Conversation with Pantera Founder: Blockchain and AI Integration is Inevitable; Crypto Revolution has Only Achieved 15%

Source: Bankless

Compilation, Translation: Yuliya, PANews

Searching for the next "Bitcoin" in the cryptocurrency market is the dream of many investors. As one of the most influential investment firms in the industry, Pantera Capital bought Bitcoin in 2013 at a price of 65 USD, and the fund's returns have since exceeded 100x. In this episode of Bankless podcast, founder Dan Morehead shared how he identifies assets with asymmetric return potential and his deep thoughts on the future of the cryptocurrency market. PANews provided textual compilation for this podcast.

Bitcoin Investment in 2013

Bankless: Let's talk about the famous email from July 5, 2013. In the email, you suggested buying Bitcoin at $65 and planning to invest in 30,000 BTC. Can you share your thoughts at that time with us?

Dan Morehead:

It all started in March 2013. My two friends, Pete Briger (Fortress Co-CEO) and Mike Novogratz (Galaxy Digital founder), approached me to discuss Bitcoin. (We all came from Goldman Sachs, and they later founded Fortress Investment Group.) Actually, before that, my brother introduced me to Bitcoin, but I didn't pay much attention to it.

What was initially a brief meeting with Pete and Mike turned into a four-hour in-depth discussion. The concept of Bitcoin fascinated me. Later, I accepted Pete's invitation and worked in their office for a full six years.

Bankless: You mentioned that this was an asymmetric trading opportunity, could you explain that in more detail?

Dan Morehead:

During my time at Tiger Management doing macro trades, I learned one thing: to identify opportunities where the potential rewards far outweigh the risks. While all investments involve risk, the key is to find targets that could potentially bring significant returns.

For example, before investing in Bitcoin, we held Tesla stock. Interestingly, in 2013, the prices of Tesla and Bitcoin were similar. Finally, we made a bold decision - sold all Tesla stock and went all-in on Bitcoin.

Bankless: You mentioned that Bitcoin is like a "category killer," what does that mean?

Dan Morehead:

In the tech industry, we often use "category killer" to describe those disruptive innovations. Bitcoin goes further; it is a "serial killer" because it not only disrupts one industry but reshapes multiple industries. However, this process is gradual.

For example, although Blockchain technology has now demonstrated advantages in some areas, to truly challenge payment giants like Visa and Mastercard, it may still take ten years. Just like the internet, which is now 50 years old, Bitcoin is still in its "adolescent" stage.

Bankless: After experiencing so many years of market fluctuations, has your view on Bitcoin changed?

Dan Morehead:

Although Bitcoin has seen astonishing gains, I believe it is still an asymmetric opportunity. We have experienced three crashes of over 85%, but each time, new highs were reached. In traditional investment fields, it is challenging to find such an asset.

That's why since 2013, I have almost entirely focused all my efforts on the crypto market. We are still in the early stages of this financial revolution, and the future opportunities are significant.

Asymmetric Investment Opportunity

Bankless: Between 2013 and 2015, you purchased 2% of the global Bitcoin supply, and many investors hope they could have bought Bitcoin earlier, also hoping to identify such asymmetric return opportunities. How did you build this belief? Some might say it's just luck, what's your take?

Dan Morehead:

I agree with your use of the word "pattern" because this is indeed a pattern recognition. I have been working on Wall Street for 36 years, starting from 1987, experiencing the savings and loan crisis, the financial crisis, investing in commodities in the '80s, emerging markets in the '90s. These experiences give me an advantage in investing in cryptocurrency over younger investors because I feel I have seen similar situations before.

Let me give you a few examples:

· During my time at Goldman Sachs, I was involved in the GSCI (Goldman Sachs Commodity Index), and now commodities have become a recognized asset class

· In the 90s, I invested in emerging markets, which are now also a standard asset class

· In 2006-2007, Pantera launched the first fund to invest in Gulf Cooperation Council countries (UAE and Saudi Arabia) from the West. Many people thought it was crazy at the time, but now the Middle East has become a completely normal investment destination

· I started investing in Russia during the Gorbachev era and participated in the privatization of Gazprom

Bankless: So you've always been looking for these cutting-edge investment opportunities?

Dan Morehead:

Yes, we have always been looking for those non-mainstream or unconventional opportunities. In 2000, we even established a fund to invest in local farmland in Argentina after the country's second-to-last crisis.

