Finding 1,000x Assets & Asymmetric Returns | Dan Morehead of Pantera Capital

we should buy Bitcoin now at $65 from Dan Morehead this email is dated July 5th 2013 your brief thoughts were I'm going to buy 30,000 Bitcoins this weekend with personal money the fund can have this purchase or not as others which give us the context in the lay of the land at that time when you wrote this bitcoin's a serial killer like it is going to rip through so many different Industries but the only important part of that line is it will do it serially and the hard thing in our space is that it's not going to do it all overnight but it's probably going to

take 10 years to compete with VC MasterCard welcome to bankless where today we explore the frontier of asymmetric assets this is Ryan Sean Adams just me here today David is out and I'm here to help you become more bankless the question for today's episode that I think you should be thinking about is how do you find an asset with a,x asymmetric returns at least a profile for that how do you find something like Bitcoin early Our Guest today morit has made his career on

asymmetric Investments he's got this letter to investors from July 2013 and I think it's legendary the email subject line is titled in all caps very timely we should buy Bitcoin now at $65 over the next two years his fund then proceeded to buy almost 2% of all the world's Bitcoin Supply and at the time this was a massively contrarian bet it was hard to raise the funds it was hard to even purchase the Bitcoin itself his fund is now up 1,000x since then I think there's a a lot to learn from Dan's

story like both about Bitcoin history but also about the pattern recognition required to identify something with asymmetric returns something like Bitcoin in the early days we start with the story of why Dan decided to make a big bet on Bitcoin in 2013 and then we talk about where he thinks crypto and Bitcoin the entire asset class is headed over this next decade price predictions four-year Cycles versus super Cycles how much upside is still left in crypto the Trump administration his thoughts on a

strategic Bitcoin reserve and many more topics let's get right to the episode with Dan Morhead bankas nation very excited to introduce you once again to Dan Morehead he is the founder and CEO of panta capital if you're not familiar with Dan he is a certified OG let me tell you so panta was one of the the very first investment firms particularly from the institutional side to focus exclusively on bitcoin and crypto so at the time of recording we're here to celebrate a big milestone which is Bitcoin is now trading above 100K which is amazing Dan funded uh founded panta I

should say in 2013 and so pant's Bitcoin Fund in terms of percentage to to date lifetime percentage to date has been a whopping 131,000 per okay growth lifetime increase so obviously we wanted to bring Dan on talk about 100K the future talk about how we got here Dan welcome back to bankless hey Brian thanks it's great to be back on so I I was thinking of you because I get the uh the panta investment memo and um I I I saw

enshrined inside of that investment memo was an email that you wrote in 2013 when you're just getting started and the the subject line is fantastic I screenshotted this I put it on Twitter it says very timely we should buy Bitcoin now at $65 from Dan Morehead this this email is dated July 5th 2013 give us the historical context for that date this time this email in which your brief thoughts were uh I'm going to buy 30,000 Bitcoins this weekend with personal money the fund can have this purchase or not as others

which I just want to get involved give us give us the context in the lay of the land at that time when you wrote this no it's great it's fun um uh in March of that year um my friends Pete brigger and M novag grats who I I went to college with and we worked at Goldman together and and they founded Fortress Investment Group call to ask if I want to talk about Bitcoin um my brother had mentioned it to me a year or two before and I'm a Libertarian so I was thinking it'd be great if it happened but I

didn't actually do anything um and so when Pete and Mike called it was great because you know it was something that was cool uh and I thought it'd be wonderful for the world if it really happened but I hadn't actually you know lifted a finger to help uh and I went in for a coffee uh in their office in San Francisco and the last of like four hours I was just like so mesmerized with all the stuff we were talking about and I actually stayed in the office uh for years um Pete offered me space in in

their offices and we ultimately they became part of our our GP for a while uh and and I think we probably stayed like six years or something like that so I went in for a coughing stay for six years um because it was so compelling and and so as we thought about it um you know it just seemed like an incredibly asymmetric trade and that's what I had done in my career I'd previously been the head of macro trading at Tiger management when Julian Robertson was you know a very fantastic investor looking around the world for

trades that had way more upside than downside right risk and reward go together you're never going to find quote Arbitrage or anything that's risk-free you always have to take risk and what I'd been trained at Tiger and and um Penta actually was found in 2003 we started the crypto part of it in 2013 so what I've been doing for all those years before is looking for things you know where obviously there's a lot of ways you could lose your money but if it worked it could go up more than that and

