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Pantera Capital: High interest rate environment might force equity investors to opt for crypto

Pantera Capital: High interest rate environment might force equity investors to opt for crypto
Justinas
Baltrusaitis
7 months ago
3 mins read

Dan Morehead, the CEO of cryptocurrency-focused hedge fund Pantera Capital has said the ongoing correlation between stocks and cryptocurrencies will be short-lived. 

Morehead, through the company’s Blockchain Letter stated that the cryptocurrency sector would likely grow at a faster rate because the asset class stands out in a rising interest rate environment. 

According to the executive, the correlation was a direct reaction to investors absorbing the tapering measures by the Federal Reserve. 

He acknowledged that although the crypto sector is not necessarily cash-oriented, it acts like gold, getting an upper hand over traditional assets influenced by interest rates. 

Furthermore, the hedge fund stated that the ability for cryptocurrencies to move away from equities would be due to the sector’s relatively small market. 

“It’s like gold. It can behave in a very different way from interest-rate-oriented products. I think when all’s said and done, investors will be given a choice: they have to invest in something, and if rates are rising, blockchain is going to be the most relatively attractive,” the executive said. 

He also affirmed that the correlation would decouple in the coming weeks. 

From the start of the year, both cryptocurrency and equities markets experienced high volatility with digital assets largely showing a correlation with tech stocks.

However, assets like Bitcoin have performed better than the traditional asset classes despite the correlation. According to Finbold’s previous report, as of February 13, Bitcoin’s 30-day ROI had outperformed the top six tech stocks by an average return of 12.24%. 

By press time, Bitcoin was trading at $40,400, plunging almost 8% in the last seven days. 

Bitcoin 7-day price chart. Source: CoinMarketCap.

However, Morehead maintained that Bitcoin would flourish in an environment of interest rate hikes. 

Bitcoin trading below 11-year trend 

The company’s analysis also indicated that Bitcoin is currently trading 60% below its 11-year trend. In this line, he assessed that the trend shows that the odds are high and the markets are at an extreme level but will bounce back quickly.

Bitcoin 11 year trend chart. Source: Pantera Capital

Furthermore, Morehead identified some of the coming drivers for interest in cryptocurrencies besides rising interest rates. For instance, he highlighted the U.S. bond bubble, which he predicted would burst soon. 

On declining crypto prices, the CEO offered an interesting view stating that crypto holders might be selling various digital assets to pay taxes.  

The hedge fund observed that in 2021, there was $1.4 trillion in cryptocurrency capital gains, directly contributing to the 2022 market correction.

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Justinas Baltrusaitis
Author

Justin crafts insightful data-driven stories on finance, banking, and digital assets. His reports were cited by many influential outlets globally like Forbes, Financial Times, CNBC, Bloomberg, Business Insider, Nasdaq.com, Investing.com, Reuters, among others.

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