Pantera Bitcoin Fund: a 25,004% return for doing almost nothing

A Bitcoin fund multiplied its money 250-fold without barely lifting a finger

Buy Bitcoin in 2013 and do nothing else. That was the entire strategy of the Pantera Bitcoin Fund, and the result, according to the letter sent to its investors in December 2017, was a cumulative return of 25,004%. The figure, reported by The New York Times, was not a typo: the fund was launched when one bitcoin was worth a fraction of what it would cost four years later, and it simply held the coins as the price climbed. The figure was calculated with bitcoin at $15,500; days later, on December 19, 2017, it had hit $19,000 and then corrected to around $14,136.

For perspective: the world's best-performing hedge fund in 2016 returned 148%, according to consultancy Preqin. Pantera beat it by two orders of magnitude. Its compound annual return since 2013 was around 250%.

A decision almost nobody understood in 2013

Dan Morehead, founder of Pantera Capital after a career at Goldman Sachs, summed it up this way: the hard part was not managing the fund, but deciding to launch it when Bitcoin was known mainly as a currency for illegal online markets. "The first hard part was deciding to launch a cryptocurrency fund when everyone thought it was madness," he said.

The fund did no sophisticated trading and did not hedge. It bought and waited. Any small investor with an exchange account could have replicated the move, except that in 2013 pulling it off required more nerve than it does now.

Not every investor saw the 25,004%

Here is the detail that usually gets lost in the headlines. Many early participants sold during the slow collapse of 2014 and 2015, when the price fell without pause. Others arrived at the height of the boom and only captured the final stretch: around 1,900%. Not bad either, but not the same.

In absolute terms, Pantera estimated it had made $2.1 billion for its investors. Of that, about $1.7 billion had already been withdrawn in bitcoins by the clients themselves to avoid the 0.75% annual fee. The fund held coins worth $400 million, on an original investment of about $150 million.

The stampede of crypto funds in 2017

Pantera's success acted as a magnet. That year, more than 150 funds focused on virtual currencies were created, bringing the total to 175 worldwide, according to analytics firm Autonomous Next. Most were arriving late to a market that had already multiplied its price several times over.

The fund only admitted accredited investors with a minimum of $50,000, so the party was not open to everyone. The comparison with the seventeenth-century Dutch tulip mania, which some analysts were making, did not seem far-fetched either.

With these numbers, anyone would assume institutional money was about to flood the sector. And yet, most of those 175 funds had no track record to show. The safest prediction is that Pantera's 25,004% will remain a one-off, though nobody knows how many of those that came after will still exist when the price corrects again.