Dan Morehead, CEO and founder of leading blockchain venture capital fund Pantera Capital, said that digital assets will be the “best place” to store capital after the potential impact of the U.S. Federal Reserve’s interest rate hike.
Investors in the equity and cryptocurrency markets are currently fixated on how the Fed can take action to combat rising inflation, which has topped 7.5% this month.
However, the Bitcoin and crypto markets have often moved in line with stock market trends, however, Morehead argued in his Feb. 16 newsletter that bonds, stocks and real estate will bear the brunt of the Fed’s “massive policy reversal” in relation to high interest rates. .
Despite the downturn in the crypto market since late 2021, the CEO suggested that digital assets would be the “best place” to store capital during the fallout from the Fed’s actions:
“I think our markets will separate soon. Investors will think: bonds will collapse when the Fed turns from the only buyer on Earth to a seller. Rising rates will make stocks and real estate less attractive.”
“So, where to invest when both stocks and bonds are down? (They are usually negatively correlated.) Blockchain is a very legitimate place to invest in this world,” he added.
#Bitcoin is down 19% year-on-year – during the period the Fed printed $5 trillion – that seems cheap. Next Mega Deal: https://t.co/kfWepItKpe pic.twitter.com/MgGz2bD6BB — Dan Morehead (@dan_pantera), February 17, 2022
To add to his point, Morehead also highlighted a previous statement he made during a conference call with investors earlier this month in which he pointed out that asset classes like gold and cryptocurrencies do not directly correspond to interest rates like bonds.
“Whereas blockchain is not focused on cash flow. It’s like gold. It can behave quite differently than interest rate oriented products. I think when all is said and done, investors will be given a choice: they have to invest in something, and if the stakes go up, blockchain will be the most relatively attractive one,” he said.
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Morehead acknowledged that while the crypto market seems to have reacted to the Fed’s actions of late, the value proposition of digital assets has remained the same, and the price decline could also be a result of the close of the US fiscal year:
“Some of the pressure to sell cryptocurrencies was caused by unintended tax positions. Imagine a trader actively buying and selling BTC, ETH, XRP, etc. Great year. Made a lot of money. He kept all this in the markets.
“Last year, $1.4 trillion of cryptocurrency capital gains were created. This could be the reason for a decent share of recent sales,” he added.
However, he noted that there could be many ups and downs before the cryptocurrency market starts to rise again.