Author: Dan Morehead, Founder of Pantera
Compilation | Wu Talks about Blockchain
Original link:
https://panteracapital.com/blockchain-letter/1000x-pantera-bitcoin-fund/
The post-election rally boosted the fund by a further 30%. The fund's total return is now 131,165% before fees and expenses.
I want to share the original logic — because it remains very convincing to me to this day.
The day we chose to launch the Pantera Bitcoin Fund was actually the lowest point in the past eleven years.
That first investment memo still reads clearly today.
In 2013–2015, we bought 2% of the world’s Bitcoin.
PS: If Pantera purchased 2% of the world's Bitcoin from 2013 to 2015, it is estimated to be around 280,000 Bitcoins. In contrast, as of November 24, 2024, MicroStrategy holds 386,700 Bitcoins.
Even after eleven years, Bitcoin is still being squeezed upward like a watermelon seed.
Frankly, I can't help but think that we still have many years of very attractive returns.
Gold in 1000 BC
My core point was written a month later:
“I was discussing Bitcoin with an investor yesterday and he responded somewhat dismissively, ‘It’s like buying gold.’ No, no, it’s like buying gold in 1000 BC. 99% of financial wealth is not in Bitcoin yet. When they start, Bitcoin will either be worthless or [rise to orders of magnitude].”
As an industry, we have made some progress. Now, only “about” 95% of financial wealth is not fully deployed.
The catalyst for the change from 5% in 2024 to a higher percentage has just happened: regulatory clarity in the U.S. Large institutional managers like BlackRock, Fidelity, and others now provide extremely cheap, efficient access to Bitcoin for anyone with a brokerage account. This new convenience will ultimately allow tens of millions of investors and individuals to gain access to this important new asset class.
We believe the industry as a whole will benefit greatly from the first pro-blockchain U.S. President taking office. In our view, blockchain’s success is in the best interest of the country, and we believe everyone in Congress will eventually take a neutral or pro-blockchain stance — a trend that has already begun. 15 years of regulatory headwinds for blockchain are turning into tailwinds.
I still fervently believe what I wrote eleven years ago:
“I think there is a greater than 50% chance of global adoption of a global currency/payment system where free cryptography replaces the high ‘trust’ fees charged by banks Visa-MasterCard/Western Union/PayPal etc. Bitcoin replaces cash, electronic fiat, gold, bearer bonds, large stone plates etc. It does all of these things. It is the first global currency since gold. It is the first ever borderless payment system.”
The price of Bitcoin at this time is $104.
That’s still how I feel. We’re still early. 95% of financial wealth has not yet touched blockchain. They’re only just beginning this massive revolution. When they do, Bitcoin could reach something like $740,000/BTC.
The market did see a rapid rise. It hit $1,000 in less than a month — and now it’s up three orders of magnitude.
11-year compound annual growth rate of 88%
I can imagine some investors thinking, “Bitcoin has already doubled this year. Well, I guess I missed out,” and giving up.
No, that mentality is wrong. Bitcoin’s average performance is almost doubling every year. Since we started the fund eleven years ago, its compound annual growth rate has been 88%.
Order of magnitude growth
Bitcoin has already grown by three orders of magnitude. Another order of magnitude seems possible. If Bitcoin reaches $740,000/BTC, it would mean a market cap of $15 trillion. Compared to the total financial assets of $500 trillion, this number is not unimaginable.
While past performance is not necessarily predictive of the future, if this trend continues, Bitcoin could reach $740,000 by April 2028.
I think it might take a few years longer, but I do think it's a possibility.
This has always been my mentality: I’m not betting my entire fortune on this, nor am I 100.00% certain that a blockchain asset will grow, but when you multiply the likelihood that it will go up by the order of magnitude it could increase by or more — it’s a far better result than the expected return on other investable assets. The expected value on this deal is the most attractive I’ve ever seen in my nearly four decades of investing.
It’s not easy
It may seem obvious now, but it was very difficult at the time.
Bitcoin gradually lost traction after the 87% crash that began in December 2013. The market has not recovered more than three years later. By 2016, almost everyone had lost faith in Bitcoin. Investors had no interest at all.
That year, I flew around the world and conducted 170 investor meetings. The end result of all this effort — — we raised only $1 million.
The management fee for this fund was $17,241. The average profit per meeting was $100.
We could have bought the hotel!!!
I am a loyal team player by nature. I always want Team Bitcoin to win. Over the years, we have always tried to help this community. So, when Expedia announced that it would accept Bitcoin in 2014, we paid all our travel expenses in Bitcoin.
