Crypto investment firm Pantera Capital released a ‘Year Ahead’ letter to investors on Jan. 23, in which it disclosed data showcasing the blockchain industry’s resilient nature.
CEO of Pantera Capital, Dan Morehead, shared an overview of the company’s outlook on 2023 in which he stated;
“Blockchain’s resilience in the face of a terrible macro market for risk assets and historic idiosyncratic disasters is impressive.”
In comparison to the biggest companies in the tech industry, Bitcoin has outperformed Tesla, Meta, and PayPal over the past 12 months. Pantera’s data, however, cut off on Jan. 17, meaning that it does not account for the continued rally in Bitcoin’s price. As of press time, Bitcoin is now down 48%, putting it ahead of Square on the below chart.
In the letter to investors, Morehead stated that he was not surprised that Bitcoin had performed so well, citing his experience of three previous bear markets. Further, he revealed that he believes the bottom of the market has already been and gone.
“I believe that it has already bottomed and we will see blockchain assets continue their 13-year 2.3x per year appreciation trend soon.”
The resilience of DeFi over CeFi
Joey Krug, the CO-CIO of Pantera, shared his outlook for 2023 in the letter, calling 2022 “probably the biggest year of upheaval in crypto history.” Comparing 2022 with 2014, Krug compared the crypto projects that failed last year to those that collapsed following the first Bitcoin halving. Specifically, Krug remarked, “many projects and companies that exemplified the antithesis of crypto’s fundamental principles blew up.”
Krug went on to identify a core issue within many ‘crypto’ companies that have thrived in recent years. Crypto is built on permissionless technology and was always designed to remove the need for trust. However, many companies that failed in 2022 required users to trust them – a trust that seems to have been exploited.
“Actual crypto — like on-chain, smart contract, protocol-based crypto — really mitigates these problems because you don’t need to hand all your money over to one entity that claims, trust us.”
Further, Krug took a shot at those who argue against the relevancy of smart contracts and the issues of ‘risky’ DeFi lending. Assuredly, he pointed out that “it’s not the computer program’s fault if your loan doesn’t get paid back” due to a poorly designed smart contract.
Amid failing centralized exchanges, Kurg noted that decentralized exchanges that were involved in lending to “largely unknown counterparties didn’t blow up.” In an industry that has been heavily tested throughout the past 12 months, it was CeFi that “blew up,” not DeFi. The companies utilizing blockchain technology to secure their lending activities continued operating 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 the space is clearly in a much better position than ever.” The improvement in the underlying infrastructure and developer tools was praised by Pantera’s CO-CIO, who believes the world’s financial systems will eventually all be built on blockchain rails.
“The average person will have apps on their phone that give them access to DeFi, where they’ll be able to engage in financial transactions without banks/brokers, with lower fees, global liquidity, and markets operating 24/7.”
Work throughout 2023 and beyond should focus on making DeFi as easy as possible and increasing liquidity in the ecosystem. Krug highlighted that these issues will “take another two to three years to be solved.” Therefore, his outlook for 2023 is that it will be a time to build.
Blockchain sector breakdown
Paul Veradittakit, a General Partner at Pantera Capital, also summarized his views with a breakdown of crucial 2022 metrics. The chart below shows the level of investment across the crypto industry, revealing DeFi and Gaming as the sectors with the most significant deal count.
Pantera is highly bullish on the crypto space in 2023; it noted, “we believe this is a tremendous time to start a company in the blockchain space.” Further, the letter revealed $121 billion that was raised in the first half of 2022 is now awaiting deployment to the crypto sector.
The full letter includes a detailed review of 2022 and can be found on Pantera’s website.