Pantera Capital: A new round of “crypto investment boom” is coming

Pantera Capital: A new round of "crypto investment boom" is coming

The average crypto user today is worth $8,000, compared to $875 in the 1990s.

This article is from Pantera Capital, the original author: Dan Morehead, founder of Pantera Capital

Translator | Moni

More than a century ago, economist and legendary journalist Walter Bagehot once said this “famous saying” –

“To avoid panic, central banks should have early and free (i.e. unlimited) high interest rate loans to solvent companies, especially those with good collateral.”

More than 100 years later, the Fed still does not realize the real problem, and is still actively amplifying the bubbles in bonds, stocks, real estate and other fields, which will require a larger-scale policy U-turn to offset related risks. The net result of unleashing a lot of liquidity is chaos in asset markets. So what is the best option for the policy risk of scale? We think it is: crypto assets.

At the same time, the Fed ignored the issue of “low interest rates.” In fact, the Fed has been manipulating Treasury and mortgage bonds and pushing interest rates to historic lows. Throughout U.S. history, there has never been a period of “7.5% annual inflation but zero federal funds” (the actual annual inflation rate may have been 8.6% due to the slow pace of Fed updates). If we look at real interest rates (that is, interest rates after inflation), this figure has reached “-5.52%”, the lowest point in nearly 50 years. Would a slightly rational investor still choose U.S. Treasuries and bonds?

There is no doubt that the Fed’s policy mix is ​​not right, and there is a lot of debate about whether to raise rates in five weeks. (Shouldn’t there be an immediate rate hike five months ago or now?) It’s the extreme manipulation of the Fed that is causing the current market to be overvalued by $15 trillion.

Pantera Capital: A new round of "crypto investment boom" is coming

We predicted in December 2021 that the market bubble could burst. Since then, the US 10-year note rate has fallen by 5 basis points and the rate has risen by 70 basis points. Judging from this, a new wave of “trading tide” has begun. The problem is that most market participants are not fully aware of the relationship between policy and cryptocurrency prices.

How Much Does Fed Policy Affect Bitcoin?

When the U.S. bond bubble bursts and the Fed begins to raise interest rates, it will usher in a turning point, which ultimately corresponds to two outcomes:

  1. I was wrong, market changes did not have any impact on crypto assets;
  2. The market is wrong, and market changes have a huge impact on crypto assets.

Here, we share some takeaways from the Pantera Capital investor conference call on February 1:

Dan Morehead:   “The market has obviously changed dramatically since our last investor call. As we predicted in November and December, the U.S. bond bubble will burst and the Fed will have to extend rate hikes Investors need to act accordingly. But at the time, we did not predict such a severe recession in the cryptocurrency market , which meant that traders would have doubts about whether their analysis and judgment were wrong, or whether they were raising interest rates and There is no correlation if the digital currency market goes lower. In this case, I firmly believe that the market is really wrong and that rising interest rates (I think it is clear that it will happen and will continue to happen) does not affect the cryptocurrency market that much Oops, crypto asset price representation is actually pretty good relative to other asset classes.

Joey Krug: “We make a macro view that cryptocurrencies have definitely been hit by the Fed’s planned rate hikes. But at the same time, I also think the crypto market is a bit sensitive to the Fed. So far, the crypto market has experienced about five rate hikes , the impact of several of them was actually exaggerated. There was a huge panic in the market when Ethereum fell to a low of about $2,200, but if you look at the US 10-year Treasury rate, you can see that it peaked at about 1.9 %, which is currently around 1.8%, but it fell to 1.35% at the end of last year, and then quickly rose to 1.9%. The volatility is also very obvious, so I think this is a wake-up call for the market.

