"Ethereum and DeFi will grow faster than Bitcoin." Here’s why | Interview with Pantera Capital

Bitcoin as a store of value, I think at this point is the uncontested leader. But with Ethereum and with Defi tokens, you know, we think that they're just going to grow faster than bitcoin for the next few years.

Here today with Franklin B. He is the director of portfolio development at Pantera Capital. How's it going today, man?

Good, good. Thanks for having me.

Yeah, thanks for joining Cointelegraph. So we want to kind of dive right into things and just better understand what does Pantera's portfolio look like at the moment.

Yeah, sure. So at Pantera, we've been in the space of blockchain and cryptocurrency investing for years. We really started in 2013 with the first institutional Bitcoin fund in the US that grew into us doing venture investing and early stage token investing and also liquid token investing, which means sort of US trading in secondary markets on tokens that are already live. So today we manage around $5 billion in assets. It's split pretty evenly across all those things. We love investing into companies that help people get access to cryptocurrency and digital assets, whether that's in Latin America with companies like Bitso or in Southeast Asia with companies like Pintu. We also love Defi. We've been investors in Defi for a long time, invested into 0x way back then, invested into 1 inch more recently, and projects like Ondo Protocol that are sort of taking it to the next level with structured products. And we think Defi just has so much more to grow. Lately we've also been really excited about NFTs, at least I have personally. You can see from this cryptokitties we invested into Maker's Place, which they were the key partner for the big Beeple sale at Christie's. That just kind of kicked off the whole craze and we think it's just the tip of the iceberg, so. So I think our portfolio is really just spread across everything that's exciting to us in the blockchain space.

Now, what does that collision look like between the NFT world and the Defi world? What are you guys expecting to happen once that collision takes place?

Yeah, it's going to be super interesting. I mean, NFTs to us are just a richer file format, right? It's taking a really simple ERC 20 frame format that really just tells you the amount of that token that you hold, which address holds it, and says, look, we can attach so many different fields of data to this that can make it more unique. And that's why these tokens are non fungible. And that applies to art and content media. But it goes far beyond that, where today we're talking about mostly borrowing and lending and DEFI with sort of non distinguishable capital. Right. $1 or 1 eth looks the same as the other. But when we start talking about more unique assets, whether that's real estate, property or collateralized securities, then that really opens up DEFI into a whole new world of just more complex transactions. But also because it is becoming more complex, it's transactions that can serve a greater number of people. And that's really cool too, because defi today there's maybe a million people that are really using it, hopefully. But really it's a billion or 6 billion or 7 billion that we really want to start using it.

So what would it take for DEFI to become more accessible, whether that be to retailers, institutions, what would it take to have something like that happen?

Yeah, I mean, I think there's still a lot to be done around things like wallet security. Right. Just making it more of an embedded experience with the things that we're used to today. Right. So one of the things that's still pretty much untapped in our world is just the use of our mobile phones to access crypto. Right. You've got Metamask, who has a mobile wallet. You've got Phantom Wallet as well. And I think that's really just V2 of what a wallet eventually needs to become. Right? And the more it grows beyond just the browser extension version of a wallet, the more powerful and more secure it can actually be. You can take advantage of things like biometrics, the way you log into your phone with your fingerprint or your face id. That all is super useful actually for making DEFI secure enough for mainstream users to use.

When it comes to the process for determining how much of Pantera's portfolio should be allocated to specific assets, what does that process look like?

It's a good question. I mean, a lot of it still is really similar to early stage venture in the sense that it's all based on our view of the future. Right. How much do we think Ethereum is going to be a part of that multi chain universe, or Polkadot is going to be a part of that multi chain universe that we see coming. But I think when we consider our portfolio versus say others that are more focused on Bitcoin or more focused on a single chain, for example, I think one of the differentiating factors is that we think there's absolutely going to be a multi chain world. It's just a matter of the time, the resources, the capital that needs to be invested to make that multi chain world much easier to use than it is today. Where to go from Bitcoin to Ethereum through wrapping or through trusted bridges is incredibly hard and still not as decentralized as it can be. That same thing applies to moving from Ethereum to polkadot to near. And so the more we kind of work those out, the more that becomes a possibility. So when we think about portfolio allocation, right, it's placing our bets to say, look, to what extent do we think a new chain can potentially be additive to Ethereum in that universe, Whether it's bringing higher transaction throughput or a layer two on top of Ethereum and saying, okay, what's the expected value of that? Let's bet on our conviction of what we believe there.

