Original source: Dan Morehead's LinkedIn account
Author: Dan Morehead, Founder of Pantera Capital
Compiled by: 0xjs@Golden Financial
Pantera Bitcoin Fund recently achieved a crazy milestone - 1000 times return.
The post-election surge in Bitcoin price further pushed the Pantera Bitcoin Fund up by 30%. After deducting fees and expenses, the lifetime return of the Pantera Bitcoin Fund is now 131,165%.
I want to share the initial logic - because it still appeals to me today.
The day we chose to launch the Pantera Bitcoin Fund was actually the lowest point in the past eleven years.
The first investment memo still reads very well.
In 2013, we bought 2% of the Bitcoin in the world at that time.
Even after eleven years, Bitcoin still struggles to grow up like a watermelon seed.
Honestly, I just can't help but think that we can still achieve very substantial returns for many years to come.
Gold from 1000 BC
My core point was written a month later:
'I discussed Bitcoin with an investor yesterday, and he somewhat dismissively replied, 'It's like buying gold.' No, it's like buying gold in 1000 BC, 99% of financial wealth has yet to touch Bitcoin. When they do, Bitcoin's value will either be zero or [increase by several orders of magnitude].'
As an industry, we have made some progress. Currently, about 95% of financial wealth has yet to allocate their positions.
The catalyst for this change - from 5% in 2024 to a higher number - just happened: clarity from U.S. regulators. Large institutional management companies like BlackRock and Fidelity are now offering extremely cheap and efficient services to anyone with a brokerage account. This new convenient service will ultimately allow tens of millions of investors and individuals to access this important new asset class.
We believe that the first U.S. president to support blockchain will greatly benefit the entire industry. We think that the success of blockchain aligns with the greatest interests of the United States, and we believe that everyone in the U.S. Congress will ultimately take a neutral or supportive stance toward blockchain - this is already starting to happen. The regulatory headwinds against blockchain over the past 15 years are now turning into tailwinds.
I still firmly believe in what I wrote eleven years ago:
'I believe the probability of the world adopting a global currency/payment system is over 50%, in which free cryptographic technology replaces the very expensive 'trust' charged by banks/VISA-MasterCard/Western Union/PayPal/etc. Bitcoin will surpass cash, electronic fiat, gold, bearer bonds, large slabs, etc. It can do all of these things. This is the first global currency since gold. This is the first borderless payment system in history.'
When the price of Bitcoin was $104
I still feel the same way. We are still in the early stages. 95% of financial wealth has yet to touch blockchain. They are just beginning this massive transformation. When they start transforming, the price of Bitcoin could reach $740,000 per BTC.
When the price of Bitcoin was $254
The market indeed experienced a surge. In less than a month, the price of Bitcoin rose to $1,000, and now it has risen by three orders of magnitude.
11-year compound annual growth rate of 88%
I can imagine an investor thinking: 'Bitcoin has doubled this year. Well, I guess I missed it.' And then just giving up.
No, that is the wrong mindset. On average, it roughly doubles every year. Since we launched the Pantera Bitcoin Fund eleven years ago, its compound annual growth rate has been 88%.
Increase another order of magnitude
Bitcoin has achieved three orders of magnitude (1000 times) growth. An additional order of magnitude (10 times) seems feasible. If Bitcoin reaches $740,000 per BTC, then the market capitalization of Bitcoin will reach $15 trillion. Relative to $500 trillion in financial assets, this is not an incredible number.
While the past doesn't necessarily predict the future, if this trend continues, Bitcoin will reach $740,000 by April 2028.
I think it will take a few more years, but I do believe there is a significant opportunity for realization.
This is my mindset: I won't bet my life on it; I am not 100% sure that blockchain assets will go up, but when you multiply the possibility of an increase by the magnitude or higher extent that the industry could rise, the result will ultimately be much better than other investable assets. The expected value of Bitcoin trading is the most compelling I have seen in nearly forty years.
It is not easy
It seems obvious now, but it was actually quite difficult.
After starting to plummet 87% in December 2013, Bitcoin gradually lost significance. Over three years later, the market was still sluggish. By 2016, almost everyone had given up on Bitcoin. Investors lost interest.
That year I traveled around the world, attending 170 investors' meetings. The result of all this effort was that we only raised $1 million.
Management fees are $17,241. Each meeting is a hundred dollars.
We can buy hotels!!!
By nature, I am a loyal team member. I have always hoped for the Bitcoin team to win. For years, we have done everything we can to help the community. So, when Expedia announced in 2014 that they would accept Bitcoin, all our travel expenses on Expedia were paid with Bitcoin.