um I had been working our previous trade at panta actually uh was Tesla Motors I had met one of the founders at a dinner you our little community of Woodside California his kids went to the same local public elementary school with my kids uh and he told me about an electric car um I was like wow that sounds dicey right like and I had um actually one of our partners at p a guy named Ryan glance used to be the number

one II Institutional Investor Auto analyst for a long time he was a partner with me at Tiger and then moved to California and we work together at panta he still edits our investor letter and still a fantastic uh partner for us he um was an auto expert and so you know I I called him as soon as I got the idea to invest and Tesla and he uh he told me a fact that I love that prior to Tesla Motors the last auto company to go public was Ford Motor Company like

everybody else failed all the John DeLorean and whatever you know like it was just a zero chance anybody could ever make a a car company to work so ultimately we did a bunch of work and uh I had that view on Tesla that hey it's it was a couple billion market cap at the time great idea really cool if it worked it could go way up right and the fun fact is there were there was a period in 2013 that Tesla Motors and Bitcoin traded the same price per share and so we were very big in Tesla and

then we decided hey let's let's swap that in and we literally sold all of our Tesla Motors and went all into Bitcoin at the time so it was very paired uh trade but it's very similar so the punch line of that very long thing is looking for trades like that they're very asymmetric the upside is way more than the downside and although Bitcoin has gone up a ton I still think it's true I still think you know yeah could it could definitely go down um you know we've lived through three down 85% bare markets I don't

think you could do that anymore but you know it could go down a lot but it really still could go up in order of magnitude right and there's so few Investments out there that actually could do that and so when uh Mike and Pete and I sat around and thought about it you know um I was I just spent you know I got sucked in I just you know people say you know got Rabbit Hole I just couldn't think of anything else and I essentially haven't traded anything but crypto since 2013 because it's so

captivated I still think you know we're we're in the early days of of this huge thing and the reason I love it is there's so many things that crypto can do you know um when you have a new technology everyone always wants an analog to the old school world right like SMTP became electronic mail even though it really does things they totally different than snail mail and so everyone's always trying to come up with a new word for things and so Bitcoin and other blockchains have been

called cryptocurrencies um a lot of people call them Commodities the cftc calls them Commodities um but you know they're a wholly new thing that has h hundreds and hundreds of use cases and that's why I'm you know so excited as an investor it you know really is going to rip through so many different um use cases and I guess one other analog would be is you know when you have technology that's incredibly uh disruptive they call it a category killer bitcoin's a serial

killer like it is going to rip through so many different Industries and but the only important part of that that line is it will do it serially and you know I think that's them the hard thing in our space is that um it's not going to do it all overnight right like Bitcoin and other blockchains are really good at some things right now but it's probably going to take 10 years to compete with visc Mastercard or you know some of these other applications that they'll ultimately get to ultimately definitely definitely um but you know there are

some things that they're not good at yet you know and um so you know it's I still have that view it's we're really early um you know feels like the internet turned 50 last year right like I mean bitcoin's still a teenager right it's very young still got a long way to go um and I think it is still one of those trades where although it's definitely risky and you know you should only invest as much as you could afford to lose 80% of um you know it's probably going to go up a lot more than it d i I

want to kind of get into the the way you think because you're calling it a trade right and some people think of a trade and they think of oh something I like day trade or something something on month trade but like you're talking about a trade in the context of you've been holding this thing for like uh 13 years plus I I want to get inside your brain and how how it thinks so it's interesting to me about the the founding story of panta where you guys actually started in in uh 2003 and so you you've already been in place for a decade looking for asymmetric upside opportunities and there you see in 2013 the Bitcoin trade and then you have the

conviction to buy in size at that time to write an investment memo like the one that we're looking at and and which is basically saying hey if you guys you like come come with me or not I'm buying 30,000 Bitcoin like right now and in 2013 to 2015 you guys proceeded to buy 2% of the world's Bitcoin so you did this with conviction you did this with size I think there's a lot of like investors look obviously everyone listening wishes they had more Bitcoin that's a thing that we all wish we also wish we had the skill to recognize asymmetric upside opportunities what's

the pattern there how do you how do you get the conviction on an asymmetric upside opportunity where where do you just see that because you know some people will look at this and they'll say Dan got lucky I don't I there's always an element of luck involved to investing I don't know what you call it but maybe it's luck maybe it's something else but you also have this pattern of identifying asymmetric upside opportunities how do you do that can you teach that to us well I do I do like you using the word pattern because I think it is pattern recognition like if you've seen these things happen you know time

