On Monday (15 October 2018), Dan Morehead, the founder and CEO of Pantera Capital Management, one of the leading blockchain investment firms and one of the largest institutional owners of cryptocurrencies, spoke as part of a panel on investing at Bloomberg’s Institutional Crypto conference in New York City. This article highlights some of his most interesting answers to questions from the moderator (Katherine Wu).
What are the other things we need to make crypto truly an investable asset class?
“It’s kind of misleading to think of it like it’s a light switch… Think of it as a continuum. We’ve had very sophisticated institutional investors for five or six years. And ten years from now, there’s going to be entities in this room that still don’t have exposure to blockchain. And it’s just a big long continuum. There’s not one special thing that has to happen. I think most of the organizations in the panel here… auditors, administrators, the best lawyers, all that stuff… So, almost all of the risks are taken away. You don’t get reward without some risk… You shouldn’t have a massive allocation in crypto. You should have a tiny bit of your portfolio in it, knowing that with the desire for incredible reward, you’re going to take some risk.”
“I remember in the early era of Bitcoin, no Wall Street firm touched blockchain in any way. And then when the prior panelist, Tom Jessop [founding head of Fidelity Digital Assets] invested in Circle, within five months, 80 Wall Street firms had a piece of something… And with Bakkt doing a crypto exchange, I think within like six months, everyone is going to try to get a piece of something.”
What are your investment strategies?
“Friends ask me all the time: ‘Should I invest Bitcoin, or should I invest in ICOs, or should I invest in venture?”. And I think the important answer is “Yes, you should own a basket of all that stuff, and I think the worst thing to do is have ‘analysis paralysis’ where you are so stressed… You should figure out what fraction of your portfolio you are willing to risk, you know, a percent or two… and allocate it across a number of different managers, a number of different products… And if you think about it, that’s what we do with every other portfolio, right?”
“Like, there’s a group in the industry called Bitcoin Maximalists… they are like it’s only Bitcoin.. there’s this almost religious fervor that it has to be Bitcoin… that it’s the winner… But that’s like being in the early 90s a Yahoo maximalist, right? Like Yahoo was a good company, but there were lots of good companies… And I think you should have that approach here: buy a portfolio of things… This is a space that’s so disruptive, so transformative that you can actually pick winners and build a portfolio that’s going to be robust no matter which way this thing goes.”
What are the major challenges/issues you see on the horizon?
“I’d say the biggest gaping factor is simply institutional inertia, right? Like most of the people in this room don’t have to do anything with Bitcoin today… The blockchain space is super viral. Like, once you own a tiny bit of it, then you start buying a lot of it, and you get all your friends to buy it, and you get your colleagues and peers in your industry to buy it…”
“The two [issues] that are often brought up are the regulatory and custody [issues]… The regulatory thing is interesting… I think the U.S. agencies have done a great job where they can. The FinCEN ruled on Bitcoin five and a half years ago… The IRS ruled five years ago that it was property… The CFTC has been incredibly progressive… And whether it’s a security or not i a really interesting question, and it doesn’t really fit the old regime very well. The SEC is kind of the last agency that needs to rule… And I think within the next year or so, it will be pretty clear which things are securities and which ting are not securities. And that will clean up the last vague part of the blockchain space.
What are the next milestone events that you see happening?
“An ETF is not news. It’s amazing how much energy is spent on it. Very few people know that the last asset class that was certified for an ETF was copper. It took three years, even though copper has been around for 8,000 years… The SEC doesn’t want widows and orphans buying Bitcoin ETFs. They don’t even know if Bitcoin is officially a security. So, I think an ETF is years away.”
“The things that are news are the Fidelity and the Bakkt thing. When we look back at this five years from now, I think those are going to be the events that spurred an enormous amount of capital into the industry because up until now it’s been easy not to be engaged. When there’s a very good institutional custody/clearing solution, that’s going to force a lot of people to take a look, and as I said before, it’s so viral that if you actually have to answer to your investment community’s question, yes or no on blockchain, you’ll probably say yes.”
Featured Image Courtesy of Pantera Capital Management