Dan Morehead, the CEO of Pantera Capital, the first billion-dollar crypto hedge fund according to Bloomberg, has said the ongoing 14-month bear market is different than previous corrections.
Speaking to Laura Shin on Unconfirmed, Morehead said that this is the second major correction the firm has faced to date since its inception.
But, because of the firm’s long-term investment strategy, the company has been able to shift away from the short-term price cycle of cryptocurrencies.
“This is actually our second crypto winter, we were around in the 2014 to 2015 crypto winter. So we are always trying to think out five to ten years in our investing and be looking at positions that would do well over a long period of time,” he stated.
Why This Crypto Winter is Unique
For high-profile individual investors, family offices, hedge funds, investment firms, and institutions, it is crucial that the cryptocurrency market proves to investors it is not a fad and a short-term trend.
In the early days of the digital asset and blockchain sector, investors who saw the potential of decentralized consensus currencies were still uncertain about the survivability of the space.
Throughout the past ten years, the cryptocurrency sector experienced four major corrections averaging a drop of over 85 percent excluding the current bear market and every correction increased the resilience of the industry.
As seen in the involvement of the world’s fourth-largest asset manager Fidelity and the second biggest stock market Nasdaq, investors have started to consider the cryptocurrency market as an established industry and a growing asset class.
“I would admit that in the previous one, I had more kind of a worry in the pit of my stomach on whether the blockchain is really going to work and there were some real regulatory risks that could have happened. This one, I think fundamentals are much stronger than they were in the 2014-15 crypto winter.”
Four years ago, there were no catalysts on the horizon or large-scale financial institutions actively building in the cryptocurrency sector that could rekindle the interest in the sector.
In 2019, ICE’s Bakkt, Fidelity, Nasdaq, and other major institutions are set to release regulated investment vehicles that could significantly improve the liquidity of cryptocurrencies and strengthen the infrastructure supporting the asset class.
I believe, a #Bitcoin #ETF serves the public interest via:
+ Increased liquidity using the ETF ecosystem
+ Lower counter-party risk
+ Better valuation & execution practices
+ Separation of duties: trading, custody, valuation
+ Transparent fees
+ Established compliance framework pic.twitter.com/OB0XUZeJ1O
— Gabor Gurbacs (@gaborgurbacs) February 3, 2019
The Chicago Board Options Exchange (CBOE) and VanEck alongside cryptocurrency funds such as Bitwise are in the process of receiving an approval of the first Bitcoin exchange-traded fund (ETF), which was not attempted several years ago due to the lack of liquidity in crypto markets.
Fundamentals are Much Stronger, Can Support Institutional Institutions
Since early 2017, analysts have brought up the possibility of institutional investors coming into the cryptocurrency market and pushing the prices of digital assets up by large margins.
Until late 2018, the cryptocurrency sector did not have the infrastructure to handle an inflow of institutional money into digital assets. As such, the expectation that institutions would invest in an emerging asset class without a properly established infrastructure was unrealistic.
However, Pantera Capital CEO Dan Morehead said that the digital asset market could be ready to support institutions especially given that Fidelity and Bakkt are readying to operate as trusted custodians.
“People have been talking about years on the impending institutional wave of money coming into the markets and I think we now actually have the required conditions for that to happen. Institutional investors really want to have a custodian that is well-known and regulated, and we really haven’t had a global name that it would take to get institutional investors in.”
Billionaire Mike Novogratz similarly stated in the past that institutions are likely not going to enter a new industry or an asset class unless other institutions are involved and it creates a snowball effect.
Without the groundwork laid out by institutions with decades of track record in the traditional financial sector, it is often difficult to bring in the first wave of institutions into a new market.
If Fidelity is able to push through their plans to establish custodial services by the end of the first quarter of 2019 as reported by Bloomberg and Bakkt successfully launches its Bitcoin futures market around a similar time frame, a strong case could be made that institutions may enter the cryptocurrency market as early as in 2019.
“Now we have firms like ICE’s Bakkt, Fidelity, or ErisX doing varying institutional custody and over the months, I think that will help bring institutions in. The one thing that is true though is institutions are like the rest of us. They’re pretty pro-cyclical and the big wave of institutional money will probably not start until the prices themselves start going up.”
Ari Paul, the co-founder and CIO at BlockTower Capital, suggested that institutions could consider investing in cryptocurrencies by the third quarter of this year around a period during which analysts generally expect cryptocurrencies to recover.
I didn’t talk to many institutional investors in the second half of 2018. Just spent a day and a half at an allocator conference talking to many family offices and a few banks. Here are my takeaways.
— Ari Paul (@AriDavidPaul) February 1, 2019
Investors remain uncertain about the time frame of the entrance of institutions. Similar to the retail trader boom in the cryptocurrency market in late 2017, it may occur in a short period of time.
The Sentiment is Negative But Companies are Building
In April 2018, less than a year ago, Morehead said to Bloomberg’s Erik Schatzker that Pantera Capital manages a billion dollar in cryptocurrencies.
Since then, the prices of major crypto assets such as Bitcoin and Ethereum have fallen substantially against the USD.
Bitcoin, for instance, dropped from around $7,000 to $3,500, by exactly 50 percent.
But, companies within the cryptocurrency sector are continuing to build and expand aggressively despite the correction.
On February 4, as CryptoMeNow reported, a major U.S. and Europe-based crypto exchange Kraken completed the first nine-figure deal in 2019 worth more than $100 million to acquire Crypto Facilities.
The deal, which was supervised and approved by the U.K. Financial Services Authority (FSA), instantly allowed Kraken to operate as a fully regulated futures and index operator in Europe.
Evaluating many of the major deals in crypto that happened in the past year, Morehead said that the number of large conglomerates working on blockchain projects or investing in blockchain companies has increased substantially.
“I think so [big institutions see crypto as a big part of the future]. If you look at the number of multi-national corporations that now have either direct investments in blockchain companies or blockchain projects themselves, it’s just night and day when compared to a year or two ago,” Morehead said.
At the time, the cryptocurrency market was still down by more than 70 percent in valuation since January of 2018.
In previous years, especially during a market downturn, deals that surpass $50 million were a rare sight.
Morehead also emphasized that in regions like the Philippines, the adoption of Bitcoin and cryptocurrencies has risen exponentially in the past few years.
On January 25, Coins.ph was acquired for over $95 million by Go-Jeb, a ride-hailing giant in Indonesia.
Coins.ph has found success in penetrating into the largely unbanked population of the Philippines by establishing partnerships with local remittance firms, convenience stores, and outlets that are utilized actively by users in the region.
It also allowed users to use cryptocurrencies in covering utility, credit card, and school bills, as well as send money across the country through remittance outlets like Lhuiller and Palawan.
“A week or so ago, we announced that we sold Coins.ph in the Philippines and I think that is a great example of Bitcoin’s actual usage now and not 20 years from now. They have one out of ten adults in the Philippines as a customer. That’s very real. I think it is important for the community to really know that there are applications that are working right now,” Morehead said.
The ongoing crypto winter is considered different from previous corrections because the industry remains vibrant and active. While prices have declined substantially, the pace of protocol and infrastructure development in the space has not slowed down, which is a positive indicator for long-term growth.