Original article: Bankless
Compiled by Yuliya, PANews
Finding the next "Bitcoin" in the cryptocurrency market is the dream of many investors. As one of the most influential investment institutions in the industry, Pantera Capital bought Bitcoin at $65 in 2013, and the fund has gained more than 100 times since then. In this episode of Bankless, founder Dan Morehead shared how he identified assets with asymmetric return potential and his in-depth thoughts on the future of the cryptocurrency market. PANews compiled the text of this podcast.
Bitcoin investment in 2013
Bankless: Let’s talk about the famous email on July 5, 2013. In the email, you suggested buying Bitcoin at $65 and planned to invest 30,000 BTC. Can you share with us your thoughts at that time?
Dan Morehead:
It all started in March 2013. Two of my friends, Pete Briger (co-CEO of Fortress) and Mike Novogratz (founder of Galaxy Digital), approached me to discuss Bitcoin. (We both graduated from Goldman Sachs and later founded Fortress Investment Group.) Actually, my brother had introduced Bitcoin to me before, but I didn’t pay much attention to it.
A brief meeting with Pete and Mike unexpectedly turned into a four-hour in-depth discussion. The concept of Bitcoin was so exciting that I accepted Pete's invitation and worked in their office for six years.
Bankless: You mentioned this as an asymmetric trading opportunity, can you explain it in more detail?
Dan Morehead:
One thing I learned while doing macro trading at Tiger Management is to look for opportunities where the potential gains far outweigh the risks. While investing always has risks, the key is to find those that have the potential to bring huge returns.
For example, before investing in Bitcoin, we held Tesla shares. Interestingly, the price of Tesla and Bitcoin were similar in 2013. Finally, we made a bold decision - sell all Tesla shares and bet all on Bitcoin.
Bankless: You mentioned that Bitcoin is like a "serial killer," what does that mean?
Dan Morehead:
In the technology field, we often use the term "category killer" to describe disruptive innovations. Bitcoin goes a step further and is a "serial killer" because it not only disrupts one field, but reshapes multiple industries. But this process is gradual.
For example, although blockchain technology has shown advantages in some areas, it may take another ten years to truly challenge payment giants such as Visa and Mastercard. Just like the Internet, which is now 50 years old, Bitcoin is still in its "teenage" stage.
Bankless: After so many years of market ups and downs, has your opinion on Bitcoin changed?
Dan Morehead:
Although Bitcoin has had an incredible run, I think it is still an asymmetric opportunity. We have experienced three major declines of more than 85%, but each time we hit new highs. It is difficult to find such assets in the traditional investment field.
This is why I have focused almost all my energy on the crypto market since 2013. We are still in the early stages of this financial revolution, and there are still great opportunities in the future.
Asymmetric investment opportunities
Bankless: Between 2013 and 2015, you bought 2% of the world's bitcoin supply. Many investors wish they had bought bitcoin earlier and would have recognized this asymmetric return opportunity. How did you build this belief? Some might say it was just luck. What do you think?
Dan Morehead:
I agree with your use of the word "pattern" because it is indeed pattern recognition. I have been working on Wall Street for 36 years, starting in 1987, through the savings and loan crisis, the financial crisis, investing in commodities in the 80s, and investing in emerging markets in the 90s. This experience gives me an advantage over younger investors when investing in cryptocurrencies because I feel like I have seen similar situations before.
Let me give you a few examples:
- I was involved in the GSCI (Goldman Sachs Commodity Index) when I was at Goldman Sachs, and now commodities have become a recognized asset class
- I invested in emerging markets in the 1990s, and now emerging markets are also a standard asset class.
- In 2006-2007, Pantera launched the first Western fund to invest in the GCC countries (UAE and Saudi Arabia). Many people thought it was crazy at the time, but now the Middle East has become a completely normal investment destination.
- I went to Russia to invest during the Gorbachev era and participated in the privatization of Gazprom.
Bankless: So you’re always looking for these cutting-edge investment opportunities?
Dan Morehead:
Yes, we are always looking for opportunities that are not mainstream or conventional. We also set up a fund in 2000 to invest in local farmland in Argentina after the second to last crisis.
What's interesting about blockchain is that it's still a frontier asset class. It's quite unusual - a $3 trillion asset is still considered a frontier asset, I've never seen that happen.