and time again and I've actually been doing this for about 40 years I'm I'm uh I started on Wall Street 1987 so 36 years um and uh you know went through uh you know big SNL crisis went through you know financial crisis uh investing in Commodities in the 80s Emer markets in the 90s uh and so that is one of the reasons I've had probably a better position than some of the younger people investing in the space in that I think I've seen this movie before like I

was a Goldman when they did the gsci and now everybody considers Commodities to be an asset class um I was doing Emerging Markets investing in the 90s and now em is an asset class in in 2006 or seven panta launched the first fund to invest in the GCC countries the UAE and Saudi Arabia from the West First Western fund to do that everybody thought that was super crazy because it seemed really exotic and different now everyone thinks you know

the Mina region as a you know completely normal place to invest um so that's been the pattern oh and I went to I went to Russia when Gorbachev was still the premier and invested with some Partners in gazprom uh in their privatization and you know so always looking for these kind of you know interest the frontier I mean all of these things are the frontier asset classes Frontier uh in 2000 we did a fund to uh invest in Argentine Farmland after their um C penultimate crisis they they have they

have one often you know so it's just looking at things that are kind of off the run or not normal uh and again you know if we want to come all the way back to present and blockchain I think it's still true for blockchain that very few institutions really have a real siiz position right like is is still Frontier it's A3 trillion dollar asset that's still Frontier which is really weird I've never seen one like that um and so so it really is this pattern of having seen this cycle a bunch of times thinking about how this disruptive blockchain

could be um and in a couple of the subsequent memos that I wrote over the next few months listed out all the the use cases and and how it's going to compete with gold and it's just starting to do that right now it's that's super exciting thing to talk about today uh but you know ultimately it's going to compete with Visa Mastercard uh it's going to compete with you know all the big uh remittance companies that charge migrants an entire month's wages to move money across the border which Bitcoin can do super easily and super cheaply and so when you add up all those

different use cases you know the the value the ultimate value of crypto is just so much higher than it is today and that that's why you know in our business there's a huge race of for pundits to come up with the craziest forecast for the price of Bitcoin I don't know where it's going but it's going so much higher that we don't really have to think about it you know what this might also help people to get into your pattern recognition skill with asymmetric opportunities C could you just describe in 2013 what it was like to try to buy Bitcoin

in the the type of size that you're you're talking about cuz so I I purchased my first crypto Assets in 2014 and so a year after like uh you were doing some of this not in size uh like not like this and I remember like how sketchy it felt I opened up like accounts on like you just five different exchanges I didn't really know what was happening the websites was like janky it felt like I was doing almost like some back alley type uh deal and for a lot of investors at that time they they would see all of that as reasons to stay far

far away they're bearish given that you somehow I navigated through all of this and uh came out bullish uh on the other side but what was it like to purchase Bitcoin in the size that you're talking about back in 2013 well yeah it's so different than it is today and if you remember local bitcoins.com where you'd like meet somebody that that was too sketchy for me I was like I never did that yeah I mean it's like literally one of the best ways to get crypto back then is

meeting some random person in some you know random area and trying you know Hand Cash and get Bitcoin so it was really hard and that's the thing people don't really appreciate how much the world's changed um we were potentially going to do this fund uh as a part of a bigger public companies uh brand and so we tested out all the syst systems had all the funds set up you know made sure everything really worked but that company ultimately decided not to do it

so we had to do it as a panta branded product with with not much notice because the price uh of Bitcoin had fallen 50% which it you know often does and we really wanted to get it launched and so we we um had accounted a couple exchanges but we you know frankly hadn't tested any of them and so when uh the price of Bitcoin at 65 I was like man this is just it we've got to go and it's have done this so many times I was like this has to be it got to go so we um decided to launch and buy it was over

Fourth of July weekend and um we' sent money we'd totally try to prepare and we'd sent money to a couple exchanges we had everything dial we'd be we had our our funds you know we really had it all tested we thought I guess we hadn't really done that one last thing to try and buy a few Bitcoins so we go in and I was using this little startup nobody ever heard of and trying buy some Bitcoins and there was a popup on the screen that said our limit was 300

bucks you're trying to deploy what Millions couple Millions yeah and so in in Wall Street sometimes people use word bucks to say Millions I mean this was like $300 us like we couldn't buy anything and and so then I said and it was a trendy little startup so they didn't have an address a phone number they just had like a little help email address so I hit that and I wrote in uncharacteristically all caps I'm trying to buy $2 million with their

