WBD340 Audio Transcription
Pantera's $115k Bitcoin Price Target with Dan Morehead
Interview date: Tuesday 27th April
Note: the following is a transcription of my interview with Dan Morehead. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
In this interview, I talk to Dan Morehead, a veteran investor and the co-founder & CEO of Pantera Capital. We discuss the Pantera price target, the firm's investment thesis for bitcoin and the impact of inflation.
“My prediction is that Bitcoin will be 213% higher a year from now...that puts it at $200K a year from now, and I know it sounds crazy but I think it’s likely to happen.”
— Dan Morehead
Interview Transcription
Peter McCormack: Dan, how are you, man? Good to see you again.
Dan Morehead: Great, thanks for having me on.
Peter McCormack: Quick quiz; one question; do you remember the price of Bitcoin last time we spoke?
Dan Morehead: That's a good question. I don't, because I get a little fuzzy on it, but it was probably $32,000.
Peter McCormack: No way, man, it was way less. We spoke on 11 November last time and it was $16,000.
Dan Morehead: Oh, yeah, I love that. That is great!
Peter McCormack: Yeah. And since then, we've gone up to $64,000, we've dipped under $50,000 today; it's been a pretty wild ride, man. How are you taking it all in; what do you make of it all?
Dan Morehead: Oh, it's good, it adds for excitement, but we're on a 20-year journey here and Bitcoin does go up on average 213% a year and sometimes it goes up a lot and sometimes it goes down 20%. But, it's just part of the process. It's a young technology; it's going to be somewhat volatile.
Peter McCormack: Yeah. Well, listen, I was reading your update recently, I get your excellent updates from Pantera Capital and you set a summer price target of $115,000 for Bitcoin. So, I want to ask you a few questions about that first. Is that price target still on, do you think?
Dan Morehead: Oh, it is. And that was set actually not recently; that was set a year ago in our April 2020 letter, based on the halvings. And, we're right on track and we've actually been on track almost every month since we published that, so I still feel rock solid on that.
Peter McCormack: Right, so I want to ask you a couple of specific questions, because you said "the summer", so we're seeing anything, what, from June to August?
Dan Morehead: Yeah, we originally forecast 1 August, if we want to get really specific. I'm just saying while it's still kind of sunny and warm in the Northern Hemisphere, if it hits $115,000 I'll be pretty psyched about that.
Peter McCormack: So how did you built this target; how do you guys come up with this?
Dan Morehead: Yeah, so I think this is really important. The halving, as all your viewers know, every four years they cut the number of Bitcoins that are issued in half; and obviously, if you cut the supply of something, it goes up. We've seen that in the commodities market. I used to be at Tiger Management, where we traded all kinds of really interesting commodities and we'd always study the production rate of mines and if mines were being shut in, or if there was some kind of labour disturbance and mines couldn't operate. If you cut the supply in mining, the price of the metal goes up and that seems logical; and it actually happens in Bitcoin.
We've had two halvings prior to this one; 2012 and 2016. So, the first halving was actually massive, because Bitcoin had only been around for four years; there were very few Bitcoins outstanding. And in our study of halvings, the trough before the halving is about 415 days, something like that, before the halving; and then the peak is about the same distance after the halving. So, the whole thing is about a two-and-a-half-year period.
In those previous halvings, the first one there was a cut of 15% of the outstanding stock of Bitcoins' reduction for the next 400-day period. So, it was actually a very large reduction in supply relative to the amount that was outstanding, or in float; and it had a massive impact on the price.
The second halving, in 2016, which was half as big in terms of the number of Bitcoins that were cut out, but there were also quite a bit more Bitcoins in circulation; so, the reduction in supply for that going forward a 400-day period was about 5% of the outstanding. So, it was about one-third as big of an impact on the supply. Potentially not coincidentally, the impact on the price was exactly one-third as big. The price went up a lot, but as third as much as the first time.
So, when we analysed it April last year, this halving I would see half as big a reduction in the number of Bitcoin and then there are even more Bitcoins outstanding. So, it's taking out about 2% of the original existing stock of Bitcoins out of the supply.
So, we used all those ratios and very precise detail to then forecast the impact it would have on price this time. And we forecast the price would go up a little over 10X, which I know in the normal market sounds totally ludicrous, but Bitcoin goes up 10X every two years anyway. So, doing it through this halving didn't seem hard to do.
