Bitcoin, ethereum, NFT, DAO. Twenty years ago those would have sounded like nonsense words (if they had existed at all), but today they are essential parts of an almost $2 trillion cryptocurrency market.
What started as a new way to exchange money electronically in 2009 has evolved into a technological and cultural revolution. Today more than 10% of Americans own some form of digital asset, according to researchers at the University of Chicago, and crypto is a fixture in news reports and political discourse around the world.
So how did we get here? To answer this, we asked early crypto investors and prominent industry leaders to reflect on their time working in the fast-growing market and share insights on how the market has evolved and where it’s headed next. They didn’t hold back, weighing in on everything from crypto games and altcoins to NFTs and DAOs. Our panel included Dan Morehead, the founder and CEO of Pantera Capital, which calls itself the first U.S. institutional asset manager focused exclusively on blockchain; Jose Fernandez da Ponte, vice president and general manager of blockchain, crypto, and digital currencies at PayPal; and Ali Yahya and Arianna Simpson, both general partners working in crypto at venture capital firm Andreessen Horowitz.
Here’s what they said. (Responses have been edited and condensed for clarity, but strap in, reader—we’re going deep.)
Each of you has been in the crypto game for quite some time. What was it like at the beginning, making the move to invest in this new thing called cryptocurrency? What prompted it?
Morehead: I started my career at Goldman Sachs, first as an asset backed securities trader, and then I went to Tiger Management, where we invested in global, macro-style investing. That’s where you look around the world for disruptive trades that have asymmetric returns with way more upside than downside. Every four or five years, something interesting would come up in the world of investing.
In 2011, my brother introduced me to bitcoin. Back then there were only a handful of things to read about it, and I thought, “Oh, this would be great, I hope somebody does that.” Then in 2013, some Wall Street friends of mine made me really focus on it. I came to the conclusion that it was going to be like all those really disruptive trades that I had done before, but orders of magnitude bigger.
There’s enormous upside, but obviously it’s risky. It could have easily gone to zero at that time, but if you’re risking 1X your money and can make 10X your money—or, in the case of our first funds, 530X our money—it has to be worth it.
Those kinds of trades only come up once in a generation. It just seemed like I should devote essentially the second half of my career to investing in it. So we launched the first crypto fund eight years ago and the whole space has evolved dramatically in those eight years.
Yahya: It felt very much like we needed to build an organization uniquely tailored for crypto. We were at the beginning of what is now a very clear inflection point for crypto as a space.
For the longest time, we have been in the infrastructure phase for crypto. Now crypto has begun to graduate from its infrastructure phase and become ready for the application phase, where the technology is now capable of supporting real applications that can touch millions of users. And it’s only the beginning.
We already have great examples like NBA Top Shot, which has millions of users and hundreds of millions, if not billions, of dollars in monthly volume for the NFTs that are traded on the game. That’s one example. That’s the power of this technology. That’s how to leverage the technology and the kind of power that it can deliver. And that was the motivation for raising all three of our crypto funds, but especially this last one. It feels like the opportunity is about to materialize.
Simpson: My crypto journey started in Zimbabwe. I was there right after the worst of their hyperinflation, and they’d had to basically switch over to the US dollar in order to stabilize the economy. I obviously had heard about the hyperinflation, but you don’t really grasp that until you’re there. It was very impactful to me, seeing the economic aftermath of that situation. So when I came back to the US, I was thinking a lot about monetary policy and what was possible in that realm. A friend of mine was like, “Well, bitcoin solves a lot of this because it’s deflationary,” and I was like, “What’s bitcoin?
So I went and read the white paper and that sent me on an eight year journey into crypto. By that point, I was back in New York and I started working at Facebook. I tried to get Facebook to do something in crypto, but I was four or five years too early, so nothing came of it. I ended up becoming so interested in it that I spent a lot of my free time kind of researching and blogging about it. At that point, the industry was very small, so people started to notice my writing. I eventually realized I wanted to pursue the opportunity full time, so I left Facebook and moved out to the [San Francisco] Bay Area to join a company called BitGo, an early security and enterprise company in the crypto space. I left that to start investing full time.
