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Pantera Capital says more crypto meltdowns likely

The U.S. Federal Reserve has created a “self-inflicted disaster” with its “twin policy errors,” Pantera Capital’s chief executive officer Dan Morehead said.

Fast facts

  • Keeping overnight rates too low for too long was a mistake that the Fed is now beginning to slowly correct, Morehead said. 
  • Not reducing their massive bond holdings in “any meaningful way” is the “more destructive” of the two policy errors, he said.
  • The Fed has bought government and mortgage bonds equaling over 200% of all mortgage lending in the U.S. in the past two years, Morehead said. 
  • That has led markets to be overvalued by US$15 trillion relative to the 50-year average real rate, he said.
  • “I’m very concerned that the Fed doesn’t seem to have any sense of what is causing inflation — their own manipulation of the mortgage market,” Morehead said.
  • As the Fed starts to unwind, it will drain excess liquidity in the market, leading to asset prices correcting, he said. 
  • Meanwhile, in crypto, “the cascading collapse of major projects exposed the incredible amount of excess leverage in the system,” Morehead said.
  • That could lead to a few more “major meltdowns” in crypto in the next month or two as every “bankrupt leveraged entity leaves a string of problems for their counterparties,” he said.
  • “Once it’s very clear that the market’s bottomed, then it will make sense to rotate out of Bitcoin back into higher risk, higher reward alts (alternative investments),” Morehead said. 

   

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