So, when Bitcoin was about $8,000, we posted a table which is a forecast of each month the price of Bitcoin. And for a while, Bitcoin was a little behind the curve; for a while it was a bit ahead of the curve; and then last week, we had forecast Bitcoin would hit $62,968, and it hit it that week, right on time, which is pretty wild. Obviously we've had a setback, but I still think it's highly likely that we hit something like $115,000 this summer.
Peter McCormack: Yeah, I've got your table here and you measure the weeks ahead; and I've got it here, where is it? By 15 April, you had it down at $62,000, $63,000. And then 15 May, you've got it as $74,000. So, maybe we're just having that dip before we run up to $74,000?
Dan Morehead: Yeah, and as I mentioned, there's even times in the last eight months that it was a little ahead of the case; there were some times it was a little behind the case. So, it's not like a Swiss watch; it can't expect to hit each date on time like it did last week. But, I just think it's way more than a 50% chance that Bitcoin's going to be a lot higher at the end of this summer.
Peter McCormack: Do you just accept these dips like a lot of the hardened hodlers; you just see it and go, "Whatever; it is what it is", or are you trying to read into the date, because there are lots of things happening. For example, I just saw the announcement of, "Potential Biden Capital Gains Tax increases"; do you look at things like that; do you think that's affecting it; or do you just think it's Bitcoin doing its thing?
Dan Morehead: We do. We have three different kinds of hedge funds. One is a Bitcoin fund, so it's just a passive tracker and that one, obviously, we don't do anything other than trying to execute efficiently when new investors come in or people want to go out. But, our other two hedge funds do have discretion, so we're trading early-stage tokens; and then we have a fund that invests in liquid tokens. In those, we are trying to maximise return over time.
So, we do try and catch these downdrafts. This one, we didn't catch. The one in February, we actually got perfectly right. It peaked maybe around 20 February or so, took about 20% of our risk off; the markets came down 27% and then we put our risk fully back on. So, we're trying to add value that way. We've seen it in the returns. Bitcoin's up about 100% year to date and our liquid token fund's up 320% year to date and our early-stage fund's up 360%. So, we're trying to add alpha through active management.
But, the punchline is, we think ten years from now, Bitcoin's going to be a whole magnitude higher, so we're not trying to be too cute.
Peter McCormack: Right, okay. So, with your Bitcoin fund, you don't actually actively trade that at all, so even -- I'm looking, you know, sometimes these Bitcoin cycles become a self-fulfilling prophecy and I'm talking to people and they say, "Well, when are you going to sell some? What price are you going to sell? Is it going to be the end of the bull market in December or January like last time; are you going to sell then?"
Dan, sometimes I think, "Oh, perhaps I could take a little bit off the table then", but I would hate to get something wrong and then four years' time, have less Bitcoin than I had. I don't mind so much not having more, but I'd hate to have less.
Dan Morehead: Yeah, I think that's the thing most people learn, is that for something that triples every year on average for ten years in a row, it's hard to be flat or, God forbid, short for very long periods of time. We do reduce risk for weeks at a time. I remember last March when the impacts of the virus were just becoming apparent. We took risk down; we thought it was prudent. But, within a few weeks, we had decided that the monetary stimulus that was going to come out as a reaction to the virus would be massive and would be unambiguously positive for a cryptocurrency, so we went back to 100% long. So, we do only take risk down for periods of weeks rather than months or years.
Peter McCormack: Okay. Well listen, Dan, one of my favourite quotes of yours, pretty sure it's yours was, "Bitcoin was born in a financial crisis and its coming of age is this one". I probably haven't got that word-for-word correct?
Dan Morehead: No, that's it and I believe that very strongly.
Peter McCormack: So, how are you assessing the crisis we're in at the moment, because it's very different from 2008? 2008, it felt like a gradually, then suddenly, the economy started to collapse around us; banks were collapsing and the crisis just happened. It felt like, to someone like me, it just kind of happened overnight. I wasn't prepared for it in any way. Suddenly, this massive event happened.
But this feels slightly different and I don't know if it's because I'm involved in Bitcoin and everybody else is sleepwalking, but I feel like if there is a crisis, we're already in the crisis; we're seeing it unwind in front of us. How do you feel about it?
