Human Nature Is Pro-Cyclical, Go Against The Urge :: Pantera Blockchain Letter, April 2018

Pantera Capital
Apr 12, 2018 · 11 min read

Dear Community,

Before I address the markets — let’s take one minute for a hugely positive thought:

While I was watching an ad during the Final Four the narrative was all about the many cool things that this unnamed company or product could do. I was like “Yeah. Who cares? Blockchains can do all that.”

Then the credits rolled — it was an IBM ad for blockchain. That’s a huge milestone. Legit company spending serious money to credentialize blockchain.

Can’t put the genie back in the bottle.

Having just featured Sock Puppet blowing his entire funding round on a Super Bowl ad last month, this seems like a more sober company investing in the reality of a blockchain-enabled future.


I could imagine that a portion of the selling pressure on the market in general has been unintended tax positions. Imagine a trader actively buying and selling BTC, ETH, XRP, etc. Great year. Made a ton of money. Kept it all in the markets.

Come the spring their accountant tells them that every sale at a profit created a taxable gain with taxes due by April 15th. There were $300 billion of capital gains created last year. That could have caused a decent chunk of the sales.


One key thing to point out is recently there was some news about the SEC going after a couple scam projects and the fact that the market didn’t react negatively suggests we’ve reached a local, if not global bottom.

There’s a bunch of questions about the regulatory environment, but if you look at the most recent news, the SEC went after around two ICOs, one of those being a fraudulent project backed by Floyd Mayweather. The market didn’t actually react in a downward way, it actually went up over the subsequent 24 to 48 hours. When the markets go up on bad news, that’s a great sign, because it basically means you’ve reached peak negativity, where you’ve reached at least a midterm bottom. Provided that nothing drastically changes over the course of the next few months on the regulation side, I think that we’ve seen the brunt of the market’s negative reaction to it.


We have long tried to caution investors that we’re investing in very early stage venture-like projects. We should all be focusing on a 3–5-year horizon. That it’s very difficult to time the markets. And, that once you’ve determined what is a tolerable amount of money to risk, don’t get scared out when it has these downdrafts that it has every few years.

I’ve been hearing that for six years — as a rationalization for not buying.

“The markets have gotten away from me. It’s up 300% in the last six months. Well, I guess I missed it.”

My professional opinion is that we’re in the first innings of a multi-decade trade. If you can buy something at $7,000 which was $20,000, it’s probably a good trade.

For those who are new to Pantera who might think a fund manager like Pantera would always be saying “Today’s a great day to get long.” we’ve only made four cryptocurrency trade recommendations in seven years: three buy recommendations and one sell/it’s-going-to-go-sideways-for-a-while.

Most of the time my answer is: “Today’s just as good as any other. I have no short-term trading insight. It could go down 50% next week. However, my expectation is almost always that the markets will track the compound annual return of Bitcoin over the five-year life of the fund — 167.4%.”

However, it’s important to stress that I have strong conviction now that $6,500 on Bitcoin is likely the low for this bear market. I tweeted that at the lows in February, put it in our letter. It could briefly go below that. However, I think the vast majority of the next 365 days will be above that price. It’s highly likely to have exceeded $20,000 within a year.

I rarely have such strong conviction on timing. A wall of institutional money will drive the markets much higher.

Here’s my rationale…


Humans have an innate herd instinct. It’s what kept our ancestors alive — when those with the wild, lone-wolf, contrarian tendencies got Darwined out.

  • It’s human nature that we want to buy when the market is surging up — when the FOMO devil is whispering in our ear.
  • When the markets are crashing — and our spouse/friends/boss are all WTF, we want to flee — we just want to stop the pain.

We all do it.

I’m probably not going to win the Nobel in Medicine for this, but I could imagine that the traits we imprinted on the plains of the Serengeti might not be optimal for trading early-stage protocol tokens.

Here’s an update to a histogram we published three years ago. It plots the percentage of time the price of bitcoin was in each price bucket. The price distribution of the first era — 2013–15 was fairly normally distributed. A little bit of time below $100 /BTC. Tons of time in the middle and very briefly above $900 /BTC. The inflows are massively pro-cyclical. Few wanted to invest in the two-digit price range. It wasn’t until the price went above $500 that investors invested more frequently than the price distribution. The majority bought near would be the local highs — $800=1,200.

When it came way back down, it was actually much cheaper and provided much better value, inflows became much lower than typical. When it went down to two hundred and stayed there for years, very few investors came in.

The pattern was even more exaggerated in the next era — 2016 to present. Bitcoin traded below $1,000 about half of that time. Very few people wanted to invest. Those who did reaped an enormous reward. Most of the inflows came when the price was above $5,000.

It’s human nature.

Resist the urge to close down positions. If you have the emotional and financial resources, go the other way.


The price of Bitcoin has had a compound annual return of 167.4% over the five-year life of our fund. Things that go up that fast rarely are below their 200-day moving average. Traders often use that time period as it seems to be the optimal response time of human psychology. Long enough to stop fretting about missing the trade. Not too long that the information is lost.

Bitcoin just hit that rare buy signal again. It just crossed below its 200-day moving average.

To put a little empirical evidence behind the assertion that it’s a better-than-average day to buy crypto-currency: if you invested $100 on the day that the bitcoin price crossed below its 200-day moving average and sold a year later, your total return would be 285%.