Speaking of blockchain, what's interesting is that it is still considered a cutting-edge asset class. This is very unusual—a $3 trillion asset class is still seen as cutting-edge, which I have never seen before.

In the investment memos I wrote in the following months, I listed various use cases for blockchain:

· Competing with gold (this is happening) in the future

· Competing with Visa and Mastercard

· Competing with remittance companies that charge high fees to immigrants, while Bitcoin can easily and inexpensively facilitate cross-border transfers

When you add up all these use cases, you will find that the ultimate value of cryptocurrency is far higher than today's levels. That's why we are so bullish on this space.

Experience of Buying Bitcoin in 2013

Bankless: Can you describe for us what it was like to purchase a large amount of Bitcoin in 2013? I remember when I first bought cryptocurrency in 2014, it felt very sketchy, having to open accounts on multiple exchanges, and the websites looked very basic. For many investors, these were reasons that held them back. How did you build confidence in such an environment?

Dan Morehead:

The trading environment back then was indeed very primitive. For example, platforms like localbitcoins.com required face-to-face transactions, which posed too much risk, and we never considered that approach. Ironically, that was one of the most mainstream trading methods at the time.

Initially, we planned to operate this fund through a large public company. We conducted thorough system testing, but that company eventually backed out. By then, Bitcoin had already dropped by 50%, so we had to quickly pivot to operate independently under the Pantera brand.

Bankless: What difficulties did you encounter in the actual purchase process?

Dan Morehead:

I remember when we kicked off action on Independence Day weekend, we first tried a small platform (later known to be Coinbase). It turned out they could only purchase $300 worth of coins per day, while we needed to invest millions of dollars. At that time, Coinbase only had one employee, and it took them four days to respond to emails. At that rate, it would have taken nearly 20 years to carry out our plan.

Finally, we turned to Bitstamp in Slovenia. During the bank wire process, the branch manager extensively inquired about what Bitcoin was, and it took an hour to explain the whole process. To be honest, even I was concerned about the security of the funds at that time. Interestingly, we later became major stakeholders in Bitstamp, and I served as the Chairman of Bitstamp for 6-8 years (PANews Note: LinkedIn information indicates his tenure as Chairman of Bitstamp from 2014 to 2018).

Bankless: You mentioned visiting many exchanges, including Mt. Gox?

Dan Morehead:

At that time, I believed it was crucial to personally inspect exchanges. I flew to Tokyo specifically to visit the two leaders of Mt. Gox. Although I only spent two days there, their performance made me very uneasy. Their explanations lacked logic and gave off a feeling of either incompetence or fraud. Ultimately, we decided not to collaborate with them, a decision that was later proven to be correct.

Institutional Investor Adoption

Bankless: You mentioned that you held 170 investor meetings and only managed to raise $1 million. During that time, when Bitcoin was still seen as a "mysterious internet currency" or even a "tool for drug trafficking," how did you pitch to investors? How did those meetings go?

Dan Morehead:

If you want to achieve outsized returns, you cannot follow the mainstream, nor invest in projects that every Wall Street company has 20 analysts tracking. That is why in our investor letter, we deliberately emphasized "making alternative investments more alternative."

This idea of mine stems from my experience with hedge funds that started back in 1991. Hedge funds at that time were truly alternative investments, but now it has become an industry with trillions of dollars in assets under management, and almost all funds have very similar strategies. This experience has made me even more convinced that blockchain should be a significant part of a portfolio because it still maintains its truly alternative nature.

Interestingly, the 170 meetings you mentioned actually took place in 2016, three years later than 2013. It was during the cryptocurrency "crypto winter" phase when Bitcoin's price plummeted by 90%, and the market widely believed that "the blockchain is more important than Bitcoin," with hardly anyone optimistic about public chains and Bitcoin as an asset.

Bankless: Have there been several occurrences of such market downturns?

Dan Morehead:

Bitcoin has gone through three 85% price drop cycles. In the first cycle, we started investing at $65, the price surged to $1000 and then crashed, remaining in a slump from 2014 to 2017.

During this challenging period, even though hardly anyone was paying attention to this space, our team continued to work diligently every day. The fundraising situation in 2016 illustrates this very well — 170 meetings only managed to raise $1 million, resulting in a full year's management fee income of only $170,000.

Even today, although our fundraising scale has increased, to be honest, it feels like we are still in the early stages. Institutional investors remain very cautious about cryptocurrency, with most institutions either having no allocation at all or only allocating a very small portion.

