The founder of a $5 billion crypto hedge fund and former Goldman trader prepares for the painful unraveling of ‘the largest Ponzi scheme in history’. Explains why he moves most assets to Bitcoin (BTC). He also shares 3 tactical investment games.
Pantera Capital increases its Bitcoin allocation
A legendary crypto hedge fund has moved most of its holdings to Bitcoin (BTC). Dan Morehead, founder of Pantera Capital, said, “We maintain the long-term bullish trend on most of these projects. We made a larger allocation of Bitcoin to mitigate the downside risk during the crash,” he says.
Crypto investors face uncharted territory. Since Bitcoin’s inception in 2009, there has been a Goldilocks era where growth and inflation were neither too hot nor too cold. Now that’s a different story. Inflation is rising rapidly. Interest rates are being increased to combat volatility. Recession is likely on the horizon as economic growth begins to slow.
What is the reason for increasing Bitcoin allocation?
To combat this challenging economic environment, Pantera Capital, one of the oldest and most experienced players in the crypto ecosystem, mostly allocates Bitcoin for hedging. Dan Morehead’s latest renewed position decision stems from the Fed’s moves.
Morehead said, “The Fed has really created a disaster for itself here. Two of the worst policy mistakes I’ve seen in this thirty-five year investment,” he comments. Morehead says the Federal Reserve has kept interest rates too low for too long. While this has now been corrected by an aggressive program of rate hikes, it has left a lasting impact on the housing market.
cryptocoin.com As you follow, in addition to keeping interest rates low, the Fed has implemented a bond-buying program that includes mortgage-backed securities, which brings more liquidity to the system. “This issue is overshadowed by the largest Ponzi scheme in history,” Morehead says. The fund manager does not expect the Fed to stop raising rates until at least two of the following scenarios occur:
- Housing inflation is negative.
- The unemployment rate rises by two percentage points.
- Core CPI approached 2.5%.
- The Fed is loosening most of its mortgage positions.
In the meantime, Dan Morehead says relaxation will be a painful process. Therefore, it wants to allocate to assets that are less exposed to interest rate movements. “Very soon, once the trauma of this macro dislocation wears off, investors will be considering where to put the new money,” Morehead says.
How about a patient investment strategy?
1) Investing in commodities
“In the first rising interest rate environment in 42 years, there will be a rush to invest in things that don’t need to go down as the Fed fixes its mistakes,” Morehead said. Blockchain and other commodities are probably the only place to hide in a world with massively rising interest rates,” he says.
Morehead’s funds specifically focus on crypto. Besides, he highlights commodities, agricultural commodities, oil, gold and Blockchain as good investments for this environment. The Pantera team previously expected Bitcoin (BTC) to leave the interest rates. So far, they admit they were wrong about this. Bitcoin has dropped 60% since interest rates started rising earlier this year. But Morehead believes it’s months, rather than years, before interest rates diverge.
2) Hedging in Bitcoin
Another reason to switch to Bitcoin is that it tends to outperform other smaller cryptocurrencies in times of stress. “This dynamic happened during the 2017-19 crypto winter, when investors took risks from higher beta tokens,” Morehead says. Morehead makes the following statement:
We invested most of our assets in Bitcoin in late May. This will continue to outperform once the market starts to recover.
3) Staying away from altcoins
Morehead expects the market to bottom before returning to higher risk, higher reward altcoins. “If you look further on the liquid side, in my view altcoins will likely underperform Bitcoin and ETH, at least by the end of the year,” Morehead said.
4) Early stage and late stage VC
Dan Morehead’s team prefers to stay away from altcoins. However, they still seize opportunities to grab tokens in the early stages. “Some of our best investments met this profile: Token deal, early stage investment and bear market,” Morehead says.
However, they are wary of late-stage companies with high valuations. Morehead said, “Venture side seed rounds are still generally expensive. On the other hand, seed rounds on the token side are currently undervalued. As a result, we are distributing much more to the starting rounds on the token side,” he says. According to Morehead, he thinks prices in private markets will rise in the next six to nine months. That’s why he says it’s the best time to invest.
