitive designs in DeFi. For example, if you want to transfer DAI, you must pay ETH as the gas fee for the transaction. From the perspective of non-crypto users, this is really a very counter-intuitive concept-why do you have to pay for one currency to use another specific currency for transactions? For now, we need to concentrate on solving two major problems in the DeFi industry:
1. Reduce DeFi network load;
2. Improve DeFi user experience.
07 Conclusion
As of this writing, according to the SEC’s disclosure documents, Pantera Capital is planning a financing transaction of up to $134 million. If all goes well, this will be the largest financing of the company since its establishment 7 years ago. According to the relevant documents, Pantera Capital’s purpose of financing this time seems to be to prepare for the next bull market.
As the first Bitcoin fund in the history of the United States, Pantera Capital raised a total of US$164 million from 2018 to 2020, most of which flowed into Bitcoin. For this financing, Dan Morehead said that the growth potential of decentralized finance may exceed Bitcoin. In addition, the recent investment in Globe seems to imply that Pantera Capital has begun to pay attention to the cryptocurrency derivatives market. In the future, they may focus on these two investments. An emerging financial sector.
Original link: https://panteracapital.medium.com/bitcoin-shortage-172a9205dc0