Bankless: Has your pitch for cryptocurrency and blockchain changed from 2013, 2016, and now?

Dan Morehead:

My core thesis has always remained consistent, perhaps because these ideas have withstood the test of time. When I explain to people the fixed supply nature of Bitcoin and how it won't be diluted by fiat currency inflation, I often hear the question "Isn't this just like gold?" But my answer is: this is more like investing in gold in 1000 BC. While gold has indeed served humanity for 5000 years, in the digital age, we need a brand new version—digital gold.

This is why I have remained passionate from 2013 to the present: I firmly believe that Bitcoin will gradually replace traditional gold, reform the cross-border remittance system, and innovate Visa and Mastercard's payment systems. Of course, this process takes time, potentially up to 20 years, rather than happening overnight.

The reason I am so convinced is that the development of blockchain technology is an unstoppable trend. While the realization time may be longer than expected, and some startups may run out of funds in this process, some changes are inevitable: in 5 years, it won't be possible for a migrant worker to pay a month's salary for cross-border remittance, and you won't continue to pay a 3% fee to swipe your credit card.

Whether this transformation will take 10 years or 1-2 years, I cannot predict accurately. But precisely because I am confident that this change will inevitably happen, I will continue to hold and invest in this field.

Global Adoption of Cryptocurrency

Bankless: Many people see Bitcoin doubling this year and feel they have "missed out," thinking that buying now is too late. How do you view the upside potential of Bitcoin and the entire crypto asset class? In terms of global adoption, are we currently at a 20% or 50% stage?

Dan Morehead:

In any ordinary asset class, if an asset doubles in a year, you indeed should not buy in because it may indicate an overvaluation. But Bitcoin is different. Pantera's Bitcoin Fund has had an 89% annual compound growth rate over 11 years, meaning it has doubled on average every year. A simple investment logic is: if it doubles again, you will make 100%.

However, there is a very important investment principle here: your investment amount should be controlled in a range that even if you lose 85%, it will not affect your family's stability. In simple terms, do not risk your marriage on this asset class. As long as you can keep the investment size within this level, you can safely hold for the long term.

Bankless: So, what do you think is the growth potential left for Bitcoin?

Dan Morehead:

Bitcoin has indeed grown to a considerable scale where we can't see another 1000x increase anymore, as that would consume all the energy on Earth. However, another 10x increase to reach a $15 trillion market cap, compared to the global $500 trillion financial asset total, is entirely possible.

I wouldn't speculate on the situation 50 years from now, but within our current investment cycle, like a 5-10 year timeframe, another 10x increase from the current position for Bitcoin is entirely reasonable and wouldn't seem crazy or overvalued.

Bankless: Where do you think we are in terms of adoption right now?

Dan Morehead:

I believe we are still in the early stages. It is estimated that around 300 million people globally own cryptocurrency. Although this number is hard to pin down precisely, and many holders may not have started using it in a meaningful way yet.

Let me analyze this from a technology adoption perspective: Using Bitcoin only requires a smartphone, and currently, there are 4 billion smartphone users globally. Some innovative projects, like the KaiOS we are engaging with, are working to bring this functionality to feature phones. Assuming in the next 10 years, smartphone users grow from 4 billion to 5 billion, most of these users are likely to use digital currency on their phones.

Just think, half the people share photos on Facebook. If photo sharing is that popular, digital currency will be even more popular. I think it is entirely conceivable that in around 10 years, 3 billion people will be using cryptocurrency. Once they start using it, more use cases will emerge, and people will use it more in their daily lives.

Overall, I estimate that we have only completed about 15% of this cryptocurrency blockchain revolution. Not only are the number of participants relatively small, but existing users have not fully unlocked its potential yet.

Bitcoin's "Escape Velocity"

Bankless: In 2013, there were concerns about governments banning Bitcoin, but by 2024, the situation is entirely different. Has Bitcoin reached "escape velocity"?

Dan Morehead:

Bitcoin has indeed reached escape velocity and will not retreat.

In 2013, media coverage was mostly negative, focusing on the Silk Road dark web incident and overlooking the positive impacts. Although the U.S. has previously banned gold, now 50 million Americans hold cryptocurrency.

Bankless: How does this change affect the political landscape?

