LOOKING PAST TARIFF VOLATILITY[1]

By Cosmo Jiang, General Partner

 

A number of events within crypto and the broader macro environment have impacted the markets this year.  Large macro forces are clearly in the driver’s seat, and risk appetite continues to pull back across most sectors and asset classes.  While digital assets sit at the tip of the spear when it comes to growth investing, they’ve been far from immune.

 

This year started off on an optimistic note, as the political attitude shift toward crypto propelled prices upward from the election last November through January. However, after Bitcoin and Solana set new all-time highs in January, Trump’s inauguration turned into a classic “buy the rumor, sell the news” scenario.  The S&P 500 and bitcoin both came down 15-20% at the lows (although bitcoin has since recovered).  But if you look at the internals, higher-growth and smaller-cap have done worse.  For example, ethereum, the second largest market cap token, is down 47%. This pullback can be attributed primarily to macro factors as well as some issues idiosyncratic to digital assets.

 

 

From a macro perspective, the market is concerned about increased policy uncertainty and stagflation — a combination of slower growth and higher inflation.  Trump followed through on his tariff plans (currently a 90-day pause for “reciprocal” tariffs beyond the base 10%, excluding China), which has lowered consumer sentiment, corporate earnings, and GDP forecasts.  This began with his first executive order at inauguration, but markets didn’t take him seriously until the first set of tariffs went into effect on February 1st — targeting Mexico, Canada, and China.  Each major tariff announcement since then has driven markets lower, ultimately culminating in “Liberation Day” on April 2.

 

While tariffs have been the biggest driver of price action, other headwinds have emerged, like DOGE. DOGE’s impact is hard to quantify, but qualitatively, it’s had a meaningful effect on the mindset of government employees and the businesses that service the government.  Given that government spending makes up 23% of GDP and 25% of incremental job growth in recent years, any DOGE-driven spending cuts will have a real, near-term impact on the economy.  Regardless of whether the policies are good or bad, the pace and magnitude of change are a radical departure from prior administrations.  Markets fear uncertainty, and we’ve seen the default reaction: sell and position more defensively.

 

In addition, from a fundamental growth perspective, equity markets were supported by optimism around insatiable demand for AI hardware.  But that narrative took a hit after the market started digesting the implications of DeepSeek’s achievements.  All AI-related public equities — and AI-related tokens — sold off hard in the aftermath, with many falling over 50%.

 

The digital assets industry has also faced some idiosyncratic challenges.  The first was the bursting of the memecoin bubble.  That downtick began after Trump launched his own memecoin, and it accelerated after the highly publicized debacle involving Argentine President Javier Milei and the rigged LIBRA memecoin.

 

There’s been plenty of debate around whether these events are good or bad — it’s probably a bit of both.  On the plus side, high-profile figures like Trump are bringing attention and new users into the space, inspiring copycats from the Web2 world.  Tokens are the most disruptive form of capital formation we’ve seen, and I’m hopeful this sparks more creative and productive token launches in the future.

 

On the flip side, memecoins reinforce the perception among casual observers that crypto is a joke — rife with scams — and that hurts the reputation of serious builders.  They also siphon liquidity and attention from other tokens.  And because they’re often extractive in nature, once the mania fades, other tokens struggle to recover.

 

The second major idiosyncratic event this quarter was the hack of Bybit, the world’s second-largest exchange.  No customer funds were lost — Bybit was able to cover the hole — but it still dented confidence in the broader market structure.

 

When you take all these events together, you can see how they’ve dragged markets down.

 

Crypto Price Action

 

The sell-off has been broad-based.  The median token was down well over 50% in the first quarter and nearly 100% of tokens have been negative on the year. Note that this price action is analogous to what’s happening in the S&P 500 and its underlying constituents.

 

 

We believe the market is increasingly beginning to focus on tokens with sound fundamentals and we are seeing that play out in relative performance.  Fundamentally sound tokens – those with revenue and cash flows – outperformed tokens with no revenue by eight percentage points year-to-date. Memecoins and AI also underperformed.

 

 

As painful as this may have been, we believe capital destruction in fundamentally valueless tokens is healthy.  

 

Price Action in Context

 

We’ve experienced pullbacks like this many times before.  They are typical in a broader bull run.

 

During the last uptrend from 2020 through 2022, there were five significant pullbacks in bitcoin greater than 20%.  Other tokens saw 40–50% pullbacks along the way. These happen with some frequency, even in strong markets.

 

 

In the current secular uptrend, we’ve seen three such pullbacks — including the one we’re in now.  Each time, it would have been a mistake to get shaken out. In fact, over the last week, bitcoin recovered to $95,000 with most of the gains happening on Wednesday alone.  The ability to endure this volatility is a huge advantage to those with a long-term investment horizon.