However, if you look at the changes in the cryptocurrency market, you will find that when the traditional macro market declines, the cryptocurrency correlation change tends to occur in about 70 days, which is a little more than two months. In my opinion, cryptocurrency is still a relatively small market, so even if the federal funds rate drops from 1.25% to 0%, it will not make much difference for the cryptocurrency market, after all, the market grows only 4% per year. To five times, even if some DeFi assets can bring a price-earnings ratio of 10-40 times, it is really insignificant when compared with the technology stock market-earnings ratio as high as 400-500 times. Our view is that the crypto market may decouple from the traditional financial market in the next few weeks and start a new wave of trading again, and I personally think that the bottom of ETH may be $ 2,200.

Dan Morehead: “I totally agree with Joey Krug that the correlation between the S&P and cryptocurrencies may not last long. The S&P has dropped six times since Bitcoin traded in 2010, but both Rebound in a few months (about 71 days) . I think that will happen again this year , and then the crypto market will decouple from the traditional financial market. Once people are willing to take a moment to think about this, they will realize that crypto assets Unlike other asset classes, crypto assets are actually the relative best performers in a rising interest rate environment. Because blockchain is not cash flow oriented, similar to gold, price changes are very different from interest rate oriented products Investors, I think, have a choice: they have to invest in something, and if interest rates rise, cryptoassets are undoubtedly the most attractive place to invest . Let’s take a quick look at the current market position, which we have used several times over the past decade The chart below is very important. You can see that Bitcoin is actually trading about 60% lower than the overall trend.

Pantera Capital: A new round of "crypto investment boom" is coming

However, there is no guarantee that Bitcoin will definitely rise next week, or that it will not fall further next month or anytime. When the market is at extremes, the odds of Bitcoin rallying relatively quickly are very high. We have been in the blockchain investment field for 9 years, and I have to admit that sometimes the market plummets and I get very nervous, but I believe the market will rebound quickly. I think it will take us a few weeks or months to bounce back very strongly, and I’m very bullish on the general trend of the market, and I think prices are still relatively cheap at the moment . You can see that about a year ago, the Fed pushed rates higher and it was really crazy. I think the Fed’s actions are a total policy mistake and they may start raising rates soon. So if you haven’t sold your bonds to the Fed right now, hurry up. Maybe by next month, there will be no buyers for the bonds, when more people should enter the cryptocurrency market. “

Pantera Capital: A new round of "crypto investment boom" is coming

According to the chart above, Bitcoin’s 4-year year-over-year return is at the low end of its historical range, so Bitcoin is not overvalued and, in fact, still appears to be “very cheap” right now

Joey Krug, Paul Veradittakit, and Dan Morehead all agree that when the market falls, most people panic, probably because humans have an innate herd instinct.

  • When the market is soaring – the FOMO devil is whispering in our ears and everyone wants to follow suit, it’s human nature.
  • When the market crashes – everyone is ranting around, we want to escape… we want to stop the pain, it’s human nature.

Why is Web3 important?

After Elon Musk and Jack Dorsey lashed out at Web3 late last year and sparked a heated debate in the crypto industry, we decided to host a “Why Web3 Matters” investor conference call featuring Nader of the DeSo Foundation With Al-Naji and Audius’ Roneil Rumburg in attendance, here are some highlights from the discussion.

Q: How is “Web3” defined? 

Nader Al-Naji: “I personally think Web3 is something built on the blockchain, and if you’re using a blockchain, it’s Web3 for me. You might ask, what’s the point of that? Why is it based on the The application of blockchain is so interesting and different? I think the biggest reason why Web3 is interesting is – all on-chain assets and content are shared, which allows developers to refer to each other and innovate, a concept called For composability, this approach cannot be implemented in Web2. To take a concrete example, using the DeSo blockchain, applications built on it actually share the same content pool, when you post in an application, the actual will appear in all other apps. If you build followers in one app and then you want to move to another app, all of your followers will also be accessible on that new app. As I did Mentioned, the concept of sharing data across all applications is called composability, and I think this is the key to distinguishing Web2 and Web3 applications.