Dan Morehead:

This involves an interesting phenomenon. Most Americans are under 40 years old, but over the past three years, 90% of the wealth created by the Federal Reserve and congressional monetary policy has flowed to those over 70 years old. This is actually a massive wealth transfer from the younger generation to the elderly.

And these young people are all passionate about cryptocurrency, and they vote. We have observed a remarkable shift in the voting behavior of voters under 40 compared to the 2020 presidential election. The term "young Republicans" hasn't been heard in many years.

In May of this year, Trump expressed strong support for cryptocurrency, all his nominated cabinet members are very supportive of cryptocurrency, and he even wants to establish a cryptocurrency ambassador. I believe that when someone in the future writes a doctoral thesis studying this election, they will find that cryptocurrency was a key factor in changing the election results.

Bankless: Is this change also reflected at the congressional level?

Dan Morehead:

Yes, many anti-cryptocurrency senators and congressmen have lost their seats. Based on what I've read:

· House: 274 in favor, 122 against

· Senate: 20 in favor, 12 against

I predict that in four years, those congressmen who oppose cryptocurrency may not even be in Congress because it is simply not a wise position. They either change their views or may lose in the 2026 midterm elections or the 2028 general election.

It's strange to see the Democratic Party shift to an anti-cryptocurrency stance. I have been thinking that maybe I missed some strategic consideration because this clearly looks like a lose-lose strategy.

The U.S. Government's Shift in Attitude Towards Cryptocurrency

Bankless: By 2025, we will see the first crypto-friendly executive branch and Congress. After experiencing SEC crackdowns during the Biden administration, what do you think the impact of a crypto-friendly White House would be? Especially concerning the establishment of a strategic Bitcoin reserve?

Dan Morehead:

The executive branch can directly decide to halt the sale of seized bitcoins, within its purview. We participated in the first bitcoin auction by the U.S. Marshals in 2013-2014.

The U.S. government now owns 1% of all bitcoins globally. Halting the sales would have a significant impact. Since the actual circulating supply of Bitcoin is limited, many holders never sell.

Bankless: Senator Lummis mentioned accumulating a 1 million Bitcoin reserve. Do you think it's feasible to at least retain the existing 200,000 bitcoins and establish a custody structure?

Dan Morehead:

That is quite likely to achieve. Stopping the government transfers and sales of Bitcoin would have a positive effect on the market. When you remove a seller, it naturally helps drive the price up.

As the issuer of the world's reserve currency, the U.S. cannot hold other countries' currency as other nations do. Storing gold in Fort Knox is becoming outdated. The U.S. should increase its holdings of digital gold and may even consider selling traditional gold.

Singapore has held cryptocurrency for 5-7 years, so this is not a radical idea.

Bankless: This issue seems to have become quite partisan.

Dan Morehead:

Yes, it's quite strange. As Ro Khanna mentioned, this is like a phone; why turn it into a partisan issue? In reality, the Democratic Party should be more supportive of Bitcoin as it represents the dream of progressives.

Global Bitcoin Reserve Race

Bankless: Assuming Trump retained America's existing 200,000 bitcoins (about 1% globally) and made it public, China also has around 200,000 seized bitcoins. How do you think they would respond? Would other countries start hoarding secretly?

Dan Morehead:

A strategic Bitcoin arms race could last 10 years. Both the United States and China could each hold 1% of the global Bitcoin reserves.

It's quite ironic: Why would countries competing with the United States store their wealth in US dollars and US Treasury bonds? Under the US sanctions system, their transactions could all be monitored.

For countries in conflict with the West, it is a clear choice to store some of their wealth in Bitcoin. Neutral countries would do the same—just as they use gold—because Bitcoin provides an option independent of the dollar system.

Bankless: A stablecoin bill has bipartisan support, which could help maintain the US dollar's status as the world's reserve currency. Can these bills pass?

Dan Morehead:

As Bismarck said, "There are two things you don't want to see being made—law and sausage." I don't pay much attention to Congress, as it is a complex and hard-to-influence machine.

Cryptocurrency Adoption by Institutional Investors

Bankless: In 2024, there was a significant breakthrough in institutional adoption, such as Larry Fink admitting his view on Bitcoin in 2021 was wrong. ETF products saw incredible success. In comparison to 2022, when Mike Novogratz predicted the "institutional wave," has that level of institutional adoption now been achieved? Where are we in the process?