In the investment memo I wrote a few months later, I listed various application scenarios of blockchain:
- Competing with Gold (It’s happening now)
- Will compete with Visa and Mastercard in the future
- Competing with remittance companies that charge migrants high fees, Bitcoin makes it easy and cheap to transfer money across borders
When you add up all of these use cases, you get to the point where the ultimate value of cryptocurrencies is much higher than it is today. That's why we're so bullish on this space.
The experience of buying Bitcoin in 2013
Bankless: Can you describe what it was like to buy a large amount of Bitcoin in 2013? I remember when I first bought cryptocurrency in 2014, it felt very unreliable, I had to open accounts on multiple exchanges, and the websites looked very rudimentary. For many investors, these are the reasons that make them stay away. How did you build confidence in this environment?
Dan Morehead:
The trading environment at that time was indeed very primitive. For example, platforms like localbitcoins.com required face-to-face transactions, which was too risky and we never considered this method. But ironically, this was one of the most mainstream trading methods at the time.
Initially, we planned to operate the fund with the support of a large public company. We did sufficient system testing, but the company eventually withdrew. At that time, Bitcoin had fallen by 50%, so we had to quickly switch to operating independently under the Pantera brand.
Bankless: What difficulties did you encounter during the actual purchasing process?
Dan Morehead:
I remember when we started on Independence Day weekend, we tried a small platform (later known as Coinbase). It turned out that they could only buy $300 worth of coins per day, and we were going to invest millions of dollars. Coinbase had only one employee at the time, and it took four days to respond to emails. At this rate, it would take nearly 20 years to complete our plan.
Finally, we turned to Bitstamp in Slovenia. When we were doing the wire transfer at the bank, the branch manager asked in detail what Bitcoin was, and the whole process took an hour to explain. To be honest, even I was worried about the safety of my funds at the time. Interestingly, we later became a major shareholder of Bitstamp, and I served as the chairman of Bitstamp for 6-8 years (PANews Note: LinkedIn information shows that he served as the chairman of Bitstamp from 2014 to 2018).
Bankless: You mentioned that you visited many exchanges, including Mt.Gox?
Dan Morehead:
At that time, I thought it was important to personally inspect the exchange. I flew to Tokyo to visit the two heads of Mt.Gox. Although I only stayed for two days, their performance made me uneasy. Their explanations lacked logic and gave people the feeling that they were either incompetent or committing fraud. In the end, we decided not to cooperate with them, and this decision later proved to be the right one.
Institutional investor adoption
Bankless: You mentioned that you did 170 investor meetings and only raised $1 million. At that time, Bitcoin was still seen as a "mysterious Internet currency" or even a "drug trading tool." How did you pitch it to investors? How did those meetings go?
Dan Morehead:
If you want to get excess returns, you can't follow the mainstream and invest in projects that are followed by 20 analysts at every Wall Street company. This is why we specifically emphasize "making alternative investments more alternative" in our investor letter.
My philosophy stems from my experience in hedge funds, which started in 1991. At that time, hedge funds were truly alternative investments, but now they have become a mainstream industry with a scale of trillions of dollars, and almost all funds have similar strategies. This experience has made me more convinced that blockchain should be an important part of the investment portfolio because it still maintains its true alternative characteristics.
Interestingly, the 170 conferences you mentioned were actually held in 2016, three years later than 2013. At that time, it was the "winter" of cryptocurrency, and the price of Bitcoin plummeted by 90%. The market generally believed that "blockchain is more important than Bitcoin", and almost no one was optimistic about public chains and Bitcoin as an asset.
Bankless: How many times has this market downturn occurred?
Dan Morehead:
Bitcoin has gone through three cycles of a 85% drop. In the first cycle, we started investing at $65, the price rose to $1,000 and then collapsed, and it remained in a slump from 2014 to 2017.
During this difficult period, even though almost no one was paying attention to this field, our team continued to work every day. The fundraising results in 2016 are very telling - 170 meetings ultimately raised only $1 million, resulting in only $170,000 in management fee income for the whole year.
Even today, although our fundraising scale has increased, to be honest, it feels like we are still in the early stages. Institutional investors are still very cautious about cryptocurrencies, and most institutions either have no allocation at all or only a very small allocation.
Bankless: Has your pitch for cryptocurrency and blockchain changed between 2013, 2016, and now?
