Rethinking Institutional Bitcoin Investments

Photo of Pantera Capital CEO Dan Morehead

Dan Morehead,
Pantera Capital

I might have been hasty in my last post regarding being bearish on institutional investments in bitcoins. After interviewing Pantera Capital CEO Dan Morehead for Trader Magazine’s current cover story, I refined my views a bit.

Buy-and-hold asset managers will still find investing in the digital currency directly difficult. The bitcoin market remains relatively small, highly fragmented, and illiquid from an institutional investor’s perspective.

Even Pantera Capital trades with other large bitcoin investors over the telephone like any other thinly traded market.

However, buy-and-hold investors might be able to turn a profit from the bitcoin market if they invest in the bitcoin-enabling companies like many did with the Internet-enabling companies in the mid- and late 90s.

Many bitcoin-enabling companies popped up around 2011 and 2012, when bitcoin prices rose 700%. In the following couple of years they’ve received investments from angel investors, start-up funds and hedge funds like Pantera Capital.

If many of these earlier investors hold their positions for the typical three to five years before exiting them or launching an initial public offering, professional investors should see a lot of institutional friendly investment opportunities starting around 2017.

How large might this potential market be?

According to Morehead, venture capitalist invested approximately $350 million in these bitcoin-enabling companies last year, which is a far greater investment pace than Internet startups saw in 1995.

He also estimated in April that the total market capitalization of these bitcoin-enabling companies surpassed the digital currency’s then $3.1 billion market capitalization.

Once again, it is more about investing tangentially into the bitcoin market than directly.