Dan Morehead:

The industry has indeed faced some significant setbacks:

· Collapses of FTX, BlockFi, Celsius, and Terra Luna

· GBTC's discount issue

· SEC lawsuits against companies like Coinbase and Ripple

These events have certainly affected institutional participation. Imagine a public pension plan manager—it's difficult to propose a Bitcoin investment to the state legislature in such an environment.

But people may not realize how quickly the situation can change. If by 2025, we have a Congress, president, and at least neutral regulatory bodies that support cryptocurrency, everything could undergo a drastic transformation. That's why you're seeing price surges now and a large influx of funds into ETFs.

When it comes to ETFs, this is indeed a significant breakthrough. We launched the first U.S. crypto fund 11 years ago, initially structured as a Cayman hedge fund because we thought obtaining ETF approval might take several years. Now, it seems the wait time has far exceeded expectations.

Bankless: Can you elaborate on the data regarding these inflows?

Dan Morehead:

Current inflow situation:

· Bitcoin ETF: $35 billion in net inflows

· ETF-like products such as MicroStrategy: $18 billion

· Total inflows exceeding $50 billion into ETFs or ETF-like products

An interesting comparison:

· Net inflows into all global gold ETFs during the same period were zero

· Funds are shifting from traditional gold to digital gold (Bitcoin)

Bankless: Despite people like Larry Fink changing their stance, institutions like Vanguard still do not allow ETFs or crypto assets in their ecosystem. So, what is the actual adoption rate by institutions now?

Dan Morehead:

Here's an interesting point of view: many say Bitcoin is a bubble, but the median institution holds zero, so how can it be a bubble? The vast majority of institutional investors, including insurance companies, pension funds, endowments, etc., have almost zero direct investment in blockchain. They may have indirectly invested in some blockchain companies through certain diversified VC funds, but direct investment is almost nonexistent.

This is why I am so bullish about the future. We are really just getting started. When you see institutions like the world's largest asset management company BlackRock openly supporting, having excellent blockchain teams, and institutions like Fidelity laying the foundation for blockchain since 2014, all of this is very helpful.

Previously, many institutions would use compliance as an excuse for not investing in cryptocurrency, but now with institutions like BlackRock and Fidelity selling highly regulated, high-quality products, that excuse no longer holds. Even positions like Vanguard's, as the market evolves, may become unsustainable.

Bankless: So, do you think there's still an opportunity to get into crypto assets before institutional investors?

Dan Morehead:

Definitely, that's entirely applicable. There is still an opportunity to get in before institutional investors at this point.

The Cyclicity of Cryptocurrency

Bankless: You've experienced multiple cycles, and now with Bitcoin hitting a new high of $100,000, we are evidently in a bull market. Do you believe the cryptocurrency market will continue to follow the four-year cycle pattern? The traditional view is that this is related to Bitcoin's halving, while some attribute it to global liquidity. When fiat liquidity is abundant, the cryptocurrency market experiences a bull run, followed by a peak and decline. Will this four-year cycle pattern persist?

Dan Morehead:

Yes, I believe this cycle pattern will continue.

Bankless: Is this your fundamental prediction? Do you not believe in the supercycle theory or the possibility of breaking this pattern?

Dan Morehead:

Let me explain through an interesting analogy. During my college days, a professor wrote the famous book "A Random Walk Down Wall Street," expounding on the Efficient Market Theory. And Buffett once said a thought-provoking statement: "The difference in value between 'always efficient' and 'efficient most of the time' is $80 billion."

Regarding the halving cycle, my perception has evolved:

· Initially, I was skeptical like many—If everyone knows the halving is coming, then this event should already be fully priced in.

· However, after the halvings of 2013 and 2016, I am a firm believer in the authenticity of this pattern.

Why is the halving so crucial? Let's start with miner behavior:

· Miners sell almost all acquired bitcoins to cover operating costs.

· It's akin to the copper mining market—if half of the copper mines announce closure one day, the price of copper will surely surge.

· The Bitcoin Halving has this effect—every four years, the supply is cut in half, causing the price to naturally rise when demand remains constant.

However, the cyclical nature is evolving:

· The amplitude of the cyclical fluctuations is gradually diminishing. During the first halving, the reduced supply accounted for 15% of the circulating supply at that time.

· As the circulating supply increases, the impact of the next halving is reduced to one-third of the original.

· By the last halving in 2136, the effect will be minimal.

Our data analysis reveals a clear pattern:

· The halving effect begins to manifest 400 days before the actual date.

· It reaches a cyclical peak 480 days after the halving.