Dan Morehead:
My core ideas remain consistent, probably because they have stood the test of time. When I explain to people the fixed supply nature of Bitcoin and how it is not diluted by fiat inflation, I often hear the question, "Isn't this just like gold?" But my answer is: it's more like investing in gold in 1000 BC. While gold has served humanity well for 5,000 years, in the digital age, we need a completely new version - digital gold.
This is exactly why I have been passionate about Bitcoin since 2013: I firmly believe that Bitcoin will gradually replace traditional gold, reform cross-border remittance systems, and innovate Visa and Mastercard's payment systems. Of course, this process takes time, perhaps as long as 20 years, and it is not something that can be achieved overnight.
I am so sure because the development of blockchain technology is an unstoppable trend. Although the realization time may be longer than expected, and some startups may run out of money in the process, some changes are inevitable: in five years, it is impossible for migrant workers to pay a month's salary for cross-border remittances, and you can't continue to pay a 3% fee for credit card swipes.
I cannot accurately predict whether this transformation will take 10 years or 1-2 years, but it is precisely because I am sure that this change will happen that I will continue to hold and invest in this field.
Global adoption of cryptocurrency
Bankless: Many people feel they have "missed out" after seeing Bitcoin double this year, and think it's too late to buy in now. How do you see the upside potential for Bitcoin and the entire crypto asset class? In terms of global adoption, are we at the 20% or 50% stage now?
Dan Morehead:
In any normal asset class, if an asset doubles in a year, you really shouldn't buy it, because it may indicate overvaluation. But Bitcoin is different. The compound annual growth rate of Pantera Bitcoin Fund over the past 11 years is 89%, which means that it doubles every year on average. A simple investment logic is: if it doubles again, you can make 100%.
However, there is a very important investment principle: your investment amount should be controlled within a range that will not affect the stability of your family even if you lose 85%. In short, don't bet your marriage on this asset class. As long as you can control the investment scale at this level, you can hold it for a long time with peace of mind.
Bankless: So how much room do you think Bitcoin has for growth?
Dan Morehead:
Bitcoin has indeed grown to a considerable size, and we cannot expect to see a 1,000-fold increase, because that would consume all the energy on earth. However, a 10-fold increase to a market value of $15 trillion is entirely possible, compared to the total global financial assets of $500 trillion.
I won't predict what it will be like in 50 years, but within our current investment cycle, say a 5-10 year time frame, it would be completely reasonable for Bitcoin to rise 10 times from its current position and would not appear crazy or overvalued.
Bankless: Where are we now in terms of adoption?
Dan Morehead:
I think we are still in the early stages. According to statistics, about 300 million people in the world own cryptocurrency. Although this number is difficult to accurately calculate, many holders may not have actually started to use it.
Let me analyze it from the perspective of technology popularization: all you need to use Bitcoin is a smartphone, and there are 4 billion people in the world who already have smartphones. Some innovative projects, such as KaiOS, which we are working on, are working to introduce this function to feature phones. Assuming that the number of smartphone users grows from 4 billion to 5 billion in the next 10 years, most of these users are likely to use digital currency on their phones.
Think about it, half of the people share photos on Facebook. If photo sharing is that popular, cryptocurrencies will be even more popular. I think it's entirely conceivable that in 10 years or so, 3 billion people will use cryptocurrency. Once they start using it, more use cases will emerge and people will use it more in their lives.
Overall, I estimate that we are only about 15% of the way through the crypto blockchain revolution. Not only are relatively few people participating, but existing users have yet to fully realize its potential.
Bitcoin's "escape velocity"
Bankless: In 2013 people were worried about the government banning Bitcoin, and in 2024 the situation is completely different. Has Bitcoin reached "escape velocity"?
Dan Morehead:
Bitcoin has indeed reached escape velocity and is not going back.
In 2013, media coverage was mostly negative, focusing on the Silk Road incident and ignoring the positive impact. Although the United States once banned gold, 50 million Americans now hold cryptocurrencies.
Bankless: What impact does this change have on the political landscape?
Dan Morehead:
This involves an interesting phenomenon. Most Americans are under 40, but 90% of the wealth created by the monetary policies of the Federal Reserve and Congress over the past three years has flowed to people over 70. This is actually a huge transfer of wealth from the younger generation to the older generation.