In 2017 a huge explosion of companies, projects, and new things in crypto happened, so it was obvious to me that all the things that I’d been expecting and hoping would happen in the industry were actually coming to fruition. So I spun out and started my fund Autonomous Partners, which was really geared toward investing across the crypto space. That’s how I got to know the folks at Andreessen.
Tell me about the reaction you received when you decided to pursue crypto full-time.
Morehead: Most of it was that I was totally crazy. The number [of people saying that] is going down, but a lot of people still think I’m crazy. My favorite memory of that era was when I went around and visited all the top [university] endowments. If you say, “I’m going to fly out to your campus and come in and talk to you about bitcoin for an hour,” every single endowment will respond yes. Then you get the CIO, and maybe 10 or 20 other people in a big conference room, and you do the whole pitch for an hour—and at the end, nothing happens. But when you walk into the elevator, half of them pull you aside and whisper, “What’s the minimum?” because they want to invest personally but can’t imagine telling their boss or telling the investment committee. Thankfully, that era is ending and we have a number of very large endowments as investors with many others are getting close to pulling the trigger.
I do think what’s happening is similar to what I’ve seen over the years in the other asset classes. I was at Goldman when they created [the commodity index] GSCI, and that made commodities an asset class. Nobody thinks twice about that now. In the ‘90s, emerging markets became an asset class. I think 10 years from now, bitcoin is going to be an asset class and nobody is going to think anything of it. Right now, it’s still a little edgy.
Simpson: Everyone thought I was nuts. At that point in time, Facebook was very much the hot company to be at and I had a very competitive job. So for me to want to leave that and go to a three-person bitcoin company was a very odd move to most people. For me, though, it was really obvious. Facebook wasn’t going anywhere. Big tech companies weren’t going anywhere. So if this whole crypto thing didn’t work out for whatever reason, I’d land on my feet—but it was too interesting a sector and an opportunity to not want to pursue full time. I would say every major career move I made, like starting my own fund, looked very bizarre to most people. But to me it was kind of obvious—the sort of thing that I couldn’t stop thinking about until I did it. So I’ve always kind of let that be my guiding principle.
How has your investing philosophy changed as the cryptocurrency ecosystem itself has evolved?
Morehead: When I got reintroduced to crypto in 2013, it was in the beginning of what would be a bubble that year. There was this sense that, “Oh, bitcoin is going to change the world and is going to change everything overnight.” While I do believe it is going to change the world, it’s going to take a couple of decades. The internet itself is 50 years old now. It started in the ‘70s and it’s just now doing all of these cool things. It’s going to take bitcoin 20 years to do that. That’s the main takeaway—that it’s not going to do everything overnight. There are some [interesting applications of the technology] like voting rights or refugee aid, which could be amazing, but they’re going to take another 10 or 20 years.
Yahya: I came into crypto from a very technical perspective, with an engineering background, studying computer science. So when I started investing in this space, a lot of my focus was in infrastructure and figuring out all of the building blocks that we needed to put into place so that crypto as a computational paradigm could work. So we made countless investments in layer one blockchains, various interoperability protocols, and scalability solutions for crypto. We invested in things like stablecoins and some of the kind of financial primitives that are now part of DeFi, like Uniswap. Over time, as the space has matured, it became clear that there are many other very exciting trends now in the application layer that are no longer infrastructural and deserve significant focus.
Simpson: In some ways my approach is very much the same and in other ways it has shifted a little bit. Focusing on the founders has always been core for me and that is very much the same now as it was then. When you’re looking at a new technology, you’re really looking at a moment in time, a snapshot. So if you want to see where things are going, you really need to look at who’s building it, because they will be the ones who put in all the hard work over periods of years or decades in order to build the future of whatever it is that is being built. Focusing on the team is really the only way that you can have a credible way of seeing into the future, because the quality of the team will ultimately mostly dictate the outcomes.
