Pantera Capital’s blockchain letter for the month of November 2024.
1,000x :: Pantera Bitcoin Fund
Pantera Bitcoin Fund recently achieved an insane milestone – 1,000x.
The post-election surge has taken the fund a further 30% higher. The Fund’s lifetime return is now 131,165% – net of fees and expenses.
I wanted to share the original logic – as it is equally compelling to me today.
The day we chose to launch Pantera Bitcoin Fund was literally the low print of the last eleven years.
That first investment memo still reads well.
In 2013-15 we bought 2% of the world’s bitcoins.
Even after eleven years, bitcoin is **still** squeezing up like a watermelon seed.
Honestly, I just can’t help thinking that we still have many more years of very compelling returns.
Gold In 1000 BC
The core of my view was written a month later:
“I was discussing bitcoin with an investor yesterday and he replied somewhat dismissively ‘It’s just like buying gold’. No, it’s like buying gold in 1000 B.C. 99% of the financial wealth has yet to address bitcoin. When they do, bitcoin is either going to be worth zero or [up orders of magnitude].”
As an industry, we’ve made some progress. Now it’s something like “only” 95% of financial wealth has yet to put their full-sized position on.
The catalyst for the change – from 5% in 2024 to a much higher number – just happened: regulatory clarity in the United States. Massive institutional managers like BlackRock, Fidelity, and others are now offering incredibly cheap, efficient access to anyone with a brokerage account. This new ease of access will finally allow tens of millions of investors and individuals to get exposure to this important new asset class.
We believe the broader industry will benefit greatly from the first pro-blockchain U.S. president in office. In our view, blockchain’s success is in the best interest of the nation and we believe everyone in Congress will eventually adopt a neutral or pro-blockchain stance – it’s beginning to happen. Blockchain’s 15-year regulatory headwinds are now turning into tailwinds.
I still passionately believe what I wrote eleven years ago:
“I think it’s north of 50% chance that the world adopts a global currency/payment system in which free cryptography replaces the very expensive ‘trust’ charged by banks/VISA-MasterCard/Western Union/PayPal/etc. Bitcoin dominates cash, electronic fiat money, gold, bearer bonds, large stone discs, etc. It can do all of the things that each of those can. It’s the first global currency since gold. It’s the first borderless payment system ever.”
[With bitcoin at $104]
That’s still exactly how I feel. We’re still early. 95% of financial wealth has not addressed blockchain. They are just beginning this massive transformation now. When they do, bitcoin might be at something like $740,000 /BTC.
[With bitcoin at $254]
The market did melt-up. It was at $1,000 in less than a month – and now three orders of magnitude higher.
11-Year CAGR Of 88%
I can imagine an investor thinking: “Bitcoin has doubled this year. Well, I guess I missed it.” and giving up.
No, that’s the wrong mindset. On average, it almost doubles **every** year. The compound growth rate since we launched the fund eleven years ago is 88%.
Orders Of Magnitude
It’s already done three orders of magnitude. Another one seems plausible. If and when bitcoin gets to $740,000 /BTC, that’s a market cap of $15 trillion. Not an inconceivable number, relative to $500 trillion[2] in financial assets.
While the past does not necessarily predict the future, if the trend were to continue, bitcoin would hit $740,000 in April 2028.
I think it will take a few years longer, but I do think there’s a decent chance of doing so.
That’s been my mentality: I wouldn’t bet my life on it, I’m not 100.00% sure blockchain assets will go up, but when you multiply the chance it goes up times the order of magnitude or more the industry is potentially going to go up – the result ends up being way better than other assets one could invest in. The expected value of the trade is the most compelling I have seen in almost forty years of doing this.
Wasn’t Easy
It now may seem obvious, but it was hard.
After the -87% crash beginning December 2013, bitcoin faded from relevance. The market was still down three-plus years later. By 2016 almost everybody had given up on bitcoin. Investors had no interest.
I flew all around the world and did 170 investor meetings that year. The sum result of all that effort – we could only raise $1mm.
The management fees on that were $17,241. A hundred bucks a meeting.
We Coulda Bought The Hotel!!!
By nature I’m such a loyal team player. I’ve always wanted Team Bitcoin to win. Over the years we’ve tried to help the community in every way we can. So, when Expedia announced they would take bitcoin in 2014 we did all our travel expenditure on Expedia with bitcoin.
In 2015 our team did 59 nights on the road – spending an average of 1.5 BTC on each night – 88 bitcoins in total.
That’s $8,683,136 in today’s paper money!?!?!