Dan Morehead: So, it is important to remember that Satoshi created Bitcoin in response to the 2008 Financial Crisis and the Genesis Block quotes The Times of London's headline about a bank bailout that was really pissing Satoshi off. And it's incredibly quaint to think about how small that bailout was. It was £50 billion. The United States prints that amount of money every four days now.
Peter McCormack: Wow!
Dan Morehead: And to some extent, that's the reason the economic impact of this virus is not as large as the economic impact of 2008/2009. That took about three years for GDP to recover its pre-crisis level. Obviously, it was really hard on workers all around the world. This one, frankly all the cracks are being papered over with paper money and the amount of money is staggering.
In June, the United States started printing more money each month than it did in the first 200 years of our country's existence. That papers over a lot of cracks. So, I would say that's why this one doesn't feel as economically severe. Obviously, there's a lot of psychological trauma from the virus, but the US will probably attain its prior GDP level much quicker than it did in 2008/2009.
Part of it is, you know, you were saying banks were failing, companies were failing; companies aren't allowed to fail anymore. Airlines and all these types of industries, which could have or would have failed, are being bailed out by the government. If Satoshi were active today, you could imagine he or she would be even more pissed off about airline bailouts than he was about bank bailouts.
Peter McCormack: Yeah, it's a tricky one on the airlines, because I wonder, at the start of the crisis, whether they felt like it would be a shorter crisis than they imagined, and these furlough schemes were something they would be having to run for a handful of months. And here we are a year later, we're still in the midst of it. I sometimes wonder if they feel like, "Well we've come this far, we might as well carry on". It feels a little bit tricky to have printed all this money and then to turn round a year later and say, "Okay, fail"; although I think some of them will fail anyway.
I mean, I look at someone like British Airways; I have no idea how they are surviving as an airline right now?
Dan Morehead: Yeah, it's the way capitalism works; shareholders take a lot of risk and get a lot of upside and occasionally have their investments recapitalised basically.
Peter McCormack: Why do you think they're not letting them fail though?
Dan Morehead: It's just arbitrary and I picked that at random. Tons and tons of small businesses are being allowed to fail and all these mom-and-pop shops and mom-and-pop restaurants, so it's totally arbitrary which industries the government chooses to favour and which ones they let fail.
Peter McCormack: But, do you think that's to protect the stock market?
Dan Morehead: Yeah, and it's done a great job, right? If you would have told me a year ago that we were going to have a global depression and the corporate earnings were going to be down 17% and the S&P would hit a new high, I'd say, "That seems very unlikely and the only way it could possibly happen is if you printed literally trillions of dollars of new pieces of paper money". That's the only reason stocks are up.
One point to make is, it's not really that stocks are up and gold's up and Bitcoin's up and S&P 500 and soya beans and corn, they're not all up. The better perspective is paper money is down; everything else is kind of holding steady.
Peter McCormack: Right, but are you accounting for that when you're running your numbers internally at Pantera?
Dan Morehead: Yes. A huge part of the impetus for this rally here, obviously we've been advocating for cryptocurrency for eight years, so we've been very bullish on the technology and how it's going to disrupt a bunch of legacy businesses. But, the pandemic is the thing that really kicked it into a whole new gear.
Peter McCormack: Yeah. It's a really tricky one, because I feel like a lot of people don't really truly understand inflation; I feel it's misunderstood by a lot of people. I feel like certainly among my groups of friends, inflation is one of those things they've always heard about as a natural part of a growing economy; they don't see it as anything sinister. Do you feel like there is that confusion around inflation?
Dan Morehead: Oh, there is for a couple of reasons. One is, there's inflation in different types and not all inflation's the same. So, the governments often measure a basket of consumer goods; like in the US, they have the CPI. That is all stuff that's quantitatively easable, so flat-screen TVs or flip-flops, or all the things in the CPI basket; you can make an infinite quantity of them and there's a lot of slack in the global economy. So, I don't think you're going to see inflation in consumer goods like that.
But, you're seeing massive inflation in hard assets, so real estate or gold or Bitcoin; anything that's not quantitatively easable is having massive inflation. So, to your friends, it depends on what they're looking at. If they're trying to buy a new flat in London, they probably see a ton of inflation. If they're trying to buy some flip-flops, they don't. So, inflation is essentially in the eye of the beholder.
In the 1970s, Milton Friedman was famous for saying, "Inflation is always and everywhere a monetary phenomenon". I love that line today, because what's happening is enormous amounts of monetary stimulus is being created and it's creating inflation in hard assets.
