Bitcoin has broken above $57,000 as the crypto frenzy continues. Pantera Capital CEO Dan Morehead joins Yahoo Finance Live to discuss.
Video Transcript
ZACK GUZMAN: Welcome back to Yahoo Finance Live. In this week’s Crypto Corner, we’re taking a look at all the major moves in the crypto space, starting here with Bitcoin and the way that that’s been trading mostly sideways in that $57,000 range. When you back up, though, and look at the historical price of Bitcoin, one commodity pricing model is catching a lot of eyes for how accurate it’s been in predicting where Bitcoin’s price could go. It’s called the stock to flow model.
And it usually is applied to mine commodities, like oil, taking into account the rate at which you’re adding to the supply, AKA flow, which, interestingly, can be applied to Bitcoin for the way that that is, quote unquote, “mined” and is also looked at as a commodity whose rate we know at which it’s being added to the ecosystem in terms of the block reward given to miners for confirming transactions. We know that last year, that reward dropped to 6.25 Bitcoin.
And our next guest says when you crunch the numbers, the model says that Bitcoin could hit $115,000 per coin by August. So let’s bring him in. Pantera Capital CEO Dan Morehead joins us right now. And Dan, appreciate you coming on here to chat the forecast. Talk to me about stock to flow and where you’re seeing it shaping up here and why you’re so confident that that number is right.
DAN MOREHEAD: Yes, so it is like commodities. There’s a certain amount of Bitcoin that are created. Every 10 minutes, a certain number are created. In the beginning, it was 50 Bitcoins every 10 minutes. And then every four years, that number is cut in half. So we’ve had three times in Bitcoin’s history that that halving event has happened. And each time, it has a lesser impact because there’s more stock outstanding. But you can use that to imply what would happen in this current halving.
And then the first halving in 2012, there were only 10 million Bitcoins outstanding. And we were taking 1.6 million out of the flow for the next 446 days. That’s the average peak. And then the second halving in 2016, obviously, it’s half as many are being withdrawn from the system. And there were then 15 million Bitcoins outstanding. So it was only about 5% of the stock of Bitcoins that were reduced in supply.
This time, the halving again, half as big an impact on the number of Bitcoin. And there’s 18 million bitcoins outstanding when the halving happened last May. So it has about one-third as big an impact. Using those ratios of the size of the halving relative to the price impact in the previous two, we calculated the implied price for the end of this halving period, which would be August of this year.
And in our April investor letter a year and a bit ago, we put a forecast out for the price of Bitcoin over the next 15 months. And April last year, we predicted that Bitcoin would hit $62,968 in the middle of April. And it did exactly on time. So when people say, oh, this is crazy, you know, I push back. I don’t think it’s crazy. It’s– I’ve been doing this for 10 years. It’s actually very predictable.
ZACK GUZMAN: Yeah, it’s just wild to see how closely that matched up, going back to your investor letter last year now a year later, almost exactly to the day. When we look at maybe the way that Bitcoin now is playing into portfolios, we talk a lot about it because it’s the biggest one. But we are seeing some pretty impressive moves from the likes of other alt coins out there. Dogecoin catching a lot of attention, but also Ether in the way that it’s being utilized in the DeFi space. Talk to me about how important those things are now as you track the portfolio of your guys’ funds and the way that you’re building out those.
DAN MOREHEAD: Yeah, I think it’s really important. Back in the day, Bitcoin was everything. There were no other cryptocurrencies. And then, you know, for many years, Bitcoin really was a great proxy for the industry. But there are dozens of really important projects now. So from an investor standpoint, we recommend that people have exposure to a basket of different blockchains. Bitcoin now represents about 46% of the total market cap. As recently as four or five months ago, it was 70%.
So in the last three or four months, Bitcoin has been stable. Bitcoin is at the same price it was in late February. But Ethereum is double. And other cryptocurrencies have done very well. And for example, our liquid token fund that trades all the tokens that are tradable, it’s up 430% year to date, when Bitcoin itself is only up 89. So there’s lots of opportunity outside of just Bitcoin.
AKIKO FUJITA: Dan, I want to get back to the formula you laid out, the calculation here, that the price rising $200 per new million users. You’ve said that if you follow that formula, Bitcoin would essentially be fairly valued at $700,000. What’s the caveat here? What do you think could derail that?
DAN MOREHEAD: You know, I don’t think there is. It’s an amazing relationship where two data series, the number of people using Bitcoin and the price of Bitcoin, have gone up five orders of magnitude, which is just a staggering amount, and the ratio or the relationship between those have been utterly constant. Each data point, with one exception, has hit exactly on time. And it does make some sense that the more people that use Bitcoin, the more valuable then that work is. It’s just kind of Econ 101, supply and demand.
And if you forecast that out, it would say that Bitcoin would hit 200,000 next year, 2022. That seems reasonable. We’re on pace to do that. And then the 700,000 number is taking the number of people that have a smartphone. That’s the only requirement for using Bitcoin, is the possession of a smartphone. So with 3 and 1/2 billion people on Earth, at some point, a decade from now when they’re all using cryptocurrencies, that would imply a price of around 700,000. And that actually seems reasonable. That’s about 15% of global M2. I think Bitcoin and other cryptocurrencies will be a very important version of currency in the future. And being 15% of today’s, it’s definitely doable.
ZACK GUZMAN: Yeah, I mean, when we look at Doge, I wonder how much that could be applied there, just because the sheer size of the network and community there around the project, as even though it started as a joke. There’s a lot of things I want to ask when it comes to that. Because I was also looking at correlation between Dogecoin and Bitcoin. Maybe not surprising to see it not as highly correlated as these other alt coins to the price of Bitcoin, given that it was created as a joke. But when you look at it, how important might that be when you think about diversification in the crypto space to finally have an alt coin that could be useful for something like that?
DAN MOREHEAD: Yeah, so Doge is a fun story to talk about because it was created as a joke. And now it’s been around for a long time. And it appreciates, so it’s gained some credence as a store of value. And an analog I would use this is, there’s a lot of modern art like Marcell Duchamp’s journal or Jackson Pollock dripping some paint on some canvas that, you know, might have started out kind of edgy, kind of ironic, and ended up worth hundreds of millions of dollars. So Doge could easily be like that.
AKIKO FUJITA: We’ll see how much further it has to run. Dan Morehead, Pantera Capital CEO, it’s good to talk to you today.