Bitcoins and hit send you think you get a reply right sure because they nothing was happening at their little company at the time four days later their only employee a guy named Olaf uh wrote me back and he said okay oh no that was it sorry we started out our limit was $50 yeah one you lies Grant per day and they upped it to 300 and I was like dude I'm trying to buy $2 million of Bitcoin and um it would

taken 6,000 days or something like that it would have taken forever so luckily we'd already sent money to louana Slovenia to bit stamp and um I totally hear you Slovenia the country Slovenia yeah spell that out on a wire transfer right right feels super sketchy and the the manager of the branch came over and was totally hassling me like what's his for who are you what are you doing and what's Bitcoin and that's you know it just sounded so sketchy uh and it

that even that like that was like an hour to send a wire like I had to sit there and like talk to all the managers and all that stuff and the funny thing is I've I I've since spent a lot of time in Slovenia and it's a very lovely country to the right of Venice and Below Austria right but at the time I was like wow this money could be gone right and so so uh we sent a bunch of money there and luckily that worked and we did a bunch of Trades with bit stamp we ultimately became their only shareholder for a long time and um I was a chairman

of bits samp for six or eight years and they're super nice people and great group of people uh but it was really hard really hard because the startup you were talking about couldn't fulfill the order they they block small like literally coinbase had one employee that was the startup right it's coinbase you're talking about coinbase sorry I forgot punchline it was coinbase they had one employee I went and visitting them they were in a split level condo over in you know by the ball park in San Francisco that looks sketchy too I bet I mean honestly yeah like you know you're

trying to meet a company you're going up to somebody's apartment like you know it's 17f or whatever you know it's all so funny and which was and honestly I thought it was great I love that whole era that was a super fun ER all these very creative people uh I went over to Slovenia with Pete brigger and we met the team and and um and bit stamp and ultimately you know we became investors uh it was super fun uh meeting people and like for example I flew all the way to Tokyo to meet the two guys that were running mount go and um obviously wait

when you were buying I'm just like hazy on my timeline here because I came in a little bit after Mount Cox blew up when you buying blew like 85% of the market cap at the time okay so that was still when you were buying yeah okay gox was still operational had not yet you know been wrecked yeah GX was massive and um a little fact that's not well known is uh a person who was a venture partner with us for a while Jed MB who's one of the founders of Ripple labs and uh

Stellar he created M go right he's a genius he's created so many three massively cool projects but then he sold it to mark carelis and um had nothing to do obviously with with the blowup but this a great example of like you just got to do the work I before I sent all the money I was going to fly over and like see who we were talking about and so I went all the way to Japan and I met uh Mark and one of his Lieutenant guys I

spent two days there because we're going to send millions of dollars to these people and um none of it made sense the stuff they were saying I was like man this just doesn't feel right like they're either incompetent or fraudulent I I I haven't followed it since then but I think it seems like they were both but um I was just like I can't send any money here these guys super sketchy even though they were dominant like it it was so everybody was trading it there so we did decide to send money to a little

startup that's now called coinbase and to bitstamp which is the oldest Exchange in the world it's been around since 2011 mates and Doman the two guys in found of that were way ahead of their time um so uh all that was Mega sketch oh and you know I mean as you know Mount go just like they couldn't do wires in the US because the Department of Justice had shut them down yeah like you know literally like and um you know it's just all kinds of wild west type stuff

happening and it was you know it was it was fun but and so you know we flew around and actually met you know went to all these countries and met people in person cuz so easy to kind of sense what's going on I think this is what sort of uh if if people are looking for patterns in the future for this asymmetric opportunities um you like they they should expect to be having to machete their way through a jungle here right it shouldn't it shouldn't feel feel easy right the the the clu is where you have to go fly and you see sketchy people and you can't wire the funds that

you interpreted that as bullish you know like we weaker investors would interpret that as I can't do it I'm done it's bearish the whole asset class doesn't make sense they don't have these wires but like it was to you as an indication of how early uh we actually were can can you talk about so if that was the the the the way to purchase Bitcoin at that time how did you get investors on board I know your your memo talks about um doing you flew all around the world and did 170 investor meetings that year the some result of that effort we could only

raise a million dollars so talk about trying to raise the capital from people in this like magic internet money sketchy drug deal money type of thing which is which is Bitcoin where you just like like trying to evangelize and they just kept telling you no and how did how how did those meetings go and how did you persist well so a couple cool threads in there is the first one is you're right like if you want to make outsize returns you can't be investing in things that every Wall Street firm has like 20 animals covering right

headphones are doing it right like by then most of the alpha is is out of the industry so you really you know at least my Styles i' love these things that nobody's focused on yet and there're still kind of funky or whatever um and and we even have a little tagline at the bottom of our investor letter that says put the alternative back in alts and I really think that's true is when I started hedge funds in 1991 or whatever they were super different like hedge funds were really edgy alternative and now there's you know trillions of

dollars of hedge funds and they're all kind of the same right and so that's why I think blockchain should be in somebody's portfolio it's alternative still right like it's different when most hedge funds are the same but so the funny thing is that that story you're quoting that's not 2013 that's three years later oh really that's the that's the real 2016 this was during kind of the winter of it it's like you know we got in we evangelizing trying to get people to invest in in