Peter McCormack: I've got that quote straight in front of me here in my notes, "Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output". But it must mean that, what, the government is incentivised to have a bullshit version calculation of inflation to protect their money; is it that sinister?
Dan Morehead: Well, I wouldn't say it's bullshit. They're trying to measure the cost that a consumer encounters in buying the things that they consume each day. But, they're not exclusively trying to hold down the price of other things, like stocks or real estate. And throughout history, you've seen that governments have been very eager to protect homeowners and stockholders. Those are two minority groups -- well, the homeowners are a majority group, but stockholders is a minority group. Those are groups that governments are always very eager to protect.
There used to be a term, "The green's been put", that any time either of those two groups got a boo-boo, the Fed would cut interest rates and that is very true. People on a fixed income or renting are not being served by those policies, but there is a very clear desire to have the stock market go up, the real estate markets go up and you see that reflected in the quantity of money that's being printed right now.
Peter McCormack: But, it's a bit tricky, because it makes for certain groups of people getting in on the housing ladder a lot more difficult if the price of houses is accelerating away from people. So, it just feels like that basket of assets, it may be something that you can calculate that's useful for the standard family's weekly outgoings, but it doesn't feel like a true reflection upon what is really happening?
Dan Morehead: I agree. 35% of Americans rent, so they are not being advantaged by all of this money that's being printed that's driving up the price of real estate.
Peter McCormack: So, where does it all end, Dan? A lot of people are bringing out copies of the When Money Dies book about the Weimar Republic and what happened there. I've read the book and I tried to imagine, I'm thinking, "Well, that can't happen now in the United States or in Europe or in the UK?"
Dan Morehead: So on that point, it happens more slowly. So, all those great photos of the Weimar Republic with the kid and a wheelbarrow and money going to buy a loaf of bread, right, but it does happen and it happens imperceptibly. Your own currency's the oldest currency on earth, but it is connected to a pound of sterling silver for a reason; it used to be exchangeable for a pound of sterling silver.
Peter McCormack: Used to be.
Dan Morehead: They have now printed so many pieces of paper pounds that it takes 184 pieces of paper pounds to buy a pound of sterling silver these days. So, although the average person in the United Kingdom doesn't notice their currency being debased, it is being debased, and obviously it's not happening at the same rate as countries like Venezuela or Zimbabwe, but it is definitely happening.
In the US, one of my favourite examples is, quarters and dimes were silver when I was a kid; they are not silver now! I mean, it's just unthinkable that they could be made out of silver. And pennies were made out of copper; it now is more valuable to melt the pennies and access the so-called intrinsic value of money that people are always saying that Bitcoin does not have. But, it's actually now a felony to melt the money in the United States and punishable by five years in prison. So, there is intrinsic value in metal money in the United States, but it's illegal to access it.
Peter McCormack: Is it in Canada they got rid of the pennies?
Dan Morehead: I don't know.
Peter McCormack: Yeah, one place they got rid of the pennies, somebody told me, because it cost more than a penny to make a penny, and I'm trying to remember. I'm pretty sure -- maybe it was Canada?
Dan Morehead: I'll tell you what's funny. Nickels, or the 5-cent coin in the United States, obviously used to be made out of nickel, but they're no longer made out of nickel, because the nickel's worth more than 5 cents.
Peter McCormack: How do you think this plays out? Is this just going to be a short deflationary event whereby the government's going to print enough money to clear their debt obligations as much as they need and the economy will come back; or do you think we're saying some sort of grand change to money here, especially as we have Bitcoin now?
Dan Morehead: Well, that's the thing. I don't want to make any grand predictions on the future of debt load of any country or whatever. The only thing I do know is that people will start to notice that the paper money is being debased and they need to invest in things that aren't falling in value relative to everything else. So, they're going to pick Bitcoin or other cryptocurrencies; they're also going to pick gold, real estate, you know, those types of assets.
I think it's no surprise that legendary investors, like Paul Jones and Stan Druckenmiller are buying Bitcoin and explicitly referencing that it's like gold in the 1970s, because we had quite a bit of inflation in the US in the 1970s and gold did very well, because of its fixed quantity; there was a fixed number of ounces of gold. So, I think that's how it plays out, and it's not like a light switch where one day, the currencies that you and I have grown up with exist and the next, they don't exist; it's more of a slow, continuum where currencies like Bitcoin become popular for people to store their wealth in it.