So Bitcoin, Ethereum and then defi tokens. Out of those three, which ones do you feel like have the highest potential in the next five years?

In the next five years, I think we're going to see all those do really well. Bitcoin as a store of value, I think at this point is the uncontested leader for the simple fact that it's been around the longest and it's the most secure way of accomplishing what it's trying to accomplish, which is a single ledger that shows who owns how much. Bitcoin from a technology standpoint, if you boil it all down, that's the simplest sort of manifestation of what a store of value should do. But with Ethereum and with defi tokens, we think that they're just going to grow faster than bitcoin for the next few years. I think the reason for that is because we're seeing so much developer attention there. Once you unleash the energy, the creativity of developers, it goes far beyond just sort of the supply and demand dynamics that are what drive Bitcoin's price. Right, because then you're talking about a whole new pie rather than, I think, taking market share away from the alternatives asset class or taking market share from people who own gold.

Okay, now when do you expect this next bear market to hit and what will that look like? Is this going to be 2017 event where we have a blow off top? What are you kind of seeing from where you sit?

Yeah, I mean, I don't know when the bear market will happen. You know, my sense is that we're definitely towards the latter half of this bull cycle. Right. Just in this, just because I think we're seeing so many new entrants come in, so many people who are speculating about what the future of DeFi NFTs is that I think just in terms of thinking about where we are in the cycle, there's always going to be that, right? There's always going to be speculation that goes beyond the fundamentals in any early stage technology, not just blockchain technology, because people just start to grab onto the optimism, the hope of what the technology can do and then eventually that resets, right? Eventually people say, well wait, we raced a little too far, let's dial it back a bit, go back to building and developing and actually launching products that will achieve all those things. And so that cycle I think we've seen in the past be somewhere around every three to four years. So I'd say probably fair to say we're in the latter half of that now. In terms of what the bear market will look like, I think it'll look totally different. It'll look totally different from past bear markets because there's a lot more products to use today, right? In the past, you know, we hadn't seen any layer 2s launched yet. In the last bear market, the only sort of relevant layer 1s to talk about really didn't have any developer activity outside of Ethereum, near zero. And today I think we're seeing ecosystems like Polkadot and Solana actually get escape velocity from Ethereum's developer ecosystem. So what that means is that that developer activity is going to continue regardless of where the price is. So in the last bear market we saw prices tank, unfortunately, but we also saw a lot of silence that followed and I don't think that's going to be the case anymore. Number one, I don't think we'll see prices tank as much as they did in the past because we have a lot more longer term holders, institutional holders today. And number two, because it isn't going to go as quietly as it did before, there's going to be a continuous stream of new products, new innovations that come because developers have so much more to work with today.

And what are some things that Pantera Capital is doing to prepare for the next bear market? Is there anything special going on?

Not really. Not really. I think we can try to stay awake at night thinking about the next bear market, but ultimately we're in this for the multi decade journey, right? So spending too much of our brain cells on that isn't going to be that productive, really. I think what we want to spend our time on is finding the best teams that are building the most important things in this space. Right. Whether it is companies like Alchemy that are building the developer platform that's going to enable all of that creativity on multiple chains, or if it's companies like Bitso that are really day by day helping more people in places like Latin America to access digital assets and hopefully find financial empowerment through that. So, you know, that's the most important thing that we can be spending time on at Pantera Capital.

So what I'm hearing, I guess, is that there's people that you're looking to invest in, there's impact that you're looking for in potential projects. What other kind of metrics or things are you weighing into that equation in regards to what makes a good and sound investment for Pantera?