Q: Recently on Twitter, Jack Dorsey and Elon Musk openly questioned the reality and vision of Web3, Elon Musk said on Twitter that Web 3 is more of a marketing buzzword, is he right?

Nader Al-Naji: “People who abandon Web3 may not understand the power of composability – the power of assets and content to be shared and truly owned by the user. When there is composability, platforms emerge that fully support it (Layer 1 or is something else like that) is unavoidable because a single killer app built on Web 3 would share all those users and data, favoring more app building and creating a virtuous cycle. We see on Ethereum When it comes to composability, I think it’s impossible to ignore when Web 3 happens.”

Q: Jack Dorsey is critical of Web3 ownership, saying, “Nobody owns ‘Web3′” and that “eventually there will be a centralized entity with a different label.” Do you agree with this? 

Roneil Rumburg: “I both agree and disagree. Most crypto networks today are in their infancy, which usually means that the distribution of token ownership is not decentralized within the wider community. But when you think about it When compared to existing Web2 products, these companies are aggressively offering ownership to users who are so young in their lifecycle, but more importantly, these products are actually designed in such a way that they continually assign ownership to themselves to the users who make them valuable.”

Metaverse and “Earn as you play” game modes

Defining the “Metaverse” has been an impossible task from the very beginning. In our opinion, the person who has given the best definition right now is Matthew Ball, who, as an investor, defines:

“The Metaverse is a large-scale and interoperable network of real-time rendered 3D virtual worlds that can be controlled by individuals with personal presence and data continuity (e.g., identity, history, rights, objects, communications, and payments).”

So, who is building the Metaverse? So far, there are two main camps: the non-crypto industry and the crypto industry. But what’s interesting is that these two camps are not fighting to the death, but are cooperating with each other.

  • Non-Crypto Industries: The Metaverse of Tech Giants

In 2022, two big tech companies — Meta and Microsoft — are making big bets on the future of the Metaverse, placing it directly on their near-term roadmaps. Meta has launched Horizon Workrooms, but they seem to have bigger ambitions.Zuckerberg seems to “get” why interoperability and openness are important, and since he sees this as a new era for the company, he claims to be moving in that direction.

  • Crypto Industry: A Community Owned Metaverse

Some of the virtual worlds created using blockchain technology mainly include: The Sandbox, Decentraland and Cryptovoxels, although each of them has different elements and world economy, the power of blockchain and NFT allows true digital land ownership, thus opening up There are new types of activities, like you can rent out your own land or custom build a house for others. For example, on Decentraland, there are events that users can participate in and experience almost every day. Dominos, Atari and other big-name brands have also purchased virtual lots to advertise their wares, host events and build awareness in the virtual world.

At this stage, there is still a long way to go before the Metaverse becomes “mainstream”. Frankly, we’re probably only scratching the edge of the field. But as businesses and games get deeper and deeper, an open, decentralized, and community-owned Metaverse will beat closed traditional systems.

Internet vs Blockchain

Brave put out this cool chart (shown below), it took the internet industry eight years to reach 100 million users in the 1990s, which is very similar to the crypto industry.

Pantera Capital: A new round of "crypto investment boom" is coming

As Pantera Capital co-CIO Joey Krug put it:

“Cryptocurrency and blockchain technology are the foundation of new financial infrastructure, similar to how the Internet is the foundation of new information infrastructure.”

Compared with the previous generation of information digitization, the value created by financial digitization is much greater. The average crypto user today is worth $8,000, compared to $875 in the 1990s.

Summary: The bond bubble burst, and a new wave of ‘crypto trading’ is coming

According to Dan Morehead, founder of Pantera Capital, he has not invested in anything other than crypto-assets since 2013. Since the bond bubble started to form since then, which also led to asymmetric trades, Dan Morehead made a decision: short 10-year notes and mortgage-backed securities, and choose cryptocurrencies.

A new wave of “crypto trading” is coming.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2022-02-17 09:57
Next 2022-02-17 09:58

Related articles