And these young people love crypto, and they vote. We observed a striking shift in voting behavior among voters under 40 compared to the 2020 presidential election. The term "young Republicans" has not been heard in many years.
Trump expressed strong support for cryptocurrency in May this year. All the cabinet members he nominated are very supportive of cryptocurrency, and he even wants to set up a cryptocurrency envoy. I think when someone writes a doctoral thesis on this election in the future, they will find that cryptocurrency is a key factor in changing the election results.
Bankless: Is this change also reflected at the congressional level?
Dan Morehead:
Yes, a lot of anti-crypto senators and congressmen lost their seats. From what I read:
- House of Representatives: 274 in favor, 122 against
- Senate: 20 in favor, 12 against
I predict that in four years, those members of Congress who are against cryptocurrency will probably not be in Congress anymore, because it is simply not a smart position to be in. They will either change their views or they may lose in the 2026 midterms or 2028 general elections.
It’s been strange to see the Democratic Party shift to an anti-crypto stance. I’ve been wondering if maybe I’m missing some strategic considerations, because this seems like a clear lose-lose strategy.
The U.S. government’s changing attitude towards cryptocurrencies
Bankless: 2025 will see the first pro-crypto executive branch and Congress. After the SEC crackdown during the Biden era, what impact do you think a pro-crypto White House will have, especially with regard to building a strategic Bitcoin reserve?
Dan Morehead:
The executive branch can directly decide to stop the sale of seized bitcoins, which is within its power. We participated in the first bitcoin auction of the Marshals Service in 2013-2014.
The US government now owns 1% of the world's bitcoins. If it stops selling, it will have a significant impact because the actual circulation of bitcoins is small and many holders never sell them.
Bankless: Senator Lummis mentioned building up a 1 million bitcoin reserve. Do you think it’s possible to at least keep the existing 200,000 bitcoins and set up a custodial structure?
Dan Morehead:
This is likely to happen. Stopping the government from transferring and selling Bitcoin will have a positive impact on the market. When you remove a seller, it naturally helps the price go up.
As the issuer of the world's reserve currency, the United States cannot hold other countries' currencies like other countries. The practice of storing gold in Fort Knox is outdated. The United States should increase its holdings of digital gold and even consider selling traditional gold.
Singapore has been holding cryptocurrencies for 5-7 years and this is not a radical idea.
Bankless: This issue seems to have become very partisan.
Dan Morehead:
Yes, it's weird. Like Ro Khanna said, it's like cell phones, why make it a partisan issue? In fact, Democrats should support Bitcoin because it represents the dream of progressives.
The global race for Bitcoin reserves
Bankless: Assuming Trump keeps the 200,000 bitcoins currently in the US (about 1% of the world) and announces it publicly. China also has about 200,000 seized bitcoins, how do you think they will respond? Will other countries start hoarding in secret?
Dan Morehead:
A strategic Bitcoin arms race could last 10 years. The United States and China could each hold 1% of global Bitcoin reserves.
This is ironic: why would a country competing with the United States keep all its wealth in dollars and U.S. Treasury bonds? Under the U.S. sanctions system, their transactions may be monitored.
For countries with antagonistic relations with the West, storing part of their wealth in Bitcoin is an obvious choice. Neutral countries will do the same - just like using gold, because Bitcoin provides an option that does not rely on the US dollar system.
Bankless: Stablecoin bills have bipartisan support, which can help maintain the dollar's status as the world's reserve currency. Can these bills pass?
Dan Morehead:
As Bismarck said, "There are two things you'd better never see how they're made - laws and sausages." I don't pay much attention to Congress because it's a machine that's difficult to understand and influence.
Cryptocurrency adoption by institutional investors
Bankless: 2024 saw a major breakthrough in institutional adoption, such as Larry Fink admitting he was wrong about Bitcoin in 2021. ETF products were amazingly successful. Compare that to 2022, when the "wave of institutional investors" predicted by Mike Novogratz finally came to fruition. So what is the level of institutional adoption now? Where are we at?
Dan Morehead:
The industry did experience some major setbacks:
- FTX, BlockFi, Celsius, Terra Luna Collapse
- GBTC’s Discount Problem
- SEC lawsuits against Coinbase, Ripple, and others
These events have indeed affected the enthusiasm of institutions to participate. Imagine a public pension plan manager, it would be difficult to propose to the state legislature to invest in Bitcoin in this environment.