Obviously you're seeing now, even corporations like Tesla and MicroStrategy are realising that if they just keep cash, paper money, on their balance sheets, they're going to get zero interest rates and it's going to be depreciating relative to their future expenses. In the future, they have to buy plant and metal and all kinds of inputs to their production and if they have their cash sitting in a depreciating paper currency, it's a bad thing; so, they'd rather have it sitting in something, or being invested in something like Bitcoin that can appreciate.
Peter McCormack: Did that surprise you during this cycle, this expansion into companies like Tesla and Square and such putting their corporate treasuries into Bitcoin; was it something you expected to happen, or has it come as a surprise?
Dan Morehead: Oh, it's been happening because Square did it three years ago. So, there are some pretty forward-thinking companies. I've enjoyed watching it. MicroStrategy was a $1 billion software company, now they're a $7 billion ETF-based Bitcoin ETF. And Morgan Stanley and Blackstone own over 30% of MicroStrategy stock, so it's been fun to watch and obviously, Elon Musk, super high profile marketing genius.
So, buying $1.5 billion of Bitcoin is both a good investment; obviously you and I agree Bitcoin's a good thing to have on your balance sheet; but it just helps them to stay cutting edge and they accept Bitcoin by Tesla now. That's been a dream. Early companies like BitPay, a long time ago, did do some kind of transaction where somebody bought a Tesla with a Bitcoin, because that's marrying the two most meme-oriented things of the last ten years.
Peter McCormack: Well, it looks good for, obviously, MicroStrategy. Michael Saylor looks like a genius. He's massively expanded the value of the balance sheet for MicroStrategy. And even Tesla, it looks like a really great investment. Depending on how the cycle works though, there could be companies who make similar bets, perhaps towards the end of the year, and they end up sitting on that Bitcoin during a drawdown.
Do you think that presents any kinds of risks for the companies for doing that and timing it wrong because, look, we understand Bitcoin, but you and I, we're in this for multi-years; we've been in for years; we've got time on our side, because our investments are already ahead of themselves; we've got that patience. But, perhaps a company would put some money there from their balance sheet into Bitcoin and would they need it in two years and during a drawdown? Do you think that presents some risk to a company with timing?
Dan Morehead: It certainly does. But most of these companies are putting a fraction of 1%, like Square did, or low single digits and so, if Bitcoin went down 50%, it's still a very small fraction of their balance sheet. So, although you and I are very bullish on Bitcoin, we'd never suggest a company puts all their assets into Bitcoin.
Peter McCormack: It feels like MicroStrategy has put nearly all of theirs on?
Dan Morehead: Yeah, they're going for it!
Peter McCormack: So, back on some of the Bitcoin stuff, there are a few things I want to ask you about. We're starting to see this transition as well during this cycle, and I think this comes back to your kind of coming-of-age idea, whereas the banks previously had been pretty hostile towards Bitcoin and now we're seeing a number of banks are showing an interest in Bitcoin.
We've got Mastercard and Apple Pay showing interest in Bitcoin as well. What do you think the transition is here; why do you think this has happened?
Dan Morehead: Lazy businesses always are slow to want to adopt disruptive new technologies; it's happened with every new technology. So, it's not surprising that they didn't rush in. But, cryptocurrency blockchain is definitely very disruptive, definitely here to stay. You have central banks building on them now, so it's obviously very legitimate and it's going to be here forever, so they have to address it at some point. And, they're always doing a trade-off between any kind of brand reputational risk or cannibalising their current businesses, versus trying to stay offering the products their clients want.
Five or six years ago, not that many people cared about Bitcoin, so it was very easy for a legacy finance firm to ignore it. And in ten years from now, I think everyone will have a smartphone instead of using cryptocurrency. So, we're in this kind of middle period where companies can choose whether to get engaged; and you're seeing that. A good example is, Visa is now using USDC and Circle to move money around. That's really, really a cool use case for blockchain.
Peter McCormack: Has your phone been off the hook for the last six months? Have you seen a lot of people you've maybe tried to persuade previously, or talked to them about Bitcoin, maybe not so interested previously but now they're, "Come on, Dan, what's the deal here?"
