The Immutable Blockchain Rally :: Pantera Blockchain Letter, May 2018

Dear Community,


I believe that a large fraction of the downward pressure in Q1 was unintended tax selling — people who were surprised when their accountant told them how much they owed in taxes. They then had to sell crypto to pay the bill.

I’ve often heard people saying that selling Bitcoin for say Ethereum is a tax-free exchange like a Section 1031 transfer of property.

The IRS clarified that it is not — at least going forward. It’s just like selling Google to buy Amazon — you have to pay tax on the Google profits.

For transactions after December 31, 2017, an amendment to the Section 1031 exchange rule provides that only real property can be the subject of a tax-free 1031 like-kind exchange. Prior to the amendment, the language allowed for a more general application of the rule to like-kind exchanges of property.

2017-Pub. L. 115–97, §13303(b)(5), substituted “real property” for “property” in section catchline
Pub. L. 11597, title I, §13303(c), Dec. 22, 2017, 131 Stat. 2124 , provided that:
“(1) In general.-Except as otherwise provided in this subsection, the amendments made by this section [amending this section] shall apply to exchanges completed after December 31, 2017.
“(2) Transition rule.-The amendments made by this section shall not apply to any exchange if-
“(A) the property disposed of by the taxpayer in the exchange is disposed of on or before December 31, 2017, or
“(B) the property received by the taxpayer in the exchange is received on or before December 31, 2017.”


Bitcoin’s recent spike is actually small on a year-on-year basis — relative to past cycles.


Melissa Lee: Our next guest has a Bitcoin that is flashing a rare buy sign that is hinting at a huge rally ahead. Dan Morehead is a CEO of Pantera Capital. He’s here on set with us. Dan, welcome back to the show.
Dan: Thank you.
Melissa Lee: What are you seeing in the charts? What are you seeing out there that makes you think the worst is over?
Dan: So Bitcoin has been growing at 165% per year for six years that we’ve been in business. Something that’s growing that fast hardly ever gets down below its 200 day moving average. When it does, it is a very good time to buy. It did five years ago when we launched our first fund and it just crossed that earlier in April.
Melissa Lee: What makes this different from another asset where you might say, you know, crossing below the 200 day moving average is actually a bad thing?
Dan: Yes, so technical traders use these different averages to decide when to get in, but it’s amazing that Bitcoin goes up so quickly and when it just gets back to its average that means it’s time to buy again, because it’s been a vertical line for eight years.
Timothy Seymore: Yeah, and congratulations on being an institutional investor whose doing alternative assets and emerging markets and other things long before you stumbled onto this. But you stumbled very, very early, so you didn’t just jump onto this train. What’s holding back other institutions? Yours is well suited to opine on this, you’ve been running an institutional hedge fund business for a long time.
Dan: Yeah, so there has been a lot of credentialization milestones, the biggest one recently is the CME and CBOE doing futures that helps bring in other investors. I think the last big one is a SEC regulated custodian. So when we launched our first fund, we had all the standard things you’d have in normal hedge fund, but you don’t yet have a regulated custodian. I think that’s the last piece, and some firms have announced they will do crypto-custody within the next, say, 12 months. I think that will be a very big moment.
Timothy Seymore: Yep.

For those interested, the entire interview can be viewed on CNBC


Dan: Our flagship Digital Asset Fund is exclusively machine learning algorithmic, so we’re looking at fundamental data to see which currencies are cheap, which currencies are rich. And the data can be either the actual transaction volumes, the fees being paid to the miners, how many users on this system. But it’s also sentiment data, because these are very hype-driven things. It’s Twitter, GitHub commits, all the people actually getting engaged in these currencies. And now there’s 1,500 different projects out there, traded in 25 different languages, so it takes machines to read all of that.

For those interested, the entire interview can be viewed on Bloomberg News


In November 2014, Bloomberg News hosted five panelists including Pantera’s Dan Morehead and Susan Athey of Stanford to discuss whether Bitcoin could one day replace existing systems and become a globally accepted currency and platform for exchange. Four years later, Bloomberg invited the same panel back to revisit our predictions from 2014, take a look at Bitcoin today and discuss the future of cryptocurrencies.