In 2015, our team spent 59 nights on the road, averaging 1.5 Bitcoins per night, totaling 88 Bitcoins.
That's equivalent to $8,683,136 today!?!?!
With this money, we can buy two hotels!
The astonishing growth of the blockchain industry
In 2013, when we were preparing to launch the Pantera Bitcoin Fund, I opened accounts at several exchanges and wired money for emergencies. When I first walked into the Wells Fargo on Market Street in San Francisco, ready to wire money to Ljubljana, Slovenia, I didn't even know how to spell Ljubljana. Everything felt very suspicious. So much so that the bank manager came over to interrogate me about what I was doing, asking for a long time.
(I now know that Slovenia is a lovely country located to the right of Venice and below Austria.)
But at that time, I wondered if I was crazy. The recipient of my funds was an unknown small startup, which also sounded suspicious.
At that time, the price of Bitcoin was about $130. In the following days, I watched Bitcoin's price drop from $130 to $100. In hindsight, it's funny; it was basically the same as what skeptics said during the Bitcoin bear market - 'FUD - Fear, Uncertainty, Doubt.' Even when Bitcoin's price dropped to $65 and all problems arose, I still decided to go ALL IN - launching the Pantera Bitcoin Fund. Thirty years of trading intuition made me believe that day was the starting day.
I sent the above email to a small group of Bitcoin enthusiasts, about twenty people at the time, who said: 'I just want to get involved.'
(Now this list has hundreds of thousands of entries, and subsequent letters have been read 2.7 million times.)
I logged into a startup called Coinbase, trying to buy 30,000 Bitcoins. A pop-up showed that the fund's daily limit was $50 - which is different from Wall Street jargon, where 'bucks' sometimes means millions. Every day is a Ulysses S. Grant (the portrait on the $50 bill). I almost had a heart attack.
Because it is a trendy startup, they had no address or phone number. I sent an email to their support email, unusually titled in all caps: 'I WANT TO BUY TWO MILLION DOLLARS OF BITCOIN.' Four days later, their only employee - a guy named Olaf - replied saying: 'Okay, your limit is now $300.' Even with my newly expanded trading limit, it would take 6,667 days to complete the transaction.
Even buying to today, there are still 2522 days!
Fortunately, I was able to buy Bitcoin on Bitstamp, and the industry has grown. Today, the cryptocurrency market has a daily trading volume of $130 billion. The pace of development in this industry is astonishing.
Blockchain as an asset class
Sometimes I feel like a gorilla in the forest noticing a shiny object on the ground... picking it up... spinning it... wondering what it is...
Bitcoin!
I certainly do not understand all the nuances of the incredible technology projects happening in this field, but I feel like I have seen this movie before.
I was the first asset-backed securities trader at Goldman Sachs. Now everyone thinks ABS is an asset class. I was there when they did GSCI (Goldman Sachs Commodity Index). Now everyone thinks commodities are an asset class. In the 90s, I invested in emerging markets. Now everyone thinks EM is an asset class.
Blockchain is the same. I believe that in the near future, every investment firm will have a blockchain team, along with a substantial, permanent blockchain fund.
Asymmetric trade
My global macro background got me into the blockchain space from the start. The asymmetry of this trade - working in the largest market in the world - makes this opportunity several orders of magnitude larger than the trades we usually chase around the world. I believe this is the most asymmetric trade I've ever seen.
This theme is best illustrated through the comparison of the second Pantera Blockchain Summit in March 2014:
'At dinner a few hours before the late-night poker game, Morehead joked that the total value of all Bitcoin in the world at that time was roughly equivalent to that of Urban Outfitters (a company that produces distressed jeans and dorm decor) - about $5 billion. 'That's crazy, right?' Morehead said.'
'I think that centuries from now, when they archaeologically examine our society like in Planet of the Apes, Bitcoin's impact on the world may be greater than that of Urban Outfitters.'
- Nathaniel Popper, 2015, (Digital Gold)
When I updated in November 2020, Bitcoin's market capitalization was the same as L'Oréal. Waterproof mascara is undoubtedly an amazing invention, but I still think there is asymmetry.
Further digging...
'At L'Oréal, our mission is to make high-quality skincare, makeup, hair care, and hair coloring beauty products accessible and affordable to the masses.'
Awesome. The mission of Bitcoin sounds surprisingly similar: to achieve the democratization of financial services.
I thought the mission in finance would ultimately be greater.
The market capitalization of Bitcoin recently surpassed Meta (i.e., Facebook). Photo sharing is indeed cool, but I think financial inclusion will be greater for everyone on Earth who owns a smartphone.