Dan Morehead: Yeah, it is funny. Basically every single person I've ever met wants to talk to me about Bitcoin, which is great. And you know, big, high profile things like Tesla buying Bitcoin and Coinbase going public kind of forces people to address it. And that's what I've seen in my whole life. Actually, I learned about Bitcoin in 2011 from my brother. I read the whitepaper and I had some libertarian thoughts in my head, so I'm like, "Oh, that would be great if it happened", but I didn't actually do anything. And it took 18 months to get around to actually focussing on reading about it.
As soon as I spent a few weeks reading about it, I was like, "Oh wow, this is going to be big", and I think that's really the path all of us go through, is that I guess there are 100 million people using Bitcoin now, which you and I are excited about because it's a lot more than it was; but 100 million people play Candy Crush, right; it's not that big a number. So, the more high profile things that happen, the more people have to read about it.
I've found the rate of adoption is in the 90% range really. When a smart person actually spends a couple of weeks and reads a lot about it, they almost always end up buying some and then, a couple of years later, they are buying lots and they are really excited about the project.
Peter McCormack: Are the questions changing?
Dan Morehead: Yeah, the questions have changed. That's what's really fun! In the early days it was all like, "What about this Silk Road? There are no custodians and governments are going to ban it [and] we already have the dollar; why do we need another currency?" So, there was so much of that and thank God all that's gone. And even the custodian question's really solved, and that was actually a very legitimate question if you're an institution and you want to invest in a crypto space. There wasn't really a great answer to, "Well, who's the custodian?" So, it's nice to have all those questions put away.
The ones that you still get are, "But, what about regulatory uncertainty?" Volatility's still always a question. Then some people really do have a problem with, "We already have a currency; why do we need another currency?" So, we can riff on any of those if you want, but the nice thing is a lot of the old questions are now put to bed and now, we're dealing with some new questions.
Peter McCormack: Yeah, the regulatory uncertainty one is kind of interesting, because for example here in the UK, we've had our Chancellor announce Britcoin; I don't know if you saw that? That's essentially the CBDC they want to launch. At the same time, we have very little regulatory support for Bitcoin. It's not been outlawed, but derivatives have been banned; and most of the banks, for one reason or another, the big banks are starting to block people from buying Bitcoin.
I lost my bank account, I suspect it's a Bitcoin thing. I know HSBC, NatWest and Lloyds are all pretty hostile to Bitcoin; not only just not allowing people to transfer money to exchanges, but I said to you before we started, they're not even allowing people to buy shares of some companies who are Bitcoin companies. So Coinbase, some people have been banned from buying shares in Coinbase.
That I find really unusual, because I don't agree with it, but I understand the point with regards to buying cryptocurrencies, because in their heads, they've been forced by the government to become essentially law enforcement for some of these things, so they don't want the headache. But, I don't understand blocking a private individual wanting to buy shares in a private company; it doesn't make any sense to me?
Dan Morehead: Crypto profiling, yeah. So, some entities just have a much higher standard against crypto than they do other things. There's obviously risk in all types of securities and assets and cash out there, so you do see some of that. It's declining over time. Obviously, four or five years ago, it was much harsher than it is today. So, commerce will probably smooth all that out; more and more customers will demand it; banks and others will have to offer that service to their clients.
Peter McCormack: Well, it seems we're in a different regulatory position here in the UK than in the US. What is your answer then to people with regards to their regulatory concerns?
Dan Morehead: Generally across the globe, most countries are neutral on Bitcoin. And like you said, the UK doesn't really do anything to help Bitcoin, but generally it isn't threatening it. So, that's what I've seen in most of the countries I've worked with, is that the governments are essentially neutral. There are a few very progressive governments, like Luxembourg. They're trying to make their country better for blockchain. And then, there are a couple of countries that have capital controls and they're trying to keep their citizens from accessing the global markets that are hostile. But, most countries are neutral.
In the United States actually, the agencies have ruled very early on Bitcoin and very favourably. In 2013, the IRS ruled that Bitcoin was property, so you get long-term Capital Gains Tax treatment if you hold it for a year. And, the CFTC's always been very progressive. One of the commissioners came out to my house in 2013 for a conference I had with a bunch of the people in the Bitcoin community and they started doing futures in 2017.
You've had the OCC allows all nationally chartered banks in the United States the custody of crypto. So, most of the agencies in the US have ruled very favourably. Then again, they're not going out of their way to help Bitcoin, but they're certainly not trying to hinder it.
