🎙 "There's Been a Zero-to-One Switch for Institutions and Crypto:" Pantera's Dan Morehead

In this week’s episode, we speak with Dan Morehead, the founder of one of the longest-standing and largest crypto funds. Dan founded Pantera Capital in 2003 as a global macro hedge fund. In 2013, Pantera began investing in Bitcoin and quickly shifted its entire focus into crypto. Today, Pantera manages $3.8 billion in digital assets and equity in blockchain companies. Dan said he got into Bitcoin because it was the most asymmetric trade he had seen in his career, and he still believes that’s the case.

We talk about the performance of his funds, with the best performer being his liquid tokens fund, that's up more than 300% this year. Contrary to popular belief that crypto moves together, Dan makes the case that there are big differences in how tokens trade and lots of opportunities for fund managers to deliver alpha, especially by focusing on smaller tokens. He believes DeFi is one of the biggest opportunities in crypto as it will take a large market share from traditional finance and create new use cases that weren’t possible before.

Dan said Pantera is planning on increasing the Bitcoin exposure on its liquid tokens fund from zero to somewhere in the teens, while its main bet will remain DeFi. Dan is most excited about what he views is a shift in institutions’ interest in crypto. Firms which had told him they would never come close to holding crypto, are now wanting to dip their toes. And in a still small market, that has the potential to make big waves.

The podcast was led by Camila Russo, and edited by Alp Gasimov. Transcript was edited by Camila.

🎙Listen to the interview in this week’s podcast episode here:

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Camila Russo: So Dan, you were one of the first major hedge funds to buy bitcoin, I mean, 2013 is pretty early days. I'd love to go through your thought process. What made you shift your focus to Bitcoin in the first place?

Dan Morehead: Yeah, so my career has been in global macro-style investing. Lastly, as you said, as a Tiger Management, where I fly around the world, go to different interesting capitals, and try and find trades that were very asymmetric and looking for disruptions; sometimes the technology like Tesla Motors, sometimes they're political like privatization, but trades where your downside is much smaller than your upside.

And those trades were all interesting, but they're specific to one country, or maybe even a region, but that was it, and typically, just one asset class, like just bonds, or just equities or something like that. So in 2011, I started thinking about Bitcoin. It took a couple of years to get my head around it, but ultimately came to the view that it would be the biggest disruption in my career and that most asymmetric trade, and that's really the thing that I was thinking at the beginning is that yeah, you know, there's a lot of ways that Bitcoin could fail. But if it works, it would be disrupting such valuable things like, store of value and cross border money, things like that, that it had enormous upside.

“In 2011, I started thinking about Bitcoin. It took a couple of years to get my head around it, but ultimately came to the view that it would be the biggest disruption in my career and that most asymmetric trade.”

And I still believe that. I think, although we've come a long way in the eight years since we launched our first fund, it took 50 years for the internet to get where it is today. I think it's going to take decades for this thing to fully build out. So it's really exciting we're really at the beginning of something that's very important.

And then the other reason I'm excited about that is it's not just money. You know, I think we're going to make some good returns. We're going to help some investors get better IRR. But it really is changing the world for the better. And ultimately, I think there's going to be billions of people using Bitcoin and other protocols and that's going to help them save money, help them have their wealth not be confiscated by their government, helps them not pay exorbitant remittance fees, you know, all those things are huge positives that Bitcoin and blockchain is bringing.

CR: Awesome. So back then in 2013, did you shift Pantera completely into crypto or was it more gradual?

DM: No, I fell down a rabbit hole and I haven't bought anything other than crypto in eight years. I often have old friends like Mike Novogratz, call me out, saying what do you think of the Brazilian realorsomething like that? I have no idea. I don't study anything, you know, you'd think S&P 500 or big things like that, I have no idea where they are, or where the value is. So it’s 100% crypto.

Fund Performance

CR: Oh, so interesting. Okay. So I'd like to dive a bit deeper into Pantera and how it's made up. So you have the original Bitcoin fund, which you established back in 2013, but you also have other funds. So there's the liquid token fund, which holds tokens including ETH, Maker, Aave, and UNI; the early-stage fund, where I see a lot of kind of ETH Layer 1 competitors, Polkadot, Near, Avalanche. And then the venture fund, which I assume is also equity investments, right? So there's Brave, Coinbase, Wyre.

And this year, you launched another blockchain fund, which I understand has exposure to all of these funds. So, just to start digging into all these, which of these funds has performed the best so far this year? And by how much has the top performer gained?

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