 

When analyzing quarterly changes in crypto market cap, major drawdowns are often followed by strong rebounds, as indicated by the arrows.

 

 

Q1 2025 was crypto’s worst quarter since summer 2022, when markets across the board were in freefall.  While the past may not predict the future, significant drawdowns have nearly always been followed by strong recoveries – though the magnitude of the rebound depends on prevailing conditions and, critically, whether the broader trend remains upward.

 

BE GREEDY WHEN OTHERS ARE FEARFUL? :: CRYPTO MARKET OUTLOOK CALL 4.15.2025

 

On April 15th, I hosted a call to discuss my outlook on the crypto markets.  I talked about a few indicators that track market sentiment, which we believed had reached historically significant levels, indicating that some of the worst of the selloff was behind us.  While the markets did, indeed, rally off the local bottom, I wanted to share my thought process around how we were monitoring market sentiment in that moment.

 

“The US Economic Policy Uncertainty Index is at a 40-year high similar to where it was during COVID and otherwise higher than at any time since the 1980s when the survey began, including being higher than during 9-11 and the Great Financial Crisis of 2008.

 

 

“Uncertainty causes risk allocators to pull back. At this juncture you need to ask yourself whether the environment can get even more uncertain, and looking at this historic context it seems unlikely and that instead we are due for a reversion to the mean.

 

“The Crypto Fear and Greed Index takes into account multiple factors such as technical momentum and social media sentiment to calculate an aggregate index score of how greedy and fearful market participants are.

 

 

“During a sell-off, we’ve once again gone into extreme fear levels that we haven’t seen since the depths of the bear market and the collapse of FTX in late 2022.  Any time the markets have gone to this level of extreme, negative sentiment has usually portended a local bottoming of prices and a good point for go-forward returns.

 

“Next is the Bitcoin Futures Funding Rate which shows the balance of how many participants in the futures market are long versus short.  The funding rate for bitcoin futures on Binance indicates that there are more people short than long in this market.  That’s only happened during moments of market negativity in prior cycles and typically preceded a major rally, like it did in late 2023 and late 2024.

 

 

“The final indicator is the AAII Investor Sentiment Survey – a weekly survey by the American Association of Individual Investors shows over 60% of investors are bearish on the next six months.  This has only happened three other times since the survey began in the 1980s, and those were large market pullbacks in 1990, 2008, and 2022.

 

 

“To sum up the market sentiment right now, these charts show that it is already at an extreme on historic standards, whether they’re looking specifically at crypto sentiment, crypto native positioning and leverage, or just broader retail investor sentiment and policy uncertainty.  The expectation is that we’re probably past the initial stages of aggressive selling based on that sentiment.”

 

– Cosmo Jiang, General Partner, Crypto Market Outlook Call 4.15.25, watch it here

 

MACRO IMPACT ON CRYPTO

 

Rates And Liquidity Picture Is Supportive For Risk Assets

 

At the same time, favorable rates and liquidity conditions are supportive of risk assets.

 

The 10yr treasury yield is steadily declining after hitting highs in 2023, and even more so in the last few days. Rates have stayed higher for longer and may continue to do so amid high inflation, but more important, the overall direction is downward. The Trump administration – and Treasury Secretary Bessent in particular – have talked about the importance of getting the long-term rate down, and their policy actions are aimed at achieving that goal. Lower long-term rates are crucial for the US to keep financing its spending, and they are also good for risk asset valuations.

 

 

Global liquidity conditions are also continuing to increase. After a period of tightening, there are now stimulus measures being put in place in both Europe and China. We may be on the cusp of a switch to quantitative easing. Treasury Secretary Bessent and Federal Reserve Governor Collins have all spoken to this in the last couple of weeks in response to the bond market revolt, as long-end yields have spiked. Their natural response will be to provide liquidity support, at which point the world’s largest economies will be acting in tandem. This increased liquidity is good for risk assets.

 

 

If we plot global liquidity against the price of bitcoin, it is pretty clear that bitcoin’s major upward price movements have been during times of increasing liquidity. And during times of stress, often driven by tightening liquidity, bitcoin has pulled back with all other assets. That’s why we believe rising global liquidity is an important indicator to monitor.