· This pattern has maintained astonishing accuracy.

Two years ago, when the Bitcoin price was at $17,700, we predicted it would reach $28,000 at the halving, then $117,000 480 days after the halving (in August next year), with the low point prediction almost pinpointing the exact date.

During the last halving, we predicted the monthly prices for 2020 on Twitter. We forecasted that on August 15, 2020, the price would reach $62,964, and indeed, it precisely hit that number that day.

Therefore, I still believe this cyclical pattern will persist. I expect we will go through a major bull market, followed by a bear market. The only difference is that after experiencing 85% declines three times in the past 12 years, the next retracement might be only 50% or 60%, at least for Bitcoin, while smaller coins may still experience greater volatility.

2025 Bull Market Outlook

Bankless: Following the four-year cycle pattern, does this mean that 2025 will be a bull market, followed by a decline in 2026?

Dan Morehead:

Yes, that is my expectation. The halving took place on April 19th this year, and the peak of this cycle should be in August 2025.

Bankless: Everything seems to be heading in this direction. It all looks too straightforward, doesn't it?

Dan Morehead:

I know it sounds a bit absurd, but we've been discussing this topic for 12 years. We have always predicted that the volatility would gradually decrease, with previous halving cycles experiencing larger fluctuations, while this time it will be relatively mild. It's not just the halving factor; the political and macroeconomic environment are also creating favorable conditions for cryptocurrency. So I am quite optimistic about 2025.

Bankless: How do you view the macroeconomic situation? Will it have a positive or negative impact on cryptocurrency? Does Bitcoin impact the macroeconomy or is it the other way around?

Dan Morehead:

Usually, we discuss the impact of the macroeconomy on Bitcoin. From a macroeconomic perspective, I am skeptical about the possibility of the Fed lowering interest rates. In December 2021, the federal funds rate was at zero, and the 10-year Treasury yield was at 1.3%. At that time, I predicted that both of these indicators would rise to 5% and stay there for several years. Today, I still stand by that assessment.

Why? Look at the current economic conditions:

· The economy is booming, and crowded airports are the best proof of that

· Unemployment is at historically low levels

· Wage inflation continues to rise

· The stock market keeps hitting new all-time highs

In such an economic environment, I believe the views expecting the Fed to cut interest rates are unreasonable.

The actual federal funds rate is only 80 basis points higher than the core inflation rate, which is not considered tight. The historical average is 140 basis points above, so the current situation is only slightly tight.

More worrying is the fiscal situation:

· Even in the most prosperous economic period, the U.S. still runs a $2 trillion deficit

· Despite full employment and all indicators hitting record highs, fiscal balance cannot be achieved

· This suggests that once the economy shifts, there may be more serious problems ahead

Macro Economic Environment and Cryptocurrency

Bankless: With the ongoing U.S. deficit, money printing, and rate-cut expectations, what do these macroeconomic signals mean? Do they suggest that commodity and digital asset prices will rise?

Dan Morehead:

The U.S. has developed a dependency on money printing. This trend was present even before the COVID-19 pandemic, and the fiscal constraints disappeared entirely after the pandemic. For example, the direct cash transfers to the public have directly led to inflation and price increases.

The current fiscal situation is worrying:

· The U.S. is running record deficits even in the best economic times

· Interest payments have exceeded military spending

· The government is financing through adjustable-rate means, increasing future fiscal risks

· Interest rates are expected to remain at 5% or higher

This means that we will need increasingly higher rates to refinance all debt, which will be very costly.

Although I am not primarily focused on studying fiscal and macroeconomics, there is one thing I am sure about: I would rather hold Bitcoin than the U.S. dollar.

Bankless: You mentioned commodities, which made me think of gold hitting all-time highs, Bitcoin hitting all-time highs, the stock market hitting all-time highs, real estate hitting all-time highs – how should we interpret this phenomenon?

Dan Morehead:

The key is to shift perspective:

· These assets are not truly "rising," but it's the fiat currency that is depreciating

· We should focus on the relative prices of Bitcoin to gold, stocks, real estate, etc.

· The devaluation trend of the U.S. dollar is clearly visible from comparing various asset classes against the dollar

In the current fiscal situation, holding fiat currency makes little sense. Even former cryptocurrency skeptic Ray Dalio has started recommending holding gold and Bitcoin to hedge against a potential debt crisis.