Peter McCormack: Do you think that could change though? Is there any part of you that thinks, "Well, Bitcoin's still not a threat a $1 trillion, but perhaps at $5 trillion?" We don't know how much gold the government holds, because it's a bit unknown; they've never had an audit of the gold. But, perhaps if we saw that transitionary period where perhaps people started moving into Bitcoin from gold and the gold price was dropping, that's actually a threat to the gold reserves of the US Government?
Dan Morehead: Yeah, so the US Government does hold 11 million worker years' wages in gold in a stone pyramid in Kentucky, which is very funny that it's very much like the Egyptian Pharaohs; there'll be piles of gold under a stone pyramid still! I can't imagine anyone in the government is really actively thinking that's a great idea. I mean obviously, we bought all of that gold a long time ago. And the Treasury Secretary and my former colleague, Steve Mnuchin, did go out to see the gold at Fort Knox, so it does exist.
So, I don't know that any government really thinks it's a great idea to -- no government's buying any more gold; that's definitely not a new idea. And then, the idea about whether bureaucrats want Bitcoin or cryptocurrency, probably most of them don't. They don't want something new to deal with; it's a new hassle. But the toothpaste is out of the tube, you can't put it back in, and China is building their own national blockchain and that is an issue. The rest of the world can't sit there and just hope blockchain goes away, because it's not going away.
At our last Investor Summit in 2019, the prior one to the one we had a couple of weeks ago, the Chairman of the CFTC did a speech on China's announcement being America's Sputnik moment in finance and I think that's a great analogue. And for the younger viewers, Sputnik is the Russian Space Satellite Launcher that first launched into space and the West realised we were way behind on the Space Race and got engaged; and that's basically what's happening here.
The United States is six years behind the Chinese in building a central bank digital currency and it has very big geopolitical impacts, that the US exerts a great deal of control with its sanctions regime. And, if there is a payment mechanism that's outside that, certain power starts moving in that direction.
So, I think governments are very engaged and I think there's very little chance that -- most governments, obviously there's going to be an occasional government that has some kind of nationalistic policy that's trying to restrict their citizens from transferring wealth, but most free market democracies, I think there's no chance they'll do anything negative about cryptocurrency.
Peter McCormack: What is your read on CBDCs; are you a fan; do you hate them; do you think they're a surveillance nightmare?
Dan Morehead: It's hard to hate something that does exist and will exist; it's not really a great way to go through life. So, central bank digital currencies will exist and they just do different use cases. They are obviously stable and they're probably more trustworthy than some projects out there, but they're stable with respect to paper currency, right, and that's really the trick, is that paper currency's devaluing at a rapid rate.
I remember early on, Russia announced that they were going to do a Bitruble and a lot of people were super excited about that, but it's going to depreciate at the same rate that the ruble depreciates. And, the US Dollar Coin is going to have some advantages, like right now it takes three hours to send money across Wall Street; Fedwire takes three hours. If I want to send money to the UK, it takes a few days. So, US Dollar Coin will be great. Within a few seconds, I can send dollars to the UK, or send dollars across Wall Street. But, if they keep printing lots of paper dollars, the blockchain dollar's going to go down just as fast.
So, I think it's going to hasten the world's adoption of blockchain technology if central banks launch their own version of digital currency; it's going to credentialize the space; it's going to get more people in the space. So my view is, it's going to make the pie much bigger and obviously, they're going to get a slice and then private projects like Facebook's blockchain are going to get a slice and then Bitcoin's going to get its slice and Eve, Polkadot, whatever; but as you grow that pie to 3.5 billion people, even Bitcoin's slice is going to get a lot bigger.
Peter McCormack: True, but do you not worry about CBDCs and the impact upon privacy? I mean, having complete control of our money by the government, who can switch off our accounts, enter our accounts, take money from our accounts, does that not worry you?
Dan Morehead: Oh no, it does and everyone's going to vote with their wallets, right? They're going to decide, do they want to use the Chinese central bank digital currency, or do they want to use the US central bank digital currency, or do they want to use Bitcoin or Zcash, right? Everyone's going to get to decide where do they want to dial their privacy in.
Peter McCormack: All right. Last thing I wanted to ask you about, because I wanted to get your read on this. Where are you at with regard to ETFs? I know you're pretty plugged into the financial system; where are you at with regard to ETFs; do you think we're getting closer?