In terms of what’s changed, we had to lay the infrastructure or foundations in order to be able to build other types of applications on top. Until those foundations were laid, you couldn’t really have consumer-facing applications that were more than rudimentary because you had to first build the infrastructure underpinnings. We continue to invest very much in infrastructure, but we have widened our lens and now focus on areas like crypto games or certain consumer facing financial applications, none of which was possible seven or eight years ago.
Looking back—and with the benefit of hindsight—do you have any observations or regrets?
Morehead: The wild stat about our firm that we don’t even publish is our loss ratio. In venture capital, and in a normal environment, people lose money on about two-thirds of their investments. We’ve been investing for eight years and have invested in 70 companies. We’ve only lost money on 8% of our investments. So the funny thing is, we don’t have that many regrets of, “Gosh, I really wish we didn’t invest in X, Y, Z company because it was a disaster.” The regrets—and there are some—are, “I wish we didn’t pass on that deal because it became a billion-dollar company or even a multibillion-dollar company.”
Yahya: It’s interesting to see how the technology has become mainstream. Take bitcoin for example. You started with this idea that banks have too much power. These are financial institutions that no longer really deserve our trust and we have to essentially build a new system from the bottom up that competes against and eventually replaces it. But the technology used to do this is very powerful and very general. It’s a building block that allows you to create all sorts of different things. So as time goes on, you kind of expand from the original group of people to the next concentric circle and so on. It has been really interesting to see how we went from people who were crypto-anarchists when bitcoin came out to a far more technologically advanced community when ethereum came out.
The next concentric circle is a new wave of artists and people who are very creative and don’t necessarily come from a hardcore computer science perspective. We hosted an event [recently] and I think one thing that struck me was that the people in the crowd were all really cool—much cooler than me and people like me who are crypto-native and have been in the space for a long time. It’s just interesting to see how the technology penetrates increasingly different concentric circles.
Simpson: It’s interesting to look at the evolution of some of these sectors. For example, I mentioned crypto games. This category fundamentally didn’t exist a couple years ago. Take a look at CryptoKitties, which really took off in 2017 and sort of catalyzed what eventually became the NFT [non-fungible token] movement and the crypto games movement. If you think about what CryptoKitties could do at the beginning—you could breed cats, you could trade them—the functionality was fairly limited. Over the last couple years, I think we’ve seen a really exciting evolution, both from the makers of CryptoKitties as well as other game makers and folks building different kinds of entertainment experiences to build more complex gameplay.
We’re just seeing how some of these games and segments are evolving in really exciting ways. If you zoom out and think about it in the context of consumer adoption of crypto…the thing about games is, it’s easy to dismiss them, but they’re actually a huge catalyst for technological development and bringing new users into the space. A lot of the users who are coming into some of the crypto games have never been in crypto before and so the games are sort of their first foray. Once they’re there, you become familiar with the concept of a wallet, with the concept of a transaction involving a token and then those users tend to evolve and become sort of crypto users at large.
Historically, crypto has seemed very difficult to get into or a little bit intimidating, so games are a means for people to start interacting with some of the concepts and be able to learn about it in a less threatening way.
Fernandez da Ponte: I started to get involved in crypto in 2015 and the lesson learned for everyone involved at that time was that we should have gotten into the space earlier. We are now entering a very interesting moment in time in which you can see more or less an inflection point for crypto. In a very short period of time, the community has grown from the fundamental developments around bitcoin and ethereum to the next layer which is DeFi where you have a lot of new things that are built on those protocols that are enabling use cases that you could not think of three years ago. So the speed of innovation has accelerated significantly.
This is not just a hobby for people anymore. The estimates for the number of crypto users in the US are at around 6% of the population and in some countries that is getting closer to 10%. Usually [in the technology industry] you see that 10% are considered early adopters—but once you get past that, you are on a very good path to the mainstream. I don’t think that we are there yet, but we are getting close to that.
