Many people wish they had bought cryptocurrencies early, when it was still just a curiosity. Former Goldman Sachs group bond trader Dan Morehead was among the few to do so, launching his first crypto fund when a bitcoin cost less than a bag of groceries.
“I was captivated,” said Mr Morehead, 56, calling it “the first truly global macro trade across all borders”.
As a result, the Pantera Bitcoin Fund has returned over 65,000% since 2013, and its Pantera Capital Management, once a traditional hedge fund that bet on macro trends, oversaw $5.6 billion in crypto assets at the end. of the year. That’s on top of the $6 billion the company has returned to investors.
There is always a chance that it will crash and burn. Bitcoin fell more than 20% to start the year, trading below $37,000 on Friday, well below its November peak of around $68,000 – a decline fueled by rate hike expectations global interest rates and aggressive central bank action to control soaring inflation.
This is where Mr. Morehead’s worlds collide.
He stood out during his teenage years in crypto because he immersed himself in it after a fast-paced career in finance. He started trading bonds at Goldman in the 1980s, then worked for hedge fund legend Julian Robertson before launching Menlo Park, California-based Pantera in 2003.
Rising inflation – and how central banks react to it – will be a big theme of 2022, said Morehead, who had previously bet on the long-term decline in inflation and yields.
This job “basically made my career,” he said. “I think it happened until the end of this story.”
Mr. Morehead expects a reversal in this dynamic to weigh on cryptocurrency prices, but it hasn’t dampened his enthusiasm for the underlying technology.
Pantera does not just bet on Bitcoin. Its venture capital funds invest in companies supporting the crypto ecosystem, including exchanges such as FTX, Coinbase and Gemini, while the company’s token funds put money to work in developers. blockchain. Recently, Pantera has focused on decentralized finance, or DeFi, a movement seeking to supplant the old ways of doing business on Wall Street.
“Bitcoin and blockchain are shaking up the financial world,” said Pete Briger, co-chief executive of Fortress Investment Group, who worked with Mr. Morehead at Goldman. “Dan is at the epicenter of it all.”
Mr. Morehead could have gotten into cryptocurrencies even earlier, in 2011, when his brother introduced him to Bitcoin. He read about it, thought it was a good idea, then pretty much forgot about it.
Then, two years later, Mr. Briger called him into the offices of Fortress in San Francisco to discuss Bitcoin, with early crypto evangelist Mike Novogratz. Mr. Briger, 58, a distressed-debt specialist who describes himself as a “garbage collector” of the financial system, saw in Bitcoin the potential to disrupt the traditional banking system.
“Blockchain is a game-changer in financial services,” Briger said. “This is pushing the banking and payments industry to rethink their reliance on legacy barriers to protect competitive advantages.”
After the meeting, Mr. Morehead pledged to do additional research, and a month later told Mr. Briger that crypto was the most exciting thing he had seen in his career. He moved into the Fortress office and got to work creating a cryptocurrency investment fund.
In addition to gains from the Pantera Bitcoin Fund, a venture capital fund that also debuted in 2013 generated an internal rate of return of 51%, and Pantera’s Liquid Token Fund jumped 385% in 2013 alone. 2021.
Fortress became one of Mr. Morehead’s biggest supporters. Finding such an institutional investor in the early days of Bitcoin was an exception.
Most of the investors were “high net worth individuals, especially tech entrepreneurs and Wall Street executives investing their own money,” Morehead said.
Bypassing more traditional funding allowed Pantera to move quickly.
“A tech CEO wired $2 million to the fund, then a few weeks later he called and said, ‘Hey, what are the terms? Mr. Morehead called back.
Mr. Morehead hosted an annual Bitcoin conference at his Lake Tahoe home which he called Bitcoin Pacifica, attracting cryptophiles from around the world.
“These weren’t the kind of people I was used to meeting through Fortress,” Mr. Briger said of a meeting he attended. “Lots of fringe gamers, cypherpunks, cryptographers and probably some who call themselves anarchists.”
It was also a big change for Mr. Morehead. He had started Pantera as a traditional macro hedge fund – his specialty for four years as chief macro strategist and chief financial officer of Mr Robertson’s legendary hedge fund, Tiger Management.
This early version of Pantera grew to around $1 billion in assets before the 2008 financial crisis. Now, as a pure crypto investor, it’s several times larger. The company was managing about $5.6 billion at the start of this year, including a fourth fund that raised $600 million in November.
That’s down from the $6.4 billion Pantera was managing at the end of November. In a Dec. 23 interview, Morehead predicted that expectations of more aggressive Federal Reserve tightening would continue to weigh on cryptocurrency prices.
The Bloomberg Galaxy Crypto Index, which tracks the value of a variety of cryptocurrencies, has fallen almost 20% since the start of the year, while the yield on 10-year Treasuries has climbed by about 25 basis points.
“Blockchain is now driven by all the excessive money printing that’s going on in the world,” said Morehead, whose company recently opened an outpost in Puerto Rico that has become a haven for people. crypto investors.
In a letter to investors last month, Mr Morehead called the US government and the mortgage bond market “the biggest Ponzi scheme in history”.
As to whether technology has realized Mr. Briger’s vision of disrupting the banking system, he said the process has begun, but there is still a long way to go.
“It’s like email in the early 1990s, when it was very clunky,” Briger said. “No one could imagine at that time what instant communication would mean for commerce and the world.”
Mr Morehead said he was no longer interested in betting on the traditional assets that defined his early career and has not invested in anything other than crypto since 2013.
“Crypto is so much more compelling than any other trade out there.”
Updated: January 23, 2022, 5:00 a.m.