But people may not realize how quickly things can change. If by 2025 we have a pro-crypto Congress, a pro-crypto president, and regulators who are at least neutral, everything could be very different. That's why you're seeing prices soaring and ETFs seeing huge inflows right now.
Speaking of ETFs, this is indeed an important breakthrough. We launched the first crypto fund in the United States 11 years ago, in the form of a Cayman hedge fund, because we thought it might take several years to get ETF approval. Now it seems that the wait is much longer than expected.
Bankless: Can you give us specific data on these capital inflows?
Dan Morehead:
Current capital inflows:
- Bitcoin ETFs: $35 billion in net inflows
- MicroStrategy and other similar ETF products: $18 billion
- More than $50 billion in total flowed into ETFs and ETF-like products
An interesting comparison:
- During the same period, the net inflow of all gold ETFs in the world was zero
- Funds shift from traditional gold to digital gold (Bitcoin)
Bankless: While you’ve seen people like Larry Fink shift their stance, institutions like Vanguard still don’t allow ETFs or crypto assets to be included in their ecosystems. What is the actual level of adoption among institutions right now?
Dan Morehead:
Here’s an interesting point: Many people say Bitcoin is a bubble, but the median institutional holding is zero. How can it be a bubble? Most institutional investors, including insurance companies, pension funds, endowment funds, etc., have basically zero direct investment in blockchain. They may have indirectly invested in some blockchain companies through some comprehensive venture capital funds, but there is almost no direct investment.
That’s why I’m so bullish about the future. We’re actually just getting started. When you see institutions like BlackRock, the world’s largest asset manager, publicly backing it, with an amazing blockchain team, and institutions like Fidelity that have been working on blockchain since 2014, that helps a lot.
In the past, many institutions would use compliance reasons as an excuse to say they could not invest in cryptocurrencies, but now that institutions such as BlackRock and Fidelity are selling highly regulated, high-quality products, this excuse is no longer tenable. Even Vanguard's position may be unsustainable as the market develops.
Bankless: It sounds like there is still an opportunity to invest in crypto assets before institutional investors?
Dan Morehead:
Yes, that is absolutely true. There is still a chance to get in before the institutional investors.
The Cyclical Nature of Cryptocurrencies
Bankless: You've been through multiple cycles, and now that Bitcoin has hit a new high of $100,000, we are clearly in a bull market. Do you think the cryptocurrency market will continue to follow the four-year cycle pattern? The traditional view is that this is related to the Bitcoin halving, and some people believe that it is related to global liquidity. When fiat currency liquidity is abundant, cryptocurrencies will have a bull market, and then peak and fall. Will this four-year cycle pattern continue?
Dan Morehead:
Yes, I think this cyclical pattern will continue.
Bankless: Is this your base case? Do you not believe in the supercycle theory or the possibility of breaking this pattern?
Dan Morehead:
Let me explain this with an interesting analogy. When I was in college, a professor wrote the famous book A Random Walk Down Wall Street, which expounded on the theory that the market is always efficient. Buffett once said something thought-provoking: "The difference between the market always being efficient and the market always being efficient is worth $80 billion."
Regarding the halving cycle, my understanding has undergone a transformation:
- Initially I was skeptical like many others - if everyone knew the halving was going to happen, then the event should have been fully reflected in the price.
- But after experiencing the halving in 2013 and 2016, I fully believe in the authenticity of this law.
Why is halving so important? It all starts with the behavior of miners:
- Miners sell almost all of the Bitcoin they earn to cover operating costs
- It's like the copper market - if it's announced that half the mines are going to close one day, the price of copper is bound to go up.
- Bitcoin halving is such an effect - every four years, production is halved, and when demand remains the same and supply is halved, the price will naturally rise.
However, the cycle characteristics are gradually evolving:
- The amplitude of cyclical fluctuations is gradually weakening. During the first halving, the reduction in output accounted for 15% of the circulation at that time.
- As the circulation increases, the impact of the next halving will be reduced to one-third of the original
- By the time of the final halving in 2136, the impact will be minimal
Our data analysis revealed a clear pattern:
- The halving effect starts to show up 400 days before the actual date
- Cycle high reached 480 days after halving
- This model has remained amazingly accurate.
