Recently, Dan Morehead, founder, Co-CIO, and CEO of blockchain-focused investment firm Pantera Capital Management LP ("Pantera Capital"), explained in a recent post on Pantera Capital's Medium blog that crypto is a non-correlated, asymmetric asset class that should be in every portfolio.
Morehead started by saying that although in the 1980s, "most assets were relatively uncorrelated," once modern portfolio theory became popular, " everyone wanted to have a diversified portfolio," and somehow "they all ended up buying the exact same portfolio."
For example, although assets like oil and timber started by being uncorrelated, once products like the Goldman Sachs Commodity Index became available, such assets started becoming correlated, and that now, "basically everybody owns the same thing."
"Risk-on risk-off” is "an investment setting in which price behavior responds to and is driven by changes in investor risk tolerance." Morehead says:
When everyone owns the same thing, they all sell the same stuff in crises.
The Pantera Capital CEO goes on to say that blockchain/crypto is the only non-correlated asset class since "very few institutions own it."
He then refers to "235% eight-year-compound annual growth rate," and says that this combined with the fact that Bitcoin is a non-correlated asset means that "you should own some."
In episode #129 of Laura Shin's "Unchained" podcast, Morehead said that said that if we graph the price of Bitcoin logarithmically ("to take away the crazy exponential growth"), we will notice "a typically consistent line".
He then added:
"At the beginning of this year, when we were at the trough of the crypto winter, we graphed what it would be like if Bitcoin spent the next 12 months getting back to its trend line, and then from there out, just stayed at its trend. And it's trend has been to grow at 235% compound annual growth rate--at the time, Bitcoin was $3,000-$4,000. That put Bitcoin at $42,000 by the end of 2019, which I know sounds crazy. But essentially, we are half-way back there. It's right on the trend line. I think it's a good shot that by the end of the year, we hit that. And then if you just extrapolate that line out for another year, it's $122,000 per Bitcoin, and in one more year, it's $356,000."
On July 24, Pantera Capital sent out the following tweet to show the graph that Morehead was talking about:
We initially published this forecast in January ($3,700/BTC) using pricing data from Dec '10 thru Dec '18. During that time, bitcoin grew at a 235% CAGR.— Pantera Capital (@PanteraCapital) July 24, 2019
If #bitcoin reverts to its long-term trend by end of:
2019 :: $42k
2020 :: $122k
2021 :: $356khttps://t.co/caEVnPkNDr pic.twitter.com/GP7Rr99sep
And in Pantera Capital's August 2019 Blockchain Letter, Morehead used the following chart to show why they believe that Bitcoin is a non-correlated asset:
One person who definitely seems to agree with Morehead's assessment is Anthony Pompliano, Co-founder and Partner at Morgan Creek Digital Assets, who sent out this tweet on August 14:
Bitcoin is a non-correlated, asymmetric asset. Looking at one day or one week or one month of performance is a fool’s game. Look at the performance over quarters and years....— Pomp 🌪 (@APompliano) August 14, 2019