Why Pantera Capital Made the Shift to Crypto Investing

Investment firm Pantera Capital made a big shift a few years ago and decided to focus on opportunities in the cryptocurrency space. In this Fool Live video clip, recorded on March 18, Aaron Bush, head of The Motley Fool's Extreme Opportunities franchise, asks Pantera's CEO Dan Morehead why he decided to make this shift several years before cryptocurrencies started to gain serious traction.

Aaron Bush: For those who don't know, Pantera has been around since 2003 and you used to focus primarily on global macro investing. But in 2014, you made a pretty huge shift and now focus on Bitcoin (BTC -0.56%), digital currencies and other companies in this space. Can you just tell us a bit more about why you made this bold shift way back in 2014? What was your mindset at the time?

Dan Morehead: Sure. My career has been a global macro style investing. Lastly, I was with Julian Robertson at Tiger Management. Looking around the world for big disruptions, things that had way more upside than downside. Every three or four years something would come along, Russian privatization or Argentine farmland or Tesla Motors. Every once in a while something would come along that had a very compelling risk-reward asymmetry. In 2011, my brother introduced me to Bitcoin. I read about it and it was only a few pages you could read back then about it and I thought, "Wow, that's really great idea. I hope somebody does it," and I really didn't do anything about it. Then in 2013, a couple of friends of mine, one of them called and talked about Bitcoin because they have gotten interested in it. I came in for coffee and a conference call. Basically, the coffee itself lasted four hours and I stayed the whole day and I've been hooked since that day. It took a few months to really get my head around it, but I came to believe, and I still believe very strongly that it's the biggest disruption of our generation. It is not like some of these other trades I've done, Argentine farmland or Russian privatization or whatever, which were really interesting, but they only affected a very small part of the world, a subset of the economy. Literally, everyone with a smartphone can be part of the blockchain revolution, that's three and a half billion people. It impacts global payments, wealth storage of gold and even currency. It's impacting the biggest markets. Our first fund's up a couple of orders of magnitude already. I think it could go up another couple of orders. It's just a mind-blowing concept, given rates are basically zero all around the world and getting yield is very hard.

Bush: Yeah, that's amazing. Congrats on your success there. I'm curious just maybe to dig a layer deeper, what about the potential disruption order of magnitude change really stuck out to you at the time they give you the conviction to change everything and go all-in on this movement?

Morehead: Yeah, it's a good question. It really was at the time, 2013, it was maybe 200,000 people using Bitcoin at the time, and you'd hear all stories about the Silk Road, all these super negative articles about it. But all bitcoins on earth were worth maybe a billion or two dollars. It seems like it might be the future payment rate of the world. It might replace gold and it might replace Visa and MasterCard. Those risks just seem so outside. It's very similar. I started investing in Russia when Gorbachev was the Premier and the entire market cap of Russia was $12 billion, and it just seemed to me, nuclear superpower with a highly educated population and 160 million people or whatever, it's probably worth more than $12 billion. That is my view today even on blockchain. All the bonds stocks in the world are $200 trillion. Currencies, $100 trillion. Gold is $10 trillion. Blockchain is worth a very small fraction of that. Over the next couple of decades, and it will take a couple of decades, I think blockchain is going to go up literally an order of magnitude maybe two orders of magnitude.