Hedge fund Pantera says Solana’s surge shows why this crypto rally will be different

Analysts at US crypto hedge fund Pantera Capital wrote in a recent report that the crypto rally was unlikely to be over despite bearish performances across the industry.

Let’s dig into it.

Cooling off

The crypto market has cooled since BlackRock and others launched spot Bitcoin exchange-traded funds earlier this month, ushering in a new era for the industry.

Bitcoin has slumped 20%, falling from $49,000 to below $39,000, while Ethereum is down 16%. Solana, which outperformed on the way up, is now 30% cheaper than its January top.

Various crypto stocks — Coinbase, Marathon Digital, MicroStrategy — have also taken a beating.

Despite the headwinds, crypto is emerging from the 2022 crash with a much stronger foundation than previous bear markets, said Pantera Capital’s managing partner Paul Veradittakit in the report from January 16.

His main argument?

Leading crypto projects today aren’t fuelled by pure speculation — unlike in 2017.

Party like it’s 2021, not 2017

“In hindsight, one can say that was speculative froth and hype on unproductive tokens,” Veradittakit said. “What’s been interesting about this rally is how little change there has been.”

He added that while the 2022 downturn was just as harsh on crypto prices as prior bear markets, it wasn’t due to crypto facing an existential crisis.

Instead, prices crashed because of leverage and bad actors, Veradittakit said.

“That’s why it is not surprising that we see the same projects coming back,” he said. “They were not down because they were not good projects, they were down in sympathy with the overall market.”

“Solana is a particularly good example,” Veradittakit added, referring to the coin once backed by FTX co-founder Sam Bankman-Fried, who was convicted of seven counts of fraud last year.

Solana has experienced a 975% surge since it bottomed in December 2022.

Bitcoin on DeFi rails

Bitcoin ETFs aren’t the only headlines the largest cryptocurrency will make this year, Veradittakit said.

The fourth halving, which will see the network halve how much Bitcoin miners earn to maintain the blockchain, is currently expected in April 2024, he noted.

Halvings have historically preceded hefty rallies for the market’s largest cryptocurrency.

They can also be trying times for inefficient mining outfits: With fewer rewards doled out for their work, revenues can take a beating.

Veradittakit also wrote about a rise in Bitcoin’s newly revived programmability, which could lead to an explosion of DeFi activity on the network.

“There is clearly an enormous demand for Bitcoin in DeFi,” Veradittakit said, citing the $6 billion in wrapped Bitcoin tokens used on other blockchains like Ethereum.

Ethereum had $32 billion in total value locked across its DeFi ecosystem — about 11% of the network’s $280 billion market capitalisation.

Bitcoin’s DeFi play could catch up, he said.

“As Bitcoin DeFi infrastructure matures, we could potentially see Bitcoin [DeFi] rise from the current $300 million [in value locked] to 1-2% of Bitcoin market capitalisation — $10-15 billion at current prices,” he said.

Veradittakit also predicted an explosion in Bitcoin NFT activity thanks partly to the meteoric rise of Ordinals, the network’s take on native non-fungible tokens called inscriptions.

“As Bitcoin has much higher cultural recognition and memetic value, it is possible that web2 brands — such as luxury retailers — will choose to release NFTs on Bitcoin, similar to how Tiffany’s partnered with Cryptopunks” in 2022.

Outperforming the market

Another area of interest was the crossover between traditional finance and crypto technology.

“TradFi assets will be ‘mirrored’ in DeFi, while crypto assets will have increased exposure in TradFi markets, thus creating TradFi-DeFi ‘bridges’ that bring these two worlds closer together for increased liquidity and diversification for investors,” Veradittakit said.

The report also covered the growth of zero-knowledge technology — particularly the merging of zero-knowledge proofs and modular blockchains.

“In the upcoming year, I expect this trend to continue, with zero knowledge proofs emerging as an interface between different components of the modular blockchain stack,” Veradittakit said.

“On the consumer side, zero-knowledge proofs may see increased use cases as a way to preserve identity and privacy, such as in the form of zero-knowledge based decentralised IDs,” he added.

Crypto market movers

• Bitcoin fell 1.36% from Monday to just under $39,000.
• Ethereum dropped 4.28%, to trade just above $2,200

What we’re reading

• Trump just made CBDCs an election year issue. Connecting them to China is his next likely move — DL News
• How privacy coins Firo and Zcash dodged Binance delisting with novel transparency plan — DL News
• US, UK, And Australia Sanction Hamas Crypto Networks In Gaza — Milk Road
• Coinbase CLO Rips U.S. GAO Report On Crypto Sanctions Evasion — Milk Road
• Avalanche Foundation Releases Eligibility Criteria for Meme Coin Purchases — Unchained

Tom Carreras is a markets correspondent at DL News. Got a tip? Reach out at tcarreras@dlnews.com