Dan Morehead: So, when we launched the first crypto fund in the US, we looked at ETFs, we looked at all kinds of structures and we picked blockchain as a normal hedge fund but with daily liquidity, because we thought it would be a while until an ETF was approved. That was eight years ago, so it's been a very long time.
The previous Chairman of the SEC was very negative about Bitcoin and one of the two reasons for denying an ETF was the supposed market manipulation. I've traded on Wall Street for 35 years; I've seen some really strange things. Bitcoin is not manipulated in any way remotely similar to all these other markets, for the very fact that it is just so massive. Bitcoin trades $70 billion a day on hundreds of exchanges in dozens of countries. There is nothing big enough to manipulate that. There is no Dr Evil from James Bond that's big enough to throw $70 billion around and manipulate a market that is so massive.
By contrast, a good example would be GameStop. Prior to the insanity, it was trading $70 million a day on one exchange in one country with these so-called free trading apps able to turn their customers on or off arbitrarily. Those are manipulatable, right, and those are allowed! Also, at our Investor Summit, which should be up on our website soon, we have a speech with SEC Commissioner, Hester Pierce, and she's been making the point --
Peter McCormack: She's great.
Dan Morehead: She is great. There is a double standard; it is crypto profiling, that the SEC's holding Bitcoin to this incredibly high standard, which again I don't even -- when they say market manipulates, I literally don't know what they're talking about. The market is so liquid and so deep.
On the flipside, they've approved things like platinum and palladium which, when I was with Tiger Management, we used to be very active traders in that. And, there are a couple of huge Russian companies that exert a lot of influence, would be the word I'd use, on the pricing of those metals. Bitcoin's way safer and way clearer.
Then, the last point I make is, when you try and repress something, it doesn't work; people always find a way to do it. So, instead of buying an incredible transparent and incredibly regulated ETF, people are buying like MicroStrategy and Long Island Bitcoin company, whatever, you know. People are investing via really weird ways to get exposure to Bitcoin and it just seems, if we actually are trying to protect the normal retail investors out there, let's have a very regulated Bitcoin ETF; it's just the safest way to let people get invested.
Peter McCormack: Yeah. All right, Dan, well listen, it's always good to talk to you, I always appreciate your time. I'm following your $115,000 target. Have you done any predictions for your end-of-year target?
Dan Morehead: Oh, yeah, that's fun. My prediction is Bitcoin will be 213% higher a year from now. I've been saying that for eight years.
Peter McCormack: A year from now?
Dan Morehead: Yeah. That's its ten-year compound annual growth rate.
Peter McCormack: So, you just stick with that?
Dan Morehead: Yeah. It's been doing it for ten years. All the fundamentals seem fantastic. You've got Morgan Stanley and PayPal and all these people helping lots of wealthy people get invested, so that puts it at $200,000 a year from now and I know it sounds crazy, but I think it's likely to happen.
Peter McCormack: Well if it's at $200,000 a year from now, that will be great and we can get on and we can talk about -- well hopefully, we can do the next one in person. Hopefully, we'll be flying by then, so fingers crossed.
Dan Morehead: Oh, I would love to do that. It would be great to do it in person.
Peter McCormack: All right, well listen, good to talk to you. Appreciate everything you're doing. I love my updates I get from Pantera. I've never joined one of the calls, but I think I might join one of the calls soon, but appreciate all the updates I get through from the company. I was watching some of your videos this morning; is it the CNN one where you got back on with the guy you'd spoken to -- I've got it here?
Dan Morehead: Oh, I love that one; that's one of my favourites of all time.
Peter McCormack: That guy, oh my God, that guy.
Dan Morehead: He's one of the rarest animals on earth; a supposedly intelligent academic that's super negative on Bitcoin. So, yeah, it's fascinating.
Peter McCormack: Who changes their mind? They never really change their mind. Once they put their stake in the ground, they kind of stick with it and Bitcoin gets higher, and I think it's a psychological thing. I think it's too hard for them to turn around and say they were wrong; very few change their mind.
Dan Morehead: Yeah, and pundits don't pay the negative carrier being short. You can say, "I hate Bitcoin" when it's at a low price and then it goes up; it doesn't cost you anything. But, yeah, I'd love to find somebody who's actually short.
Peter McCormack: Yeah. All right, Dan, well look, keep crushing it. Good to talk to you and I'm sure I'll speak to you soon.
Dan Morehead: Great, thanks so much for having me on.