How do you view the long-term applications of cryptocurrency?
Morehead: There’s a lot of interesting topics in there. The first one is people. When they are introduced to a new technology, they want to use an analog—they want to call it something. So some people call it a cryptocurrency, but the CFTC calls it a commodity. The IRS calls it property. Some people call it distributed ledger technology. It’s hundreds of different things and being a currency is just one of those. You have to think about it as a completely new thing.
Distributed ledger technology itself will be an asset class and it’s going to disrupt a lot of things like currency. But the best analog I have for it is this. There are a bunch of protocols that move data around that we now call the internet. In the ‘90s, Milton Friedman said we were missing an e-cache system. That’s blockchain. It’s a way to move money around without paying a central third party. In my opinion, it’s the last piece of the protocol puzzle that is the internet. So it’s going to have the same scale of impact because it’s facilitating finance, cross-border money movement, credit cards—all of these massive use cases.
Simpson: Crypto started as a sector unto itself, but what we’re seeing is that it’s becoming more of a layer of the technology stack and less of its own sector. It’s like when we initially had “internet companies.” If you look back to the late ‘90s or the dotcom boom, internet companies were distinct from other kinds of companies. Nowadays, all kinds of businesses that would not be necessarily considered technology companies are internet-enabled. In the same way, we’re seeing that area of overlap between crypto and other sectors. So I think crypto eventually becomes similar to the internet in the way that it interacts with and overlaps with different sectors. Different kinds of companies will use tokens rather than shares, and voting will be done via token ownership rather than with shareholder votes—things like that. Some of these ideas seem very futuristic, but it’s actually already happening. In my mind, there’s very little that crypto actually won’t impact over the coming decades.
Fernandez da Ponte: The use case as a store of value is well-established. The appetite of investors to buy and hold these assets for appreciation is something that is well-established now. The total market cap of crypto assets is over $1 trillion which is obviously way smaller than stocks and bonds, but that is still more than the market capiatlization of all the companies that are on the FTSE 100 index in the UK. So as an asset class, crypto’s use case is established.
Now, I believe that for it to get even larger, more use cases have to be there. I think that we’ll see more activity in payments and in gaming. Other use cases that are very interesting are things like digital identity. Then you have NFTs, which we were discussing about nine months ago and then all of a sudden it happened way faster than we thought it was going to happen. I don’t know if it’s going to be in gaming or digital art, but the fact that there can be digital property that changes hands and is unique and not fungible is super exciting.
What would have to happen in crypto for your current outlook to change?
Morehead: There was a long time where I worried about whether or not bitcoin would work or would get hacked. All of those things are in the past. Then there was a long period of time where reasonable investors said, “Hey, I see a ton of upside here, but there’s no reliable custodian.’” But with the introduction of exchanges like Coinbase almost all the worries have gone away.
My biggest remaining worry is timing. Maybe we’re too early or maybe it’s a bubble right now and it’s going to go down for five years before it ultimately goes up. I also worry about the regulatory environment. The SEC still hasn’t ruled on crypto, so there’s obviously some regulatory risk surrounding that. But to me, those are pretty small risks.
I think one of the best signs that there’s something big happening is that central banks are now creating their own blockchain, which is an amazing testament to how important this is. I don’t think there’s any risk that, 10 years from now, we’re going to find out blockchain didn’t make it. Something big is happening here. It just might be too slow and maybe [as investors] we’re buying at the highs.
Fernandez da Ponte: There is technology risk in some of these spaces. Bitcoin and ethereum have been around for a while, but that’s still a limited amount of time. There are many of these protocols that have a lot of promise on the technology side that are very recent and not battle-tested yet. So I think the people should look at it carefully and accept that we are just at an early stage of the technology.
