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Pantera Capital founder: Crypto market expected to continue to be dragged down by Fed policy

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Rising inflation and how central banks respond will be a big theme in 2022, said Morehead, who has previously bet on lower inflation and yields over the long term.

Original title: "Ex-Goldman Bond Trader Builds a $5.6 Billion Crypto Behemoth"

Original source: Bloomberg Wealth

Original author: Tom Maloney

Original translation: Gu Yu, ChainCatcher

Many people wish they had bought cryptocurrency earlier, when it was just a curiosity.

Former Goldman Sachs Group bond trader Dan Morehead was one of the few who did so, launching his first crypto fund when the cost of a bitcoin was less than a bag of groceries.

"I was fascinated," Dan Morehead, 56, said in an interview, calling it "the first truly global macro trade that crossed borders."

As a result, the Pantera Bitcoin Fund has returned more than 65,000% since 2013, and his Pantera Capital Management, once a traditional hedge fund betting on macroeconomic trends, now manages $5.6 billion in crypto assets at the end of 2021. That’s on top of the $6 billion the firm has returned to investors.

It always could crash. As U.S. markets opened in New York on Friday, bitcoin was down 17% this year to trade at $38,600, well below its November peak of around $68,000 — a decline driven by expectations of rising global interest rates and aggressive moves by central banks to curb surging inflation.

This is where Morehead’s worlds collide.

Morehead stood out in the early days of cryptocurrency because he threw himself into it after a storied career in finance. He started trading bonds at Goldman Sachs in the 1980s and later worked for hedge fund legend Julian Robertson before founding Menlo Park, California-based Pantera in 2003.

Rising inflation, and how central banks respond, will be a big theme in 2022, said Morehead, who has previously bet on lower inflation and yields over the long term.

That trade “basically made my career,” he said, “and I think it’s the end of the story.”

Morehead expects the reversal to drag down cryptocurrency prices, but that hasn’t dampened his enthusiasm for the underlying technology.

Pantera isn’t just betting on Bitcoin. Its venture capital fund invests in companies that support the crypto ecosystem, including trading platforms like FTX, Coinbase and Gemini, while the company’s Token Fund invests in blockchain developers. Lately, Pantera has focused on DeFi, a movement that’s trying to replace the old ways of doing business on Wall Street.

“Bitcoin and blockchain are disrupting the financial world,” said Pete Briger, co-CEO of Fortress Investment Group, who has worked with Morehead. “Morehead was at the center of it all.”

Morehead could have gotten into cryptocurrency earlier, in 2011, when his brother introduced him to Bitcoin. He read a few books about it, thought it was a cool idea, and then mostly forgot about it.

“Garbage Collector”

Two years later, Briger summoned him and early crypto evangelist Mike Novogratz to Fortress’ San Francisco offices to discuss Bitcoin. Briger, a 58-year-old distressed debt specialist who calls himself a “garbage collector” of the financial system, believes Bitcoin has the potential to upend traditional banking.

“Blockchain is a game changer for the financial services industry,” Briger said. “This is forcing the banking and payments industries to rethink their reliance on traditional barriers to protect competitive advantage.”

After the meeting, Morehead pledged to do more research, and a month later told Briger that crypto was the most exciting thing about his career. He began working on a cryptocurrency investment fund in his office at Fortress.

In addition to the gains from the Pantara Bitcoin Fund, the venture fund and liquid token fund he launched in 2013 generated returns of 51% and 385% in 2021, respectively.

Fortress became one of Morehead’s biggest backers. Finding such an institutional investor in Bitcoin’s early days was exceptional.

Most of the investors, Morehead said, were “high net worth individuals, particularly tech entrepreneurs and Wall Street executives, who were investing on their own.”

Bypassing more traditional financing methods, Pantera was able to move quickly.

“A tech CEO wired $2 million to the fund and called a few weeks later and said, ‘Hey, what are the terms?’ Morehead recalled.

Morehead organizes an annual Bitcoin conference at his home in Lake Tahoe, which he calls Bitcoin Pacifica, and it draws crypto enthusiasts from around the world.

“They weren’t the kind of people I was used to meeting at Fortress,” Briger said of one meeting he attended. “There were a lot of fringe players, like cypherpunks, cryptographers, and so on.”

Tiger Management

It was a big change for Morehead, too. He started Pantera as a traditional macro hedge fund, an area of expertise he’d acquired during his four years as chief macro strategist and CFO at hedge fund Tiger Management.

The first version of Pantera grew to about $1 billion in assets before the 2008 financial crisis. Now, as a pure crypto investor, it is several times larger. At the beginning of the year, the company managed about $5.6 billion, including its fourth fund, which raised $600 million last November.

Back to December 31, 2021.

This is down from the $6.4 billion Pantera managed at the end of November. In a Dec. 23 interview with Bloomberg, Morehead predicted that expectations of more aggressive tightening by the Federal Reserve will continue to weigh on cryptocurrency prices.

The Bloomberg Galaxy Crypto Index, which tracks the value of various cryptocurrencies, has fallen nearly 20% since the beginning of the year, while the 10-year U.S. Treasury yield has climbed about 25 basis points.

“Blockchain is being driven right now by all the excess money printing in the world,” Morehead said. His company recently opened an outpost in Puerto Rico, which has become a haven for crypto investors.

In a letter to investors last month, Pantera called Morehead the largest Ponzi scheme in the history of the U.S. government and mortgage bond markets.

As for whether the technology has fulfilled Briger’s vision of disrupting the banking system, he said the process has begun but still has a long way to go.

“It’s like email in the early 1990s, when it was very clunky,” Briger said. “No one could have imagined what instant communication would mean for business and the world.”

Morehead said he is no longer interested in the traditional assets that defined his early career, having not invested in anything other than crypto since 2013.

“Crypto is more attractive than any other trade.”