“What has changed in the last four years?”
In 2014 we had just launched the first cryptocurrency fund in the U.S. That’s a perfect segue to four years later. We used to have one fund — with one product — that tracked one currency, and now we have four different products that trade 25 ICOs, and 25 liquid currencies, and 25 equity positions in blockchain oriented startups. It shows the massive expansion in this as an asset class.
In the 2014 panel we presented the Pantera BitIndex which has eight different constituent fundamental factors. I thought I’d do a little “Then & Now” segment here — so I updated it. There’s one that’s really different. It has things like user adoption, number of wallets — that’s up 10x from four years ago — to hashpower of the Bitcoin network which is up 100x. The number of cryptocurrencies has surged. The price is up 2,000% from when we were here last time. It’s up 20x from there.
The one thing that really hasn’t changed is the tricky one: it’s the transaction volume. It’s only been allowed to double. That’s the really big issue for the Bitcoin-brand blockchain: the governance issues allowing Bitcoin to scale. Obviously that’s a really nice problem to have — that it’s usage doubles every six months. But it’s hit a wall, and so it’s basically maxed out the number of transactions that can go through the Bitcoin blockchain.
That happened at the exact same point that Ethereum and ERC-20 tokens exploded into people’s consciousness. Bitcoin’s dominance, as it’s called, or its percent of the entire market went from an incredibly steady 85% over the last four or five years, down around 30%.
“What else could be said in defense of Bitcoin and its future?”
…I think the thing from an investment standpoint is not to get frozen trying to pick the winner, and you’re gonna wait until you know if it’s Ethereum…or if it’s Bitcoin…or Bitcoin Cash. That’s not what you do in a stock portfolio, right?
You buy a portfolio of 30 things. I think that’s the important point to share with potential investors, is you need to buy a portfolio of different assets. There’s a great phrase for the people who are exclusively into Bitcoin — Bitcoin Maximalists. That’s like in the early ’90s being a Yahoo! Maximalist. Like, that’s crazy — “I’m only gonna buy Yahoo!. It’s the only disruptive technology.” No, you’re gonna buy Google, and Facebook, and Amazon, and 20 other stocks. That’s the mentality people should have in the crypto space. There’s lots of different use cases. Bitcoin is an amazing one, but there are dozens of other really important use cases. In our flagship Digital Asset Fund Bitcoin’s averaged only 10% of the fund — 90%’s the other really cool things.
“Would you agree that, in order for cryptocurrency to go mainstream and for that capital market to exist, there has to be institutional acceptance?”
All right, so here’s the trippy thing: Blockchain is the first half-a-trillion dollar market that nobody owns. Almost all institutions have zero exposure to a $0.5 trillion market. That is Just mind-blowing. I think that’s going to change in the next, say, 12 to 18 months. The last thing will be custody. When we launched our first fund we did everything to take away reasons to say “No”. Ernst & Young auditors, Schulte Roth legal, SEI Administration — everything was absolutely bulletproof.
The one box we couldn’t check, SEC-regulated custodian. That’s the one box you still can’t check five years later. There have been big firms like State Street that have announced they intend to do custody of crypto. When that happens that’s literally the last box checked. My advice is the adage on Wall Street, “Buy the rumor, sell the fact”. When the CBOE and CME announced futures the price tripled, when they launched futures it didn’t do anything. When some big custodian announces they’re doing crypto custody the price is gonna, I think, go up more than triple.
And then when they actually open the accounts and start doing it, the price will already reflect it. To get reward you have to take some risk. And I think a rational trading strategy’s to buy prior to that. That’s basically the last thing before institutional acceptance.
[Since then Goldman Sachs has announced intention to begin trading bitcoin for its own account. I believe all of Wall St. will be within months.]
“If these large legacy financial services companies want to enter the space and, as you say, custody and regulation are the last hurdles, why don’t they seem to have the appetite to take full ownership of it? And should it be taking this long?”
Yeah, I don’t have any inside insight onto specific firms. But I would just say Wall Street is very conservative, it changes very slowly. This thing’s only eight years old, this whole project. So to be going to custody within the next 12 to 18 months I think is great, and the CME and CBOE going to futures last year, all those things I think are happening very quickly. And if it happens in the next 12 or 18 months I think that would be a good outcome for the industry.

For those interested, the entire panel can be viewed on Bloomberg News


Selling doom is great business. As I said in March:

“I will admit right upfront that if your objective is to sell newspapers, solicit academic grants, or throw your banking competitors off the track, railing against bitcoin may be an entirely rational strategy. However, if your job is like mine — prudent management of peoples’ capital — it is irrational to have zero exposure to something that (1) might be the future payment rail of the world, (2) that might become digital gold, (3) that might replace Wall Street back offices, (4) that might enable billions of people in the developing world to improve their lives with bank-free mobile money — and so forth, as Use Case (n) → ∞.
Bitcoin is the Miracle Whip of Finance.™

Nouriel Roubini has probably made more money than entire Economics Departments selling his brand of doom. His latest tirade is just plain fun. You just don’t get enough old school craziness like this anymore:

A Verbal Cryptobrawl Breaks Out at Milken Over Bitcoin’s Future
By Matthew Leising [with Pantera notes in brackets]
(Bloomberg) — A cryptocurrencies panel at the Milken Institute Global Conference was more like a cryptobrawl — no punches but a barrage of barbed comments.
“All this talk of decentralization is just bullsh*t,” said Nouriel Roubini, an economist known as Dr. Doom for predicting the chaos of the 2008 financial crisis.
“Everything you just said is irrelevant,” shot back Alex Mashinsky, a blockchain entrepreneur who was an early developer of the Voice over Internet Protocol standard.
[Pantera coined the term MoIP to convey the radical disruption blockchain will have to the payments oligopolists — just as VoIP did to the telephone monopolists. Back in the day, AT&T was 16% of the entire U.S. stock market capitalization. Decentralized telephony has made everyone — except the monopolist — way better off.]
“I don’t even know where to begin,” Bill Barhydt, who worked on cryptography for the CIA, responded to Roubini. [Bill is the amazing CEO of ABRA — a Pantera portfolio company.]
The moderator, Reuters journalist Anna Irrera, called for a time out to cool things off. Then the Feds weighed in. “I may need to step in and regulate this panel,” said Brent McIntosh, General Counsel for the U.S. Treasury and another panel participant.
Billed as a sober discussion to a ballroom where every seat was filled, the panel meandered into shouting and crosstalk…
Among skeptics, few match New York University’s Roubini. Digital coins aren’t currencies because they aren’t a store of value, he argued. And they’re worthless for payments because Bitcoin and Ethereum’s blockchain technology can’t handle nearly the same volume of transactions as Visa Inc., he added.
Mashinsky said crypto assets will let people bypass banks.
“You’re just making stuff up,” Roubini replied.

Kudos to Dr. Doom for the serious bank he’s made predicting 50 of the past 1 busts. However, money managers have to make solid risk-reward bets — and live with the consequences of missing compelling trades. Let’s see how doom is fairing:

Paper-Trading P&L :: Roubini Blockchain Statements

Jan 2014 :: At a Time Inc. event, Roubini said that bitcoin is a bubble that has grown as a consequence of monetary policy = much like housing and junk bonds. :: P&L Down -1187%
March 2014 :: “Ponzi scheme” · “…conduit for criminal/illegal activity.” · Users have “paranoid conspiracy views” of the dollar. :: P&L Down -1539%
Feb 2018 :: “A dinosaur on the way to extinction” :: P&L Down -110%
May 2018 :: Blockchain is a “glorified Excel spreadsheet” · Bitcoin “was a bubble — the ones who arrived late to the party are suckers” · “There is no decentralization, it’s just bulls–t,” :: P&L Down -105%

Being super-negative on blockchain is irrational — unless you’re trying to get speaking slots at conferences or sell newspapers.

The massively-important point that blockchain doom-slingers miss is the asymmetric risk-reward profile. I am not 100% sure that blockchain will go up. However, when you weight the possible outcomes, blockchain has a huge expected return. It can be stylized like this:

You might breakeven.
A certain chance you make 2x your money.
Another that you make 10x your money.
A real chance that you make 50x your money.
The possibility that our fund returns another 120x.
And, a chance that you lose 1x.
Sum all those probabilities up — and it’s an extremely compelling trade.

Said another way:

If an asset could go up 50x, you need just over a 2% chance of it happening for it to be a rational investment. In my professional opinion, the odds are way higher.

As the saying goes — even a broken clock is right twice. Maybe Nouriel will be right again.


We are very pleased to welcome Ryan Davis to Pantera as CFO. Ryan joins from Echelon Asset Management, where he was the CFO managing all aspects of accounting, finance, legal, operations, and compliance/regulatory.

Prior to Echelon, Ryan’s career experiences include Bridgewater Associates, Presidio Partners / Compass Equity Advisors, KPMG, and Arthur Andersen.


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. If you are interested in attending one of our group lunches, please fill out the form on this page and we will be in touch regarding availability.

Some of our dates include:

  • Las Vegas, May 9–11
  • New York, May 14–18 :: May 17, Group Lunch | 12pm :: May 18, Group Lunch | 12pm
  • Barcelona, May 14–17
  • London, May 18 & 21 :: May 18, Group Lunch | 12pm :: May 21, Group Lunch | 12pm
  • Geneva, May 22 & 23 :: May 23, Group Lunch | 12pm
  • Zurich, May 24–25 :: May 24, Group Lunch | 12pm
  • Amsterdam, May 28 & 29
  • Chicago, June 4–8
  • Tampa, June 13 | Including Group Lunch at 12pm
  • Los Angeles, June 13–15
  • San Francisco, June 14 | Including Group Lunch at 12pm
  • Washington DC, June 21 | Including Group Lunch at 12pm
  • Newport, RI, July 16–18
  • London, July 23 & 24 :: July 24, Group Lunch | 12pm
  • Zurich, July 25
  • Geneva, July 26 & 27

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

The future has arrived,

@Dan_Pantera :: @JoeyKrug ::

“Put the alternative back in Alternatives”




Blockchain is the first half-a-trillion-dollar market nobody* owns.

Goldman Sachs to Open a Bitcoin Trading Operation. Within just a few months all of Wall Street will be trading #bitcoin.

* nobody == institutional investors


The original Tweet can be found here

Yeah, there’s a ton of hype. And, many hopes probably won’t come to pass. But the intersection is an incredible future. Happy to be living in this moment.


The original Tweet can be found here


Pantera is actively hiring for the following roles:

  • Data Scientists
  • Engineers
  • Executive Assistants
  • Investor Relations Associates

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.

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