On the application side, I don’t have any doubt that we are going to reach mainstream adoption. It is only a matter of how fast or slow we go there and where that equilibrium is. How do we handle that? How do we make sure that the applications that the industry is putting in the hands of the public are compliant and abide by the law? How will governments worldwide decide to regulate this in a way in which consumers and investors are protected without stifling innovation? I think that balance that we are seeing play out in the news every day is going to be one of the fundamental aspects of the speed of development.
What has been the biggest surprise to you along the way?
Morehead: The current surprise is NFT pricing, but I still think NFT is really important. In the long run, we’re going to look back and realize some very important pieces of work are being created right now. It’s kind of like when Marcel Duchamp put a urinal on a wall in Paris a hundred years ago. Now that’s worth $150 million and it’s just a porcelain urinal. There’s going to be some of that. But I think there are crazy prices being paid for things that, 100 years from now, people probably won’t remember.
Yahya: One thing that’s surprising in a good way is that crypto is so interdisciplinarity—it brings together computer science, finance, economics, games theory, and now art. It’s so interesting to see the kinds of communities that emerge and how, in some cases, it’s almost tribal. You end up with a lot of communities of people that believe in something very strongly. It’s this healthy discourse where different people come from different perspectives and they contribute very different ideas. They can straddle various different ways of looking at the world from a very finance driven capitalistic view to a very collectivist view, where we’re all in this together and we’re empowering individuals and communities in ways that were fundamentally incompatible before.
Simpson: The rate of growth has been fascinating in the sense that we’ve slogged through some rough bear markets where prices have gone down 80% or 90%. Even if you’re a very long-term oriented investor, those kinds of bumps can be tricky because employees at companies might be a little bit concerned. But when things start to pick up, the speed at which they do, the momentum that builds, is just incredible. If you look back a couple of months, NFTs were something that was there but weren’t necessarily in the mainstream consciousness. Now, there’s been an absolutely spectacular rise of them, particularly in non crypto-native circles. That is an important distinction—it’s really bringing crypto to the forefront of people who weren’t that into it before and were not necessarily tech native folks. As much as I’ve always expected crypto to become massive, the speed at which it happens is still kind of staggering.
Fernandez da Ponte: I don’t think the volatility of the assets has surprised me; it’s something that you can expect in this space. What has been surprising is the speed of innovation. NFTs and DeFi are good examples of this—both took off way faster than I expected.
On the other hand, some things have developed a lot slower than I expected or haven’t happened at all yet. I believed that, at this stage, we would have more developed use cases for crypto payments.
Another thing that has definitely surprised me is the rise of alternative coins. When you think about space you usually think about it in terms of bitcoin, ethereum, and all the rest. That “all the rest” needs to be unpacked because a lot of these new coins have a ton of technology promise and a lot of potential utility. I’ve also been surprised by how those coins have been accompanied by some others where you cannot see the utility at all.
What are your thoughts on the recent rise of DAOs? [That’s “decentralized autonomous organizations,” or entities with no central leadership. -Ed.]
Yahya: The best way to think of a DAO is as the most digitally native way of organizing a community. People have all sorts of mechanisms to try to organize human activity. A company is an example of that. You sign a bunch of legal documents, you organize a group of people, you create a charter. It’s a mechanism that you can use to organize human activity, but it’s really heavyweight and you can only really do it for big things.
Imagine if you were to make the process of forming a human organization like that a million times easier or a million times cheaper. You can now create organizations that have similar structures and similar rules for their members in a way that’s much more efficient. You can do it for something as small as a piece of media, and create a community around a work of art. Then a community can decide what to do with that work of art where they can decide to sell it or buy more art or commission a different artist to create a new work.
The culture around NFTs is very interesting. People tend to think that investors are just speculating and they’re just buying things and hoping to be able to sell for a larger amount of money. But there’s a deeper way to think about it—that it’s yet another way of building a community. Imagine if you are a musician and you want to engage with your fans in a way that’s more direct. Today your only mechanism to do that is to put your music on Spotify and hope that a lot of people listen to it and you earn some money. There’s really no direct way for you to engage with fans, especially super fans. Crypto and NFTs give artists this new ability by, for example, allowing them to issue an NFT that’s associated with their music. This is one way that an artist can more directly engage their audience, and it results in a business model that has never existed before.