 

 

Crypto’s Four-Year Cycles Through An Alternative Lens

 

This is an historic moment for the global economy: the S&P just saw one of its worst weeks and one of its best weeks – back to back. Generally, bitcoin’s price has had major inflections in response to major macro events, which also typically rhyme with global liquidity cycles. In 2012, it was the Eurozone sovereign debt crisis. In 2016, it was Brexit. In 2020, it was the COVID crash. A lot of people attribute bitcoin’s price cycles to the halving, but an alternative interpretation is that there have been major macroeconomic events supporting bitcoin’s bull case that coincidentally have played out every four years. We are again in one such moment.

 

This latest macroeconomic event is really turning into a crisis of faith for the US dollar. Many people point to rising long-term treasury yields as indication of a bond market revolt, or capital flight as foreign corporations and entities are diversifying away their savings from the US dollar. Bitcoin’s primary function is that it is a non-sovereign store of value. It doesn’t necessarily mean that price has to be stable, but that it is viewed as an attractive alternative and diversifier in an increasingly uncertain world. This de-dollarization certainly supports that thesis.

 

EARLY SIGNS OF RELATIVE STRENGTH

 

We are starting to see signs that digital assets are performing better on a very short time frame. April month-to-date, digital assets have shown relative outperformance versus equities and the dollar. Solana and bitcoin are up while equities are down. It’s early, but it’s possible that, just as digital assets were the first to pull back, they may also be the first to bottom out and rebound.

 

 

Positive Industry Developments Are Overlooked

 

In addition, we should keep in mind that there have been many positive industry developments that have been overlooked amidst price volatility. As far as policy actions, this includes the White House appointing a Crypto Czar and establishing a Digital Asset Working Group, establishing a Strategic Bitcoin Reserve, revoking stringent rules like SAB-121 and the DeFi-broker rule, and the SEC dismissing over a dozen lawsuits against major companies. Arguably, crypto had the most positive headlines in its history, many of which are structural changes, and yet it had its worst quarter of performance since 2018. We believe the good news is definitely not priced in and may just be overlooked by a skittish market.

 

Fundamentals Are Improving

 

Most important, digital assets need real adoption and usage to sustain. Blockchain businesses are now generating billions of dollars of revenue. Real Economic Value – a measurement of the total demand and value capture of L1 blockchains – was $1.5 billion, $6 billion annualized, this past quarter. Total revenue generated by onchain applications was roughly $3 billion, $10 billion annualized, over that same period. Daily active addresses, a proxy for user activity, continues to hit new highs. Stablecoins and stablecoin transfer volumes onchain are hitting new all-time highs as more and more people choose crypto rails for payments and savings products.  At the early stage, innovation continues to be robust across key focus areas for investment – stablecoins, AI, DePIN, and DeFi. We expect these fundamental metrics to trend upward as more people discover the incredible applications and opportunities available to them onchain.

 

 

Concluding Thoughts

 

In summary, this was a challenging quarter, with large macro forces clearly in the driver’s seat and causing a meaningful risk appetite pullback. The biggest overhang continues to be the uncertainty around tariffs and their impact on the global economy. The picture remains highly uncertain, reflected in historically-low sentiment indicators. However, these sentiment signals would also suggest that we are likely past the most aggressive selling point.

 

After we get past this tariff-driven volatility, I believe investors will start to appreciate all the long-term positive tailwinds and strong fundamentals, and I still expect a strong year for digital assets.  As the tip of the spear in growth assets, crypto was the first to pull back but also may be the first and fastest to rebound.

 

 

MARCO SANTORI JOINS PANTERA AS GENERAL PARTNER

 

We are pleased to announce that Marco Santori, leading attorney and crypto industry veteran, is joining the firm as a General Partner.

 

Marco has shaped innovative policy, scaled large teams, and advised the world’s most-sophisticated financial institutions. At Pantera, Marco will focus on expanding the firm’s crypto portfolio, while acting as a resource for portfolio companies on regulatory compliance and strategic growth.  He will continue his pivotal role in engaging with policymakers to advocate for clear, innovation-friendly regulations in the U.S. and globally.

 

Most recently, Marco served as Chief Legal Officer at Kraken, one of the world’s largest cryptocurrency exchanges, where he built the company’s legal and government relations teams and testified before the United States Congress. 

 

Prior to Kraken, Marco was a partner at Cooley LLP, leading its blockchain legal practice, and is widely recognized for developing the “SAFT” (Simple Agreement for Future Tokens) framework, a cornerstone of compliant token sales.

 

Follow Marco on X and on LinkedIn.

 

 

KATRINA ON BLOOMBERG :: CRYPTO IN THIS NEW ERA

 

Pantera Chief Legal Officer Katrina Paglia appeared on Bloomberg TV to discuss crypto policy developments in the new Administration and their potential impact on innovation in the sector with Bloomberg reporters Sonali and Mike.