In 2015, our team traveled 59 nights — an average of 1.5 BTC per night, for a total of 88 Bitcoins.
That’s the equivalent of $8,683,136 today!?!
We could have bought two hotels!
The incredible growth of the blockchain industry
In 2013, when we were preparing to launch the Pantera Bitcoin Fund, I opened accounts on several exchanges and wired funds to prepare. When I first walked into Wells Fargo from our Market Street offices in San Francisco to send money to Ljubljana, Slovenia, I didn’t even know how to spell Ljubljana. Everything looked very suspicious. So much so that the bank manager came and questioned me for a long time, asking me what I was doing.
(Now I know Slovenia is a lovely country located to the right of Venice and below Austria.)
But at the time, I wondered if I was crazy. Another wire was sent to a small startup that sounded equally suspicious.
The price of Bitcoin was around $130 at the time. Over the next few days, I watched the price of Bitcoin drop from $130 to under $100. It’s funny to think back, this “fear, uncertainty, and doubt” (FUD) is still a refrain among skeptics in today’s Bitcoin bear market. Even with all of these issues, when it dropped to $65, I decided to go all in — and start the Pantera Bitcoin Fund. My 30 years of trading instincts convinced me that that was where the opportunity was.
I sent the email mentioned above to a small list of Bitcoin enthusiasts, maybe twenty people at the time, saying, “I just want to get involved.”
(Today, the list has hundreds of thousands of members, and the subsequent letter has been read 2.7 million times.)
I logged onto a startup called Coinbase and tried to buy 30,000 bitcoins. A pop-up window popped up saying the fund’s daily limit was $50 — not “$500,000” in Wall Street slang, but an actual Ulysses S. Grant $50 bill. I nearly had a heart attack.
Since it was a hip startup with no address or phone number, I hastily sent an email — with a subject line that was surprisingly in all caps: “I WANT TO BUY $2 MILLION OF BITCOIN!” Four days later, their only employee — a guy named Olaf responded, “OK, your limit is now $300.” Even at my expanded trading limit, it would take 6,667 days to complete the transaction.
At this rate, I still have 2,522 days of trading to go!
Fortunately, I bought the Bitcoins on Bitstamp, and the industry has grown. Today, the cryptocurrency market has a daily trading volume of $130 billion. It is really amazing how far the industry has come.
Blockchain as an asset class
Sometimes I feel like an orangutan who finds a shiny object in the forest… picks it up… turns it around… wonders what it is…
Bitcoin!
I certainly don’t fully understand the nuances of all the incredible technical projects in this space, but I feel like I’ve seen similar scenarios before.
I was the first ABS trader at Goldman Sachs. Today, everyone considers ABS as an asset class. I was involved in the creation of the GSCI (Goldman Sachs Commodity Index). Today, everyone considers commodities as an asset class. In the 90s, I invested in emerging markets. Today, emerging markets (EM) are considered an asset class.
The same will happen with blockchain. I believe that in the near future, every investment firm will have a blockchain team and allocate a significant and long-term investment to blockchain.
Asymmetric transactions
My global macro background is what initially got me into blockchain. The asymmetric nature of this deal — operating in the largest market in the world — makes this opportunity far beyond what we’ve chased on a global scale in the past. I think it’s the most asymmetric deal I’ve ever seen.
The best illustration of this theme comes from a comparison at the second Pantera Blockchain Summit in March 2014:
“Over dinner before a late-night poker game, Morehead jokingly mentioned that all the bitcoins in the world were then worth roughly the same as Urban Outfitters, a company that sells ripped jeans and dorm decor — about $5 billion. ‘That’s crazy, right?’ Morehead said.
‘I think when they dig up the remains of our society like they did with [Planet of the Apes], centuries from now, Bitcoin will probably have a bigger impact on the world than Urban Outfitters.’”
— — Nathaniel Popper, 2015, (Digital Gold)
When I updated this statement in November 2020, Bitcoin’s market cap was comparable to L’Oréal’s. Waterproof mascara is undoubtedly an amazing invention, but I still believe Bitcoin is asymmetrical.
Digging deeper…
“At L’Oréal, our mission is to democratize the highest quality and accessible beauty products in skincare, makeup, haircare and color.”
That’s great. And Bitcoin’s mission sounds surprisingly similar: democratizing financial access.
I think democratization of finance will ultimately be more important.
Bitcoin has recently surpassed Meta (formerly Facebook). Photo sharing is cool, but I think financial inclusion for every person on the planet with a smartphone will be much more meaningful.
There are five goals left to surpass...
