Hedge fund Pantera says it’s ‘time to seize that moment’ for $500bn Bitcoin DeFi opportunity

Bitcoin is poised to unlock a $500 billion decentralised finance opportunity, according to Pantera Capital.

In an investor note, the hedge fund said that while the world’s leading cryptocurrency has not tapped into DeFi as much as its rival Ethereum, this may change as the market turns more bullish.

“Technological unlocks and macro trends are converging towards a breakthrough moment for DeFi on Bitcoin,” said Franklin Bi, partner at Pantera Capital, in a note this week. “Now is the time to seize that moment.”

“Bitcoin’s age of neglect may finally be coming to an end,” Bi added.

The note comes as Bitcoin is back trading at levels not seen since late 2021. It passed the $52,000 mark earlier in February.

The recent surge has been driven by Wall Street’s embracing the cryptocurrency through spot Bitcoin exchange-traded funds, the upcoming halving event in April, increased regulatory clarity, and the macro-economic conditions, Pantera Capital wrote.

“[The] convergence of these positive things will provide strong tailwinds,” Dan Morehead, CEO of Pantera Capital, said in the note.

Bitcoin’s $450bn DeFi opportunity

DeFi applications built on Bitcoin represent an “untapped half-trillion dollar opportunity,” Bi said.

He extrapolated that figure from Ethereum, where DeFi applications — such as Uniswap — make up between 8% to 50% of Ethereum’s total value, Bi said.

That means Bitcoin DeFi applications could end up being worth between $72 billion and $450 billion, according to Bi’s estimates.

He likely based his calculations on the total value of Bitcoin before it climbed above the $1 trillion line on February 14.

Using Bi’s calculations, the upper end of the total value of Bitcoin DeFi applications could now be worth over $500 billion, provided the value doesn’t change.

Traders are already putting bets that Bitcoin may beat its all-time high price by June, with the most popular options contracts pointing to a price of $70,000.

Why would Bitcoin DeFi happen now?

People have expressed interest in building DeFi solutions on Bitcoin in the past, but have been held back by the inflexible nature of the blockchain, Bi wrote.

He listed three key developments that have supercharged Bitcoin’s DeFi future: The 2021 Taproot upgrade that expanded the amount of data transactions can store, which enabled for Ordinal inscriptions to in January 2023.

That in turn led to BRC-20 tokens that were a type of Ordinals that enables deploy, mint, and transfer functionality, Bi said.

“The unleashing of fungible and non-fungible assets kicked off the first waves of DeFi and NFT activity on Ethereum” back in 2016 and 2017, Bi said, adding he sees similar early signs “bubbling to the surface” across the Bitcoin ecosystem.

Moreover, the failure of centralised services like FTX, BlockFi, Celsius, and Genesis soured an entire generation of investors’ trust in centralised financial services, which could lead them to look for new DeFi opportunities, Bi said.

“A decentralised financial system may finally be emerging with Bitcoin at its foundation,” Bi said. “Its potential is similar or greater than DeFi on Ethereum today, albeit following a different evolutionary path.”

Eric Johansson is DL News’ news editor. Sebastian Sinclair is a markets correspondent for DL News. Have a tip? Contact them at eric@dlnews.com and sebastian@dlnews.com.