 

 

Sonali:  “When you look at what’s been possible so far under the Trump administration, it’s been very clear that the stance taken by the prior SEC is no longer. However, you did not see that much movement otherwise yet. And you can see it in the price of Bitcoin, how much it’s fallen since November 5th. Or it’s marginally higher at this point compared to where it was. What do you want to see?”

 

Katrina:  “We have these macro headwinds happening right now, right? The tariffs are what they are. There’s no way that the crypto industry isn’t going to respond in some correlation to what we’re seeing with traditional equities. But I think the important thing to focus on is the pullback on Bitcoin in particular was significantly less than what we saw for the equities over the last several trading days. And to me that indicates, one, the support for the industry is still there. And two, it might start being a little asynchronous in terms of how we view it versus traditional equities.

 

Crypto is borderless. So when you think about the impacts of tariffs, there’s not going to be the most material impact. But obviously we’re going to follow the headwinds with the market. But you see this disconnect starting, and I think that’s positive in terms of the buy-in and the overall global acceptance and the other alternative things that you can do with this asset class.”

 

Mike:  “Think about this dramatic 180 in policy we’ve seen so early in the Trump administration.  I’m sure in many ways it makes your job easier to some degree.  But I’m also wondering if it makes it different and difficult in other ways.

 

“I’m thinking about this story today from the Justice Department, basically scaling back what they do when it comes to crypto crimes and what they consider to be in their wheelhouse for crypto crimes.”

 

“Does that make it tougher for firms like Pantera to have to police the industry themselves to do more due diligence and not have the government on the case as much?

 

Katrina:  “To your point, there has been a significant change in policy from the administration since January 20th, right?  All these cases continue to be dropped, changes in terms of staffing at the SEC. The DOJ, to your point, terminated its crypto task force this morning with a pretty aggressively-worded memo, actually criticizing the prior administration.

 

“To answer your question, no, I don’t think it makes anything significantly more difficult in terms of policing. I think that the agencies are still there, the frameworks are still there, the enforcement divisions are still there. I think what we’ve seen is a pullback on the crypto-specific regulation by enforcement of the prior administration.

 

“And I don’t think that’s a bad thing. I think that’s going to foster innovation and that’s going to allow us to build the right rulemaking framework with the right partners at the table going forward.”

 

You can watch the discussion here.

 

 

Sincerely,

 

@cosmo_jiang

 

“Put the alternative back in Alts”

PANTERA CONFERENCE CALLS[2]

 

Our investment team hosts monthly conference calls to help educate the community on blockchain.  The team discusses important developments that are happening within the industry and will often invite founders and CEOs of leading blockchain companies to participate in panel discussions.  Below is a list of upcoming calls for which you can register via this link.

 

Early-Stage Token Fund Investor Call

Tuesday, May 13, 2025 12:00pm Eastern Daylight Time / 18:00 Central European Summer Time / 12:00am Singapore Standard Time

Open only to Limited Partners of the fund.

 

Pantera Fund V Call

An overview of Pantera’s fifth venture-style fund that offers exposure to the full spectrum of blockchain assets.

Tuesday, May 20, 2025 12:00pm Eastern Daylight Time / 18:00 Central European Summer Time / 12:00am Singapore Standard Time

Please register in advance via this link:

https://panteracapital.com/future-conference-calls/

 

Join us in learning more about the industry, the opportunities we see on the horizon, and our funds.

FUND V SUBSCRIPTIONS ARE NOW OPEN

 

We’ve found that most investors view blockchain as an asset class and would prefer to have a manager allocate amongst the various asset types.  This compelled us to create Pantera Blockchain Fund (IV) in 2021, a wrapper for the entire spectrum of blockchain assets.  We are now opening its successor — our fifth venture-style fund, Pantera Fund V — for subscriptions.

 

Similar to its predecessor, we believe this new fund is the most efficient way to get exposure to blockchain as an asset class.  It is a continuation of the strategies we have employed at Pantera for twelve years across twelve venture and hedge funds.

 

 

Limited Partners have the flexibility to invest in just venture (Class V for “Venture”), or in venture, private tokens, and locked-up treasury tokens (Class P for “Privates”), or the all-in-one Class A.

 

 

As in all previous Pantera venture funds, we strongly support helping our LPs get access to private deals in this fund.  Fund LPs with capital commitments of $25mm or more will have the option to collectively co-invest in at least 10% of each venture equity, private token, and special opportunity deal that the Fund invests over $10mm in.  There is no management fee or carried interest on co-investments for those with co-investment rights.

