Pantera Capital CEO Dan Morehead joins Yahoo Finance Live to discuss the prospects of the cryptocurrency market when compared to traditional bond market trading, as well as commenting on bitcoin's volatility that could propel its value forward in coming years.
Video Transcript
- We are seeing Bitcoin rebounding today, hovering around $49,000 for the first time in five days. This is Bitcoin's biggest jump since November when it set a record high of almost $69,000. While it has been a pretty volatile month for the cryptocurrency, hedge fund Pantera Capital maintain Bitcoin is a smart investment. And our next guest says it's the most asymmetric trade in a generation and a better investment than government bonds.
Let's bring in the guest himself, Dan Morehead, Pantera Capital CEO. And Dan, I have to tell you, this is a pretty provocative thesis, but one that got me thinking a lot, especially as we talk about the Fed tightening its asset purchases here. Talk to me about this thesis and why you push back against this talk of Bitcoin being in a bubble when you say government bonds are the bubble.
Related Videos
DAN MOREHEAD: Yeah. Government bonds are a $33 trillion bubble. So I had thought for many years that Bitcoin and cryptocurrencies were one of the most misunderstood or not noticed trades out there. And now the bubble that the Fed has created in the mortgage and government bond market, I think is the biggest bubble out there.
It's $33 trillion. It's $12 trillion overpriced relative to the 50 year average for real rates. So when this thing actually unwinds-- And I don't know. It might unwind next week. It might take a couple of years. But when it unwinds, I think bonds are going to go down something like 20 or 30 percentage points. And it's great to hedge that by investing in things like Bitcoin.
- Yeah. I'm going to take that a step further, Dan, because that sounds pretty generous here. But in your report, you say the biggest ponzi scheme in history is the US government in mortgage bond market, all being driven by one non-economic actor with a dominant position who's trading on material non-public information. What do you mean by that?
DAN MOREHEAD: Yeah. So there's really one buyer in the bond markets, the Federal Reserve. They're buying bonds at such high rates that they've driven the 10-year note down to 1.4%. And obviously, if you are along that, the most extreme we could imagine is maybe it goes to zero yield. And so your bond could go up 14 percentage points. But if you hold it and interest rates go back to their 50 year average relative to inflation, the bond, a 10-year note in the US will go down 30 percentage points.
So there's enormous amount of downside relative to the tiny amount of upside you still have. And if you think about it, inflation's at a 40 year high right now. CPI is at 6.8. Normally, bond's yield more than inflation. And now they yield 425 basis points less than inflation. And relative to the 50 year real rate average, they're over 700 basis points through that 50 year average.
So when things revert-- and again, it might take weeks, it might take years to happen-- bonds are going to go down a huge amount. And I think we're starting to see the cracks in it. The Fed has been talking about this forward guidance of what they're going to do years in the future when inflation's already at a 40 year high.
One of my favorite statistics on how manipulated the mortgage market is, the median time on the market for the median home in the United States, and not just hot markets but everywhere in the entire United States, is down to only one week. So the entire housing market in the US is so hot that it takes less than a week for the average house to sell. That means that mortgages are too low and forcing too many transactions to happen.
- So how does Bitcoin provide a hedge against the bond bubble, as you describe it, bursting?
DAN MOREHEAD: Yeah. So the traditional institutional investment portfolio is 60/40, 60% stocks, 40% bonds. If you still have not sold your bonds to the Fed, I think you should. And then buy any kind of real asset, whether it's real estate, equities, gold or cryptocurrencies like Bitcoin and Ethereum.
- And so what should we be thinking about beyond Bitcoin? Because I know that's sort of, obviously, the one everybody knows. But there's so many crypto assets. How do you diversify if it is about moving your money away from bonds into crypto?
DAN MOREHEAD: Yeah. So obviously, Bitcoin is the first blockchain that worked. And it's the largest market cap. It's about 40% of the entire industry itself. But then there are many, many other very important cryptocurrencies. Ethereum is worth about half as much as Bitcoin. And then there are hundreds of really important tokens that are built on top of blockchains like Ethereum or Polkadot or Solana.
And so I think it's good to have a portfolio of positions. It's kind of like in the 90s you didn't want to be a Yahoo maximalist. You know, there were 30 other really important companies. And so here, you don't want to be just in Bitcoin. You want to be in 30 or so other protocols that are important.
- Let's talk about the price action. You know, we were just mentioning Bitcoin bouncing back from the lows that we saw. But it's still well off that record high we saw of $69,000. As we look to 2022, how much upside do you see? And how much of that upside do you think is limited by the regulatory discussions that are likely to take-- I mean, they have been taking front and center, but likely to take hold even more.
DAN MOREHEAD: Yeah. So Bitcoin has historically more than doubled every year. It's gone up 2.5x every year for 11 years, on average. And it's, now, only about double where it was four years ago. So relative to its trend, it's actually 45% below its 11 year trend.
So I think cryptocurrencies are relatively cheap right now. And I think maybe you just hit the nail on the head, that there's so much worry about regulatory risk, that things haven't performed as well as they could. And obviously regulatory risk is hard to predict, but I think it might be overpriced in. And I think Bitcoin will continue its long term trend of going up two and a half times a year.
- Do you want to give us a number, where you think it could go year end?
DAN MOREHEAD: Yeah. So by the end of next year, if it gets back on trend, I think $200,000 is a likely target.
- $200,000. Dan, it's good to have you on today. Dan Morehead, Pantera Capital CEO.