We coulda bought two hotels!
Amazing Blockchain Industry Growth
When we prepared to launch Pantera Bitcoin Fund in 2013, I set up accounts at a couple of exchanges and wired money to be ready. When I first walked into Wells Fargo down Market Street in San Francisco from our office to wire money to Ljubljana, Slovenia, I didn’t even know how to spell Ljubljana. It all felt super-sketchy. So much so that the bank manager came over and interrogated me for a long time on what I was doing.
(I now know that Slovenia is a lovely country just to the right of Venice and below Austria.)
But, at the time I wondered if I was crazy. The other wire I did was to an unknown little startup that sounded equally sketchy.
The price of Bitcoin was at $130 or so. Over the next days I watched as the bitcoin price fell from $130 through $100. It’s funny to think back, it’s still essentially the same Fear, Uncertainty, Doubt that skeptics say when we’re in a bitcoin bear market today. Even with all the issues when it hit $65, I decided to go ALL IN – to launch Pantera Bitcoin Fund. Thirty years of trading intuition led me to believe that was the day.
I sent the email above out to a tiny list of bitcoin enthusiasts, which was maybe twenty people at the time saying, “I just want to get involved.”
(That list is now hundreds of thousands and the subsequent letters have been read 2.7 million times.)
I went onto this startup called Coinbase and I tried to buy 30,000 bitcoins. A popup said that the Fund’s daily limit was 50 bucks – and, not like in Wall Street lingo where “bucks” sometimes means millions. Like one Ulysses S. Grant per day. I almost had a heart attack.
Since it was a trendy start-up they had no address or phone number. In a panic I sent an email – titled uncharacteristically in ALL CAPS – to their support email address “I WANT TO BUY TWO MILLION DOLLARS OF BITCOIN”. Four days later their only employee – a guy named Olaf – wrote back, “Okay, your limit’s now $300.” Even at my newly-expanded trading limit it would take 6,667 days to transact that amount.
I’d still have 2,522 days to go!
Thankfully I was able to buy the bitcoins on Bitstamp and the industry grew. Today, the cryptocurrency markets trade $130 billion a day. Simply amazing how far the industry has come.
Blockchain As An Asset Class
I sometimes feel like a gorilla in the forest who notices a shiny object on the ground…picks it up…rotates it…wondering what it is…
Bitcoin!
I certainly don’t understand all the nuances of the incredible technology projects happening in the space, but I feel like I’ve seen this movie before.
I was the first asset-backed securities trader at Goldman Sachs. Now everyone recognizes ABS as an asset class. I was there when they did the GSCI. Now everyone thinks of Commodities as an asset class. In the 90’s I was investing in emerging markets. Now everyone thinks of EM as an asset class.
Blockchain will be just like that. I believe that in the not-too-distant future every investment firm will have a blockchain team and a sizable, permanent blockchain allocation.
Asymmetric Trade
My global macro background is what got me into blockchain in the first place. The asymmetry of this trade – working on the largest markets in the world – make this opportunity orders of magnitude larger than the trades we’ve typically chased around the world. I believed it’s the most asymmetric trade I’d ever seen.
This theme is best illustrated by a comparison from the second Pantera Blockchain Summit, March 2014:
“At the dinner a few hours before the late-night poker game, Morehead had joked about the fact that, at the time, all the bitcoins in the world were worth about the same amount as the company Urban Outfitters, the purveyor of ripped jeans and dorm room decorations – around $5 billion. ‘That’s pretty wild, right?’ Morehead said.
“ ‘I think when they dig up our society, all Planet of Apes-style, in a couple of centuries, Bitcoin is probably going to have had a greater impact on the world than Urban Outfitters.’ ”
– Nathaniel Popper, 2015, Digital Gold
When I updated that in November 2020, Bitcoin’s market cap was the same as L’Oréal. Waterproof mascara is undoubtedly an amazing invention, but I still thought there was an asymmetry.
Digging further…
“At L’Oréal, our mission is to democratize…the best of accessible and quality beauty in skincare, makeup, hair care, and hair color.”
Awesome. Bitcoin’s mission is surprisingly similar-sounding: to democratize financial access.
I thought the financial one would end up bigger.
Bitcoin has recently overtaken Meta (f.k.a. Facebook). Photo sharing is really cool and all, but I think that financial inclusion for everybody on Earth with a smartphone is gonna be bigger.
Five left to cross off….
Dan Morehead
Founder, Managing Partner
Pantera Capital
“Put the alternative back in Alts”