This shift in viewpoint is essential because currency is fundamentally a consensus technology. The changing attitudes of top investors indicate that the market's acceptance of digital assets is increasing, and the consensus brought by deep liquidity is crucial for the development of a new currency.

Trend of RWA Tokenization

Bankless: RWA tokenization seems to be primarily aimed at institutions. Will all assets eventually be on-chain? Are we going through an S-curve development from stablecoins to government bonds, and then to stocks and bonds?

Dan Morehead:

This is indeed the long-awaited "killer app" in the blockchain space. While some early investments were premature, the effects are finally emerging. Taking stablecoins as an example, they are enabling traditional financial instruments to bring new value on the blockchain. Projects like Ondo are opening the doors to the U.S. financial markets for more people.

The significance of bringing government bonds onto the blockchain is much greater than it may seem at first glance. The majority of the world's 8 billion people live outside the United States and are eager to access US dollar assets and US Treasury bonds, but traditional channels make this difficult to achieve.

Even for US citizens, the existing system has clear problems. For example, transferring Treasury Direct accounts to brokerage firms can take up to a year, highlighting the inefficiency that underscores the need for blockchain technology.

Bankless: Wait, really? I had no idea this was a thing.

Dan Morehead:

Yes, there’s a government worker somewhere with a stack of withdrawal requests so high that it takes a year to move your 90-day Treasury bond from the government to Bank of America. If there's anything that perfectly illustrates why we need blockchain and RWA tokenization, this is it. You'd think buying directly from the government is smarter, only to have your funds locked up for a year.

Another great example is Figure Markets, which has already processed $10 billion in mortgage loans on the blockchain. The traditional mortgage market takes 55 days from borrowing to final settlement, with many intermediaries, each incurring costs. Blockchain technology can significantly improve the efficiency of this process.

However, not all assets are suitable for tokenization. Assets like hedge funds and private equity funds, targeted at accredited investors, already operate quite well and do not urgently need to be put on-chain.

But for assets like government bonds, blockchain does indeed offer an ideal solution. This not only enables more people to participate in investment but also presents an opportunity for the US government to expand its funding channels. Through blockchain, they can more easily promote government bonds to global smartphone users, benefiting all parties involved.

The Future 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 you following AI-related projects?

Dan Morehead:

The fusion of blockchain and AI is inevitable. Fundamentally, AI has a significant impact on society, and decentralized, open AI is more beneficial to everyone than private control. We have already invested in projects in this direction, such as Sahara and other decentralized AI projects.

One notable phenomenon is that existing AI models have already digested nearly all free internet content. The next generation of AI models needs to access paid data, and blockchain happens to excel at providing incentive mechanisms that can effectively address this issue.

Regarding the issue of AI agents using currency, they clearly cannot open accounts in traditional banking systems. When interacting between machine agents, they must use some form of digital currency, and programmable currency (such as Ethereum) seems to be the most natural choice. While there may be exploration of solutions beyond blockchain, the solution provided by blockchain is the most comprehensive.

In the long term, AI seems to have difficulty operating independently from blockchain. These two fields have already seen significant intersections, and in the next 5 to 10 years, we are likely to see further deep integration between them.

Finding the Next Bitcoin

Bankless: Pantera's initial Bitcoin fund achieved a 130,000% return; is this a unique "once-in-a-lifetime" return? Do you think investors will have similar opportunities in the coming decades?

Dan Morehead:

Blockchain technology is at a crucial stage of development and is an incredibly promising career path for young people. Even if ultimately choosing to transition to a traditional industry, the experience accumulated in the blockchain field will be a valuable professional asset. This career choice has asymmetric return characteristics: significant upside potential with manageable downside risks.

The current monetary policy and regulatory environment have had many adverse effects on the younger generation. Factors such as the high barriers to the real estate market and inflationary pressures have made the traditional wealth accumulation channels increasingly challenging. In contrast, the blockchain field provides a relatively fair competitive environment for the younger generation.

For young investors, it is recommended to follow the investment strategies below:

· Diversify the portfolio to avoid overly concentrating funds in a single cryptocurrency

· Emphasize risk management and adjust investment ratios based on personal financial situations

· Seize investment opportunities brought by generational cognitive differences

· Adopt stable investment methods such as dollar-cost averaging

It should be noted that investment strategies should be adjusted as personal life stages change. For individuals who are married, have a mortgage, etc., the allocation of high-risk assets should be appropriately reduced to ensure that the portfolio matches their risk tolerance.

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