Pantera Capital CEO Dan Morehead said "several more" similar crashes could be seen in the crypto market, as happened in the Terra (LUNA) ecosystem and crypto hedge fund Three Arrows Capital. But the ill effects of the current crashes are already priced in, according to Morehead.
Writing in Wednesday's news release, Morehead said that while there have been three major crashes with Terra, Three Arrows Capital and Celsius (CEL), there may be several more in the next month or two. Morehead warned that these collapses and bankruptcies are not isolated incidents, but pose problems for other parties, as most recently seen with Three Arrows Capital. However, Morehead reminded readers that the crypto market is "extremely efficient."
"With a 70-90% drop, we've probably resolved most of the issues. We think these events have largely cleared up in the crypto space."
Morehead said his fund, which normally focuses heavily on altcoins, is holding large amounts of Bitcoin to mitigate downside risk.
Explaining that altcoins performed worse than Bitcoin in the crypto bear market, Morehead added that this was the case this time as well. Morehead added that once the market bottoms out, it will be time to switch from Bitcoin to altcoins.
Joey Krug, Pantera's chief investment officer, said in the news release that valuations in the crypto space have diverged, with lower valuations for tokens but higher valuations for equity in crypto start-ups. As a result of this divergence in valuation, Pantera is investing more in token sale seed financing rounds and less in traditional venture capital deals, Krug said. Krug said that "the area that has the most value right now" is token-based funding rounds.
Commenting on the correlation between Bitcoin and other risk assets, especially stocks, Morehead noted that the correlation increase seen during the bear market in risk assets took longer than in the past. As a result, Morehead expects the correlation between Bitcoin and the S&P 500 stock index to decline again anytime soon, adding that "there is really no reason for Bitcoin to be correlated with risk assets."
It should be noted that Morehead previously predicted a divergence between stocks and Bitcoin. Morehead and Krug predicted in February that Bitcoin would diverge from traditional macro assets, even as rate hikes are expected. However, as reported in May, these forecasts did not hold.