Simpson: I think we have seen only the very first inning of what’s going to happen in NFTs. If I think about this in a five- to 10-year horizon kind of way, my expectation is that we’ll see a lot of NFT use cases that have nothing to do with art and are completely different in nature. Your credit score could actually be an NFT and protocols can query your NFT to see whether they should lend to you at a particular rate or another.
Fernandez da Ponte: It’s important to try to separate the signal from the noise. If you have been following NFTs over the last six months, there was a lot of interest and then it felt like they disappeared for a while and now they are back. NFTs are in the early stage but have a fundamentally strong value proposition that we will see applied in different verticals. DAOs, on the other hand, have been around for a little bit. While the full promise of a decentralized autonomous organization is fascinating, I don’t think that we have seen the scale application of that yet. I think that we will still need some time for that to mature.
What is your opinion on alt/meme coins and their role in the crypto market?
Morehead: If people want to invest in Dogecoin and it’s been working for six or eight years and even more people want to invest in it 10 years from now and the value keeps going up? I don’t really have an intellectual problem with that. Jackson Pollock put some house paint on some canvas and it was a scarce, fixed asset. I don’t think you have to have a negative view on meme coins.
Simpson: It’s the kind of thing that’s very easy to dismiss. But there’s something interesting going on there. Younger generations in particular like to attribute value to different things, so it’s easy for older or more traditional investors to just be like, “Oh, this is nonsense.” But there’s kind of a cultural element there that is easy to miss but very significant.
Fernandez da Ponte: These coins may or may not be successful, but some of them are addressing some of the fundamental technology issues in the sector and have very clear use cases. In that sense, they are an essential part of the ecosystem. Then there are others which I struggle to understand because either they are super centralized or they move up or down with the news but not with anything significant.
What advice do you have for people who may want to begin investing in crypto?
Morehead: Try and get a portfolio of assets. When you’re investing in stocks you buy a portfolio of 30 companies. Some will be important like Google and Facebook and some won’t be. The same goes for crypto. Get a portfolio and don’t get too hung up on one or the other. The only wrong position in crypto is zero. Get some exposure and get a broad basket because something big is happening here.
Yahya: There are many ways of approaching crypto. You can approach it from the computer science or crypto-anarchist side, or you can approach it from the creative side. The important thing is to approach it from the right side for you, because if you approach it from the wrong side, it’s easy to get disillusioned or dismiss crypto entirely. Try to persist and expose yourself to various different angles to hopefully find the side that speaks to you.
Simpson: Dive in and don’t wait for permission. It’s easy to feel like you don’t have the qualifications or don’t understand. Over time, you build a baseline of knowledge, so don’t feel like you can’t start. I studied international politics and Spanish and history and here I am 10 years later. Be curious and don’t be shy. At the end of the day, a lot of people hold themselves back because they think they need some sort of external validation. In reality, you’re probably not going to get that. So you just have to begin somewhere and keep pulling on those threads.
Fernandez da Ponte: There are two or three pieces of advice that I would give to anyone who is interested in getting involved in crypto. The first is to do a little bit of homework beforehand. These are relatively complex protocols to understand, so trying to understand the utility of them and getting educated in the space is important. That doesn’t mean that everybody should become an expert on cryptocurrency, but there is good educational content out there. The second is: keep it simple. Don’t jump straight into DAOs or even NFTs. Walk before you run and go to the brands that you trust. The third thing is to remember that these are volatile assets. I don’t think that anyone should be investing amounts of money that they cannot afford to lose. As we have seen in the last 10 months, prices can go up four times and then go down two times. You have to be mindful that these are still risky and volatile assets.