Two years ago when the Bitcoin price was at $17,700, we predicted that it would reach $28,000 at the time of the halving, and then reach $117,000 480 days after the halving (next August), with the prediction of the lowest point almost accurate to the specific date.
During the last halving, we predicted on Twitter what the price would be for each month of 2020. We predicted that it would reach $62,964 on August 15, 2020, and it hit that number exactly on that day.
So I still believe that this cycle will continue, and I think we will have a big bull market and then a bear market. But the only difference is that after three 85% declines in the past 12 years, the next correction may only be 50% or 60%, at least for Bitcoin, and small currencies may still have greater fluctuations.
Bull Market Outlook 2025
Bankless: If we follow the four-year cycle, does this mean that there will be a bull market in 2025 and then a decline in 2026?
Dan Morehead:
Yes, that is what I expected. April 19 this year is the halving time, and August 2025 should be the peak of this cycle.
Bankless: It feels like everything is heading in this direction, and it seems like it’s too easy?
Dan Morehead:
I know it sounds a bit ridiculous, but we have been discussing this topic for 12 years. We have always predicted that the volatility will gradually decrease. The previous halving cycles were more volatile, and this time it will be relatively mild. It's not just the halving factor, but the political and macroeconomic environment are also creating favorable conditions for cryptocurrencies. So I am quite optimistic about 2025.
Bankless: What do you think about the macroeconomic situation? Will it have a positive or negative impact on cryptocurrencies? Does Bitcoin affect the macroeconomy or vice versa?
Dan Morehead:
Usually we discuss the impact of macroeconomics on Bitcoin. From a macroeconomic perspective, I am skeptical about the possibility of the Fed cutting interest rates. In December 2021, the federal funds rate was zero and the 10-year Treasury yield was 1.3%. At that time, I predicted that both indicators would rise to 5% and remain for several years. To this day, I still stick to this judgment.
Why? Take a look at the current economic situation:
- The economy is booming, and the crowded airports are proof of that
- Unemployment is at an all-time low
- Wage inflation continues to rise
- Stock markets continue to hit record highs
In this economic environment, I think it is unreasonable to expect the Fed to cut interest rates.
The actual fed funds rate is only 80 basis points above core inflation, which is not tight. The historical average is 140 basis points above, so it is only slightly tight.
Even more worrying is the financial situation:
- Even in the best of times, the US still had a $2 trillion deficit
- Fiscal balance is still not achieved despite full employment and record highs in various indicators
- This indicates that once the economy turns in the future, it may face more serious problems
Macroeconomic Environment and Cryptocurrency
Bankless: What do the macroeconomic signals of the continued US deficit, money printing, and interest rate cut expectations mean? Do they indicate that commodity and digital asset prices will rise?
Dan Morehead:
The United States has become dependent on printing money. This trend existed before the COVID-19 pandemic, and fiscal constraints have completely disappeared after the pandemic. For example, direct cash subsidies have been issued to the public many times, which has directly led to inflation and rising prices.
The current financial situation is worrying:
- The U.S. is running record deficits even in the best of economic times
- Interest payments exceed military spending
- The government uses an adjustable rate financing method, which increases future fiscal risks
- Interest rates are expected to remain at 5% or higher
This means we will have to refinance all our debt at higher and higher interest rates, which will be very expensive.
While I'm not too focused on studying finance and macroeconomics, there's one thing I know for sure: I'd rather hold Bitcoin than dollars.
Bankless: You mentioned commodities, which reminded me of the new highs in gold, Bitcoin, stock market, and real estate. How should this phenomenon be interpreted?
Dan Morehead:
The key is a shift in perspective:
- These assets are not really "rising", but the fiat currency is depreciating
- Should focus on Bitcoin's relative price to gold, stocks, real estate, etc.
- The depreciation trend of the US dollar can be clearly seen from the exchange rate of various assets against the US dollar
Holding fiat currency makes little sense in the current fiscal climate. Even former cryptocurrency skeptic Ray Dalio has begun suggesting holding gold and Bitcoin as a hedge against a possible debt crisis.
This shift in perspective is important because money is essentially a consensus technology. The change in attitude of top investors shows that the market's recognition of digital assets is increasing, and the consensus brought by deep liquidity is crucial to the development of an emerging currency.