Buy low, sell high.



We haven’t shared this yet, but I think it’s such a compact put down to the FUD-sters “But, anybody can make a currency! The infinite supply will drive down the price.” Here’s the final bit from our CNBC Squawk Box interview at the highs in December:

Dan: I think for the big blockchains like Bitcoin, Ethereum, and Ripple — we’re in the first innings of a multi-decade thing. There’s going to be some ups, there’s going to be some downs, but we are still really early.

Andrew Ross Sorkin: But this could be a big up and could there be a big down?

Dan: There easily could. It could be down 50% next week — that’s where it was a month ago. So in any market that’s surging this quickly, we could have a big downdraft. In a year’s time it’ll be much higher than today.

Andrew Ross Sorkin: And where are you at, Bitcoin vs. Ethereum vs. Ethereum classic vs. Zcash vs. name your other exotic flavor?

Dan: That’s a great question. There’s a lot of energy that investors have. “I have to pick THE winner.” Is it going to be Bitcoin, is it going to be Ethereum, is it going to be Bitcoin Cash, but that’s not how you do a stock portfolio right? You don’t say, “I’m going to put all of my net worth in Google, I’m never going to buy Apple, I’m never going to buy Facebook, I’m never going to buy Netflix.” No, you buy a portfolio, and I think that’s what a sensible investor should do.

Andrew Ross Sorkin: But you do realize, so I was talking to my wife last night about this, who, doesn’t know a lot about this, but she said, “Why don’t I just start my own E-coin tomorrow? And why can’t we all just start our own electronic currencies tomorrow?” And we can, and when she said that to me in the most simple way, I said, “You’re right, and that’s a problem.”

Dan: Ok, so, bitcoin is just open-sourced software, and you could copy it and make “Squawk-Coin”, and if you can get forty million people to start using it, it would have a lot of value. It’s just kind of hard to get forty million people to start using it.

Andrew Ross Sorkin: But we’ve found that people aren’t really using it as a currency, they are using it in this belief system.

Dan: I’ve got an even better business idea for you and your wife.

Andrew Ross Sorkin: OK.

Dan: **Photo sharing** You could set up a photo sharing site, and if you can get two billion people to use it, it’ll be more valuable than Facebook. It’s just difficult. Bitcoin already did it, it’s been there for nine years, it has 24/7 uptime, it’s hard to compete with.

For those interested, here’s the full CNBC Squawk Box interview: CNBC.


Pantera partners will be traveling over the next months to discuss Venture Fund III and the blockchain disruption. We have organized group lunches in many cities should you want to meet other investors who share your interest in blockchain.

Some of our dates include:

  • West Palm Beach, April 12 | Including Group Lunch at 12pm
  • Miami, April 13 | Including Group Lunch at 12pm
  • San Francisco, April 13 | Including Group Lunch at 12pm
  • Macau, April 16–18
  • New York, April 17–19 :: April 18, Group Breakfast | 7:30am :: April 19, Group Breakfast | 7:30am
  • Tampa/St. Petersburg, April 20
  • New York, April 24–26 :: April 24, Group Lunch | 12pm
  • Hong Kong, April 19–20
  • Palo Alto, April 23 | Including Group Lunch 12pm
  • Beijing, April 26–30
  • Shanghai, May 1–3
  • Dallas, May 2 | Including Group Lunch at 12pm
  • Houston, May 3 | Including Group Lunch at 12pm
  • Bangkok, May 3–10
  • Austin, May 4 | Including Group Lunch at 12pm
  • Las Vegas, May 9–11
  • New York, May 13–18 :: May 18, Group Lunch | 12pm
  • Barcelona, May 14–17
  • London, May 18 & 21 :: May 21, Group Lunch | 12pm
  • Zurich, May 22–23 :: May 23, Group Lunch | 12pm
  • Amsterdam, May 24–25

If you are interested in a meeting, please contact Pantera’s Investor Relations team at 650–854–7000 or

If you have the emotional and financial resources, go the other way,

@Dan_Pantera :: @JoeyKrug ::




Pantera is actively hiring for the following roles:

  • Data Scientists
  • Engineers
  • Executive Assistants
  • Investment Associates
  • Trader

If you have a passion for blockchain and want to work in Menlo Park, San Francisco or New York, please follow this link to apply.


Some good material to start with on the development of blockchain technology and cryptocurrencies as speculative instruments:

Two of the best books are Digital Gold by Nathaniel Popper for a fun high-level history and an in-depth technically-minded look Mastering Bitcoin and Mastering Ethereum by Andreas Antonopoulos.

And some additional information on the ICO model specifically:

Additional information on blockchain regulation:


We tweet blockchain news and insights on Twitter and Medium at @PanteraCapital, @Dan_Pantera, @JoeyKrug, and @Veradittakit.

You can subscribe to our publications by visiting Pantera’s website or by e-mailing

  • Blockchain Letter: a monthly letter with our thoughts on significant market and ecosystem-related developments. Also, includes our thoughts on blockchain venture capital and news on our portfolio companies for accredited investors.
  • Blockchain Investor Letter: Public Letter plus exclusive information for accredited investors.
  • White Papers: periodic, original blockchain research and academic papers.

Pantera Capital

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Pantera Capital

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The investment firm focused exclusively on blockchain tech & cryptocurrency. Subscribe to receive our newsletter:

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