 

We will endeavor to offer co-investment opportunities, on a capacity available-basis, to other LPs as well.  These co-investment opportunities are subject to 1/10% fees.

 

We are now accepting subscriptions for Fund V.  If you’re ready to invest, please click the button below to begin the process.

 

 

If you are new to Fund V and would like to receive additional information, click here.  We also invite you to join our next call on Pantera Fund V on Tuesday, May 20, at 9:00am PDT / 12:00pm EDT.  You may register here.

 

 

Pantera donates 1% of revenue from all new funds to 1% For The Planet.

PANTERA OPEN POSITIONS  

 

Pantera is actively hiring for the following roles:

 

If you have a passion for blockchain and want to work in New York City, San Francisco, San Juan, or Abu Dhabi, please follow this link to apply.  Some positions can be done remotely.

[1] Important Disclosures – Certain Sections of This Letter Discuss Pantera’s Advisory Services and Others Discuss Market Commentary. Certain sections of this letter discuss the investment advisory business of Pantera Capital Management and its affiliates (“Pantera”), while other sections of the letter consist solely of general market commentary and do not relate to Pantera’s investment advisory business. Pantera has inserted footnotes throughout the letter to identify these differences. This section provides educational content and general market commentary. Except for specifically-marked sections of this letter, no statements included herein relate to Pantera’s investment advisory services, nor does any content herein reflect or contain any offer of new or additional investment advisory services. This letter is for information purposes only and does not constitute, and should not be construed as, an offer to sell or buy or the solicitation of an offer to sell or buy or subscribe for any securities. Opinions and other statements contained herein do not constitute any form of investment, legal, tax, financial, or other advice or recommendation.

 

[2] Important Disclosures – This Section Discusses Pantera’s Advisory Services. Information contained in this section relates to Pantera’s investment advisory business. Nothing contained herein should be construed as a recommendation to invest in any security or to undertake an investment advisory relationship, or as any form of investment, legal, tax, or financial advice or recommendation. Prospective investors should consult their own advisors prior to making an investment decision. Pantera has no duty to update these materials or notify recipients of any changes.

 

This letter is an informational document that primarily provides educational content and general market commentary.  Except for certain sections specifically marked in this letter, no statements included herein relate specifically to investment advisory services provided by Pantera Capital Management Puerto Rico LP or its affiliates (“Pantera”), nor does any content herein reflect or contain any offer of new or additional investment advisory services.  Nothing contained herein constitutes an investment recommendation, investment advice, an offer to sell, or a solicitation to purchase any securities in Funds managed by Pantera (the “Funds”) or any entity organized, controlled, or managed by Pantera and therefore may not be relied upon in connection with any offer or sale of securities.  Any offer or solicitation may only be made pursuant to a confidential private offering memorandum (or similar document) which will only be provided to qualified offerees and should be carefully reviewed by any such offerees prior to investing.

 

This letter aims to summarize certain developments, articles, and/or media mentions with respect to Bitcoin and other cryptocurrencies that Pantera believes may be of interest.  The views expressed in this letter are the subjective views of Pantera personnel, based on information that is believed to be reliable and has been obtained from sources believed to be reliable, but no representation or warranty is made, expressed, or implied, with respect to the fairness, correctness, accuracy, reasonableness, or completeness of the information and opinions.  The information contained in this letter is current as of the date indicated at the front of the letter.  Pantera does not undertake to update the information contained herein.

 

This document is not intended to provide, and should not be relied on for accounting, legal, or tax advice, or investment recommendations.  Pantera and its principals have made investments in some of the instruments discussed in this communication and may in the future make additional investments, including taking both long and short positions, in connection with such instruments without further notice.

 

Certain information contained in this letter constitutes “forward-looking statements”, which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue”, “believe”, or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual policies, procedures, and processes of Pantera and the performance of the Fund may differ materially from those reflected or contemplated in such forward-looking statements, and no undue reliance should be placed on these forward-looking statements, nor should the inclusion of these statements be regarded as Pantera’s representation that the Fund will achieve any strategy, objectives, or other plans. Past performance is not necessarily indicative of or a guarantee of future results.

 

It is strongly suggested that any prospective investor obtain independent advice in relation to any investment, financial, legal, tax, accounting, or regulatory issues discussed herein.  Analyses and opinions contained herein may be based on assumptions that if altered can change the analyses or opinions expressed.  Nothing contained herein shall constitute any representation or warranty as to future performance of any financial instrument, credit, currency rate, or other market or economic measure.

 

This document is confidential, is intended only for the person to whom it has been provided, and under no circumstance may a copy be shown, copied, transmitted, or otherwise given to any person other than the authorized recipient.