Crypto investment firm Pantera Capital released a “year ahead” letter to investors on January 23, in which he disclosed data showing the resilient nature of the blockchain industry.
Pantera Capital CEO Dan Morehead shared an overview of the company’s outlook for 2023 in which he said;
“Blockchain’s resilience in the face of a dire macro market for risky assets and historical idiosyncratic disasters is impressive.”
Compared to the biggest companies in the tech industry, Bitcoin has outperformed Tesla, Meta, and PayPal over the past 12 months. Pantera’s data, however, was cut on January 17, meaning it does not take into account Bitcoin’s continued rise in price. At press time, Bitcoin is now down 48%, putting it ahead of Square on the chart below.
In the letter to investors, Morehead said he was not surprised Bitcoin performed so well, citing his experience of three previous bear markets. Furthermore, he revealed that he believed the market bottom had already been reached.
“I think it’s already bottomed out and we’ll soon see blockchain assets continue their 13-year trend of 2.3x per year appreciation.”
The resilience of DeFi on CeFi
Pantera CO-CIO Joey Krug shared his outlook for 2023 in the letter, calling 2022 “probably the biggest year of disruption in crypto history.” Comparing 2022 to 2014, Krug compared crypto projects that failed last year to those that collapsed after Bitcoin’s first halving. Specifically, Krug noted, “many projects and ventures that exemplified the antithesis of the fundamentals of cryptography exploded.”
Krug then identified a central problem within many “crypto” businesses that have flourished in recent years. Crypto is based on permissionless technology and was always designed to remove the need for trust. However, many companies that failed in 2022 demanded that users trust them – trust that appears to have been exploited.
“Real crypto – like on-chain crypto, smart contracts, protocol-based crypto – really alleviates those issues because you don’t have to hand over all your money to an entity that claims, trust us.”
Additionally, Krug has taken a shot at those who oppose the relevance of smart contracts and the issues of “risky” DeFi lending. Surely he pointed out that “it’s not the computer program’s fault if your loan is not repaid” due to a poorly designed smart contract.
Amid failing centralized exchanges, Kurg noted that decentralized exchanges involved in lending to “largely unknown counterparties haven’t exploded.” In an industry that has been heavily tested over the past 12 months, it was CeFi that “blew up,” not DeFi. Companies using blockchain technology to secure their lending business continued to operate while FTX, Voyager, BlockFi and Celsius failed.
Krug attributed DeFi’s success to its trustless nature and more resilient risk management system.
In 2023, Krug noted that “despite lower prices, I think space is clearly in a much better position than ever.” The improvement in underlying infrastructure and development tools has been welcomed by Pantera’s CO-CIO, who believes that global financial systems will all eventually be built on blockchain rails.
“The average person will have apps on their phone that give them access to DeFi, where they can transact financially without banks/brokers, with lower fees, global liquidity, and markets running 24/7. “
Work throughout 2023 and beyond should aim to make DeFi as simple as possible and increase liquidity in the ecosystem. Krug stressed that these issues “will take another two to three years to resolve.” Therefore, its outlook for 2023 is that it will be the time to build.
Blockchain Industry Breakdown
Paul Veradittakit, General Partner at Pantera Capital, also summed up his view with a breakdown of crucial 2022 metrics. The chart below shows the level of investment in the crypto industry, revealing DeFi and Gaming as the sectors with the largest number of transactions.
Pantera is very bullish on the crypto space in 2023; he noted, “we think this is a great time to start a business in the blockchain space.” Additionally, the letter revealed that $121 billion that was raised in the first half of 2022 is now awaiting deployment in the crypto sector.
The complete letter includes a detailed 2022 review and can be found on the Pantera website.