Bitcoin and blockchain and our Venture fund and everything that was three years later we're still doing it and nobody wanted do CU this is because gaw blew up there was like ative 90% you know drop in bitcoin price that was the era of you know it's all about blockchain not Bitcoin there these private ledgers no one believed in a public chain no one believed in Bitcoin the asset yeah so uh there have been three of those Cycles so you know I can't say oh yeah that was the one because it's happened three times where the bitcoin's gone down 85%

it just happened you know two years ago or whatever Bitcoin traded 16,000 at like two years ago right so uh so in the first of those Cycles um we started investing at $65 it went to a th000 and then crashed and it was down from 2014 to 2017 so in 200 and we you know came to work every day and did our job but like nobody really cared uh and in 2016 did 170 investor meetings we raised one

million do nobody cared everyone's like oh isn't that that thing that died or you know Mount gox or Silk Road guy you know just all the fud that people been saying all the time you know all that the management fees from that entire Year's worth of work was $ 17,1 32 so it was 100 bucks a meeting and that was hard right like so many people said no and frankly it's still kind of the same obviously we're raising more money in

larger scale these days but I still have that same feeling that so many people haven't said yes yet right like they will and so there's still just I I I feel like we really are still at the beginning of it like very few people there are very few institutions out there who are just max long right you know that they really couldn't put any more on most have zero or a tiny bit of it what was your pitch for crypto and

blockchain and Bitcoin then in 2013 and then in 2016 what is it now is it the same pitch or has it changed yeah that's funny um either I don't have any new material or the old stuff's still good and so it's still the same like and that's why I want to share uh my original thoughts in our letter um that is on our website or Twitter if anybody wants to see it but uh because it's still the same like I I get this a ton where you tell people about the fixed

quantity of Bitcoin and you know so it can't be debased by fiat currency and you know all the stuff and then people like it's just like buying gold and I'm like no it's like buying gold in a th000 BC right like Gold's been great for 5,000 years but it's passed itself C by date and digital gold is the new version of of gold right and so that that's why I got so excited you know ear originally in 2013 still is that Bitcoin is going to replace gold

Bitcoin is going to replace remittance company it's going to replace be MasterCard you know all these huge use cases and I'll admit it's going to take 20 years like it's not going to happen overnight and so um it's going to take a long time but it will happen and that's another reason I'm super convicted it's inevitable blockchain is inevitable right like it might take longer than I think and we might invest in some companies that burn through all their money before it happens or whatever like there's definitely risk but there's no chance migrants going to

pay a month's wages to send money across the board 5 years from now right like no chance and you're not going to pay 300 basis points to swipe a credit card like those things they're they're over I don't know if it's take 10 years to be over or like a year or two but like that's why I love staying long in the space is it it will happen like you know big changes are are certainly happening but over the next 20 years big change will happen where where are we now I think a lot of people looking at this uh you know asset class are um they they say things like okay

well you know know sure Dan when you bought Bitcoin in 2013 or even you like 2016 there was asymmetric upside opportunity but like they're looking at the price of Bitcoin they're like I missed it it just doubled this year I'm not going to buy something that just like doubled in the year so they think that it's like okay they're on the other side they missed another bubble it's you like it's it's kind of too frothy to to get in now what what how much more upside do you think there is maybe first in Bitcoin and then just like in the crypto asset class as a whole maybe another way to ask that is like what

percentage of the way are we in terms of like Global adop adoption are we talking like 20% are we 50% right now you know higher or lower how do you think about that yeah so I just end this line on CC because I love it in any normal assd class if something doubles this year you should not buy it right because that's overvalued it's totally crazy and they asked like what do you think you know bitcoin's doubles in that wild and crazy I'm like it's not even interesting Bitcoin doubling this year

we've been doing this for 11 years it's done that on average every year seriously our compounding under growth rate of panthera Bitcoin fund is 89% it basically doubles on average obviously every year for 11 years and one pitch is well what if it does it one more year you double your money right like it's it's just not that hard you know and again you only should invest a small amount of your Capital that if it went down 85% your spouse still loves you right that that's the measure huh