Crypto Is Only Place To Hide As Fed Hikes Interest Rates, Says Pantera Capital CEO

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Crypto investment firm Pantera Capital CEO and Co-CIO Dan Morehead talked about how the Federal Reserve’s tightening of its money policy would affect various asset classes and why he feels that crypto will prove itself as the safest asset class during the upcoming economic nightmare.

Morehead’s comments were made during an interview on episode #115 (titled “The Stagflation Mega-Trade”) of the Bankless podcast, which was released on April 25.

According to a report by The Daily Hodl, this is how Morehead explained why he is “massively bullish” on crypto right now:

“I’m massively bullish on crypto right now and I think that the reason is because every two years, for the last 10 years, an order of magnitude more people come into crypto, so I think that steady flow of just smart people reading about it is coming.

But the other asset classes being destroyed think is going to sink in. Basically, there’s almost nowhere to hide. That’s why we call it the ‘great unwind.’ Everything except crypto I think is really going to be impacted.”

Morehead believes that since crypto does not have a “discounted cash flow” it will be immune to rising interest rates unlike bonds, equities, and real estate:

“If we’re even partly right, bond yields are going to go to five percent or higher, obviously that crushes bond prices but it has to impact stocks and real estate and anything else that has a discounted cash flow.

So I think for a normal investor looking at the kind of normal asset classes…they’re going to just say ‘hey, if we have money to put to work, it’s hard to imagine putting it to work in any of these other things,’ and crypto should be completely disconnected from interest rates.”

As for Bitcoin, on March 25, the Pantera Capital CEO discussed BTC’s price action in 2022 and beyond while he was being interviewed by Yahoo Finance’s Brian Chung.

Chung started the interview by asking the Pantera Capital CEO what he think about Bitcoin’s price action so far in 2022.

Morehead replied:




Bitcoin goes in some pretty wild cycles over the last nine years that I have been investing in it. It’s had six bear markets that average about 60%. This one’s been 50%. And I think that as institutions engage the space, all those cycles will moderate thankfully, and so I think a 50% bear market is probably all you’re going to get going forward.

I think we’re either at the lows or very close to it. And another thing we’ve seen historically is when there’s been a massive rally like in 2013-2017, in the last two years, the market typically peaks right around January 1st and kind of drifts down into tax day… and then after that the market can kind of get going.

The third thing that’s definitely impacted it is although Bitcoin and cryptocurrency generally have a very low correlation to asset classes over long periods of time, in very stressed periods, where the S&P is a proxy for risk, it’s down quite a bit. There’ve been six of those since Bitcoin started trading, and the average is for 72 days correlation goes very high, and then over time, it then breaks down and all those things combined make me actually wildly bullish right now. I think that the markets will decouple. I think stocks and bonds may keep going down potentially for years, whereas blockchain assets can go up.

Chung then asked why the crypto market saw a “savage downturn” in February.

Morehead answered:

I think the big macro theme here is the Fed’s massively behind the curve, and it’s going to have to raise rates much more than anyone has been talking about. In our December 7th investor letter, we said it was a Ponzi scheme. The bond market had been manipulated by the Fed. They had driven the value of bonds 15 trillion dollars above their 50-year real rate pricing, and that would pop soon, and it did. Bonds have gone up a hundred basic points in yield since we predicted that.

What we didn’t predict is that would have very negative impact on blockchain. And so, when you’re trading and something goes against you, you’re either wrong or early, and I think in this case the markets have it wrong, and blockchain will decouple from the other asset classes. If you think about it, with rates rising, that is mathematically negative for bonds. It also has a negative impact for anything else with discounted cash flows like equities or real estate, but blockchain’s totally independent of rates.

So I can see us in six months from now, where the other asset markets are still struggling and blockchain’s back off to its typical 2.5X a year growth that it’s been doing for 11 years.

When asked for his prediction of where Bitcoin’s price would be a year or two from now, Morehead said:

We’ve been doing this a long time, and Bitcoin has gone up 2.5X on average for 11 years, and sometimes it gets ahead of itself, and has a bubble, and sometimes it’s in a bear market, like it is now. And right now, I see 60% below that 11-year trend regression. So, our normal forecast is that a year from now, we’re going to be 2.5X higher. That puts you at about a $100,000 per Bitcoin. And although that number sounds crazy. I think it’s pretty likely to happen.

Disclaimer

The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.

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