Yeah, I mean, it's all about the team, which is probably what every kind of venture investor will tell you. But I think what's different about investing into projects in crypto is that you have to actually pay attention to two other things, the community that is surrounding that project, both because it brings more developer attention to it outside of the core team, and that accelerates development so much faster. And the other is just how quickly that team is reacting. It's not just about the resume, it's not about the pedigree of what you're bringing from Facebook, Apple or Google, which oftentimes can kind of cloud your judgment even on how things should work in an open source ecosystem. It's also about just how much you're reacting to the innovations that are just happening day by day in DeFi, a new protocol to integrate with a new type of liquidity pool that you need to think about whether or not to incorporate. So the best teams that we get to invest in are just shipping day by day, completely new innovations to their protocol, their project. And that's what we're looking for.

And as we've seen in DeFi, a week might as well be a year long in regards to that innovation pipeline and timelines. So if those projects aren't keeping up and constantly pushing those boundaries, we've seen kind of what can happen.

Exactly. I mean, when you think about the way software, traditional software gets developed in a closed source ecosystem, it's very much a hibernation. Right. It's hey, we've got this idea, let's go to Silicon Valley, raise money for it and then go heads down for 912 months to make it real, do a big launch to everybody. And that just doesn't work in DeFi. Right. 9 months 12 months. If your product vision hasn't changed every single week in some way that takes advantage of everything happening in the open DEFI ecosystem, you're just already behind.

And so I do want to kind of circle back with this whole bear market idea and that potential impact on different niches inside of crypto, whether that be DeFi NFTs, you know, regular trading tokens.

What.

What niche will be particularly impacted the most?

Hmm, good question. I would say it's always going to be the earliest ones that get impacted the most, because that's where the biggest sort of gap is between the fundamentals of what the technology and the products are capable of doing and where the price has gone. Right. And I would say NFTs are still in a much earlier stage than DEFI today. And so that'd be. My answer is NFTs probably will suffer quite a bit in terms of the average price of certain NFTs, NFTs or certain classes or collections of NFTs. But that's okay because that really has nothing to do with the applications that can still be built on top of NFT technology. And that's going to continue. So thinking about price too much in that respect is always going to distract you from, I think, what's really going on. But I think the underlying principle is just, you know, the amount of speculation relative to fundamentals is going to be what's driving kind of the impact of a bear market.

So is the NFT market a bubble?

A bubble. You know, we throw around the word bubble a lot. I would say that we're constantly in a bubble in crypto because there's still so much to build. Right. And so anytime we talk about a bubble, we're talking about speculation. Way outracing fundamentals to the point where people are just speculating because they think someone else is going to buy it at a higher price. Right. That's pretty much a traditional bubble. You know, that is the cycle that we've seen in crypto because we're still so early. That's the main sort of takeaway I always am getting from anybody talking about a bubble is, hey, that's great to hear because it means we're still early. There's still so much more to invest in, there's still so much more to build. So I'm fine being in a bubble because it just means that it's bringing more attention into the space. And the more attention there is, the more developers are going to learn about what they can potentially build. And that's what we need.

Yeah, and I think a lot of people don't understand how early we are still inside the crypto space and it's really refreshing to hear that long term outlook of you and Pantera Capital is so important to remember and keep in perspective at times. But my last question here for you today is what is your BTC price prediction before the end of year?

Let's see, someone's definitely going to say a million so maybe I should try to outdo them and say 2 million. But no, I mean I think it's totally reasonable to think that Bitcoin is going to double during this market cycle. I think that's really reasonable and to think that Ethereum is going to triple during this market cycle. So that puts Bitcoin at 100,000, Ethereum at 10,000. I feel pretty comfortable with that.

Awesome. Well we appreciate your insights today. This is Franklin B. The director of portfolio development at Pantera Capital. Thank you for joining Cointelegraph today.

Thank you so much for having me.