RWA tokenization trend
Bankless: RWA tokenization seems to be mainly for institutions. Will all assets eventually be on-chain? Are we experiencing an S-shaped development curve from stablecoins to treasuries to stocks and bonds?
Dan Morehead:
This is indeed the long-awaited "killer app" in the blockchain field. Although some early investments were premature, they are finally starting to show results. Take stablecoins as an example, it allows ordinary financial instruments to play a new value on the blockchain. Projects like Ondo are opening the door to the US financial market for more people.
Putting national debt on the blockchain is much more significant than it seems. Most of the world’s 8 billion people live outside the United States and are eager to access U.S. dollar assets and U.S. Treasury bonds, but traditional channels make it difficult to achieve this.
Even for U.S. citizens, the existing system has obvious problems. For example, it takes up to a year to transfer funds from Treasury Direct accounts to brokerage firms. This inefficiency is exactly why we need blockchain technology.
Bankless: Wait, really? I didn't even know this existed.
Dan Morehead:
Yes, someone in government has a stack of withdrawal requests stacked up so high that it will take a year to transfer your 90-day treasury bond from the government to Merrill Lynch. If there was ever a perfect example of why we need blockchain and RWA tokenization, this is it. You thought it would be smarter to buy directly from the government, but your funds are locked up for a year.
Another good example is Figure Markets, which has processed $10 billion in mortgages on the blockchain. The traditional mortgage market takes 55 days from borrowing to final delivery, with many intermediate links and costs at each link. Blockchain technology can significantly improve the efficiency of this process.
However, not all assets are suitable for tokenization. Hedge funds and private equity funds, which are products for qualified investors, already have a fairly complete operating model and do not urgently need to be put on the blockchain.
But for assets like Treasury bonds, blockchain does provide an ideal solution. Not only will this allow more people to participate in investment, it is also an opportunity for the US government to expand its financing channels. Through blockchain, they can more easily promote Treasury bonds to smartphone users around the world, which is beneficial to all parties.
The Prospects of AI and Cryptocurrency Integration
Bankless: AI and cryptocurrency are intersecting in unique ways. What are your thoughts on the intersection of cryptocurrency and AI? Are there any AI-related projects you’re following?
Dan Morehead :
The integration of blockchain and AI is inevitable. Fundamentally, AI has a huge impact on society, and decentralized, open AI is more beneficial to everyone than private control. We have invested in some projects in this direction, such as Sahara and other decentralized AI projects.
One notable phenomenon is that existing AI models have digested almost all free Internet content. The next generation of AI models needs to obtain paid data, and blockchain happens to be good at providing incentive mechanisms, which can solve this problem well.
Regarding the use of currency by AI agents, they obviously cannot open an account using the traditional banking system. When machine agents interact with each other, they must use some form of digital currency, and programmable currency (such as Ethereum) seems to be the most natural choice. Although some people may be exploring solutions other than blockchain, blockchain provides the most complete solution.
In the long run, it seems difficult for AI to operate independently from blockchain. There is already an important intersection between the two fields, and we are likely to see further deep integration in the next 5 to 10 years.
Searching for the next Bitcoin
Bankless: Pantera's original Bitcoin Fund achieved a 130,000% return, was this a unique "once-in-a-generation" return? Do you think similar opportunities will be available to investors in the coming decades?
Dan Morehead:
Blockchain technology is at a critical stage of development and is a highly promising career development direction for young people. Even if they eventually choose to switch to traditional industries, the experience accumulated in the blockchain field will be a valuable career asset. This career choice has asymmetric benefits: large upside potential and controllable downside risks.
The current monetary policy and regulatory environment have had many adverse effects on the younger generation. The high threshold of the real estate market, inflationary pressure and other factors have made traditional wealth accumulation channels increasingly difficult. In contrast, the blockchain field provides a relatively fair competitive environment for the younger generation.
For young investors, the following investment strategies are recommended:
- Diversify your portfolio and avoid over-concentrating funds in a single crypto asset
- Pay attention to risk management and adjust investment proportion according to personal financial situation
- Seize investment opportunities brought about by generational cognitive differences
- Adopt stable investment methods such as fixed investment
It should be noted that investment strategies should be adjusted as the individual's life cycle changes. If you are married or have a mortgage, you should appropriately reduce the allocation ratio of high-risk assets to ensure that the investment portfolio matches your risk tolerance.
