Forward the Original Title: ESCAPE VELOCITY

ELECTION RESULTS

Newsflash, Crypto Owners Vote

The majority of Americans are under 40.

They love blockchain.

And they vote.

I’ve been writing for months how politicians were ignoring blockchain enthusiasts at their peril. It happened.

Young people passionate about blockchain decided this election.

Women under 30 years old swung 14 percentage points to President Trump since the prior election. Not much President Trump did since November 2020 was pro-woman or pro-Constitution, so you have to conclude it was driven by his policy change to strongly back blockchain.

Men under 30 swung 29 percentage points! That’s wild.

They voted 14 percentage points in favor of Donald Trump for president. I haven’t heard the phrase “young Republicans” since the 80’s.

This graphic is clear – the young changed the election. The majority of Americans are under 40. They voted for the pro-crypto choice.

THE END OF ANTI-CRYPTO LEGISLATORS

As I’ve written in the past, I never understood members of Congress who would be anti-crypto. Who is the imagined NO voter out there who would back an anti-crypto Representative in Congress? Never made any sense.

While new technologies shouldn’t be partisan in the first place, if it were politicized it should be the Democrats promoting bitcoin. It’s the Progressive’s Dream.

While the Republican sweep is well understood, not enough has been made about the tectonic change below the surface. As a result of anti-crypto Senators being successfully targeted and taken out, it will radically change Congress. Like Senator Sherrod Brown getting ejected by an unknown pro-bitcoin car dealer – supported by $40mm of bitcoin PAC money.

Of the 58 general-election candidates supported by crypto super PACs, the blockchain industry went 54-4.

The incoming 119th Congress is:

House of Representatives: 274 pro-crypto vs. 122 anti-crypto

Senate: 20 pro-crypto vs. 12 anti-crypto

I think we’ve seen the end of anti-crypto blather from Congressmen. When we re-do this statistic in four years I’d be surprised if any of those 122 anti-crypto Congressmen were left. They will have either “evolved their position” to become supportive of blockchain or lost their next election.

That will allow the talented people in the blockchain industry to refocus all their energy into creative progress.

2024 CRYPTO INDUSTRY RECAP

We believe this year has been one of the most constructive for the crypto industry, marked by significant progress in price action, market-structure milestones, and pivotal shifts in the regulatory and political landscape. From the passage of FIT21, and the election of the first pro-crypto president to the successful launch of ETFs, we are seeing a convergence of capital, innovation, regulation, and renewed optimism.

Below is a timeline of this year’s key events.

Following a strong 2023, prices continued to rally in anticipation of a number of positive catalysts expected in the first half of 2024:

– The highly-anticipated launch of bitcoin ETFs in January is most notable. ETF flows started to kick in shortly after launch, leading to strong price action through February and March.

– In February, on-chain activity surged on the back of a new wave of retail participation, primarily attributable to memecoin trading activity on Solana.

– In the following month, Ethereum’s major upgrade, EIP-4844, meaningfully lowered the cost of transactions for Ethereum L2s.

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The markets then saw some challenges as risk assets pulled back across the board in April. Headwinds in the form of changing macro expectations surfaced as hotter inflation numbers presented the possibility of higher-for-longer rates. In addition, geopolitical fears were rising out of the conflict between Israel and Iran. The third Bitcoin halving occurred later in April, but it did not deliver much short-term excitement amidst these headwinds.

In May, we started to see the first signs of the political pivot on crypto. It started with Trump pivoting pro-crypto in a speech on May 8th. In rapid succession, there were a few positive legislative developments, including the passage of FIT21 in the House and the surprise approval of ethereum ETFs.

But the reality is that progress comes in starts and stops, and there were fewer tangible catalysts to be excited about after May. That malaise continued and we saw a meaningful pullback across the asset class throughout the remainder of the summer. Ethereum ETFs began trading in July, but they launched into a weak market environment and fell short of being a positive catalyst for the market.

In September, the macro backdrop began to improve, catalyzed by the Fed’s first rate cut. As anticipation of the election built-up and both political parties began publicly endorsing crypto, markets continued to rally off oversold levels from the summer.

On November 5th, the U.S. election results came in and the markets kicked into high gear.

POST-ELECTION RALLY

By Cosmo Jiang, General Partner

The markets have been rallying since the “Red Sweep”, in anticipation of pro-industry initiatives with Republicans in control of the Presidency and both chambers of Congress. We believe the crypto industry and its supporters made a clear impact on the election. The incoming Congress is the most pro-crypto we have seen, with the majority of House Representatives and the majority of newly-elected Senators having a pro-crypto stance.2 For the popular vote, the margin of victory was less than the estimated number of crypto voters who identified as single-issue voters. In many ways, the digital assets industry can legitimately argue it was the swing vote and, just like the fulcrum security in a capital stack, it could have an outsized amount of influence going forward.3 An enthusiastically pro-crypto White House, combined with supportive majorities in both houses, should create the best possible environment for constructive crypto legislation.

Bitcoin has long benefitted from having clearly established how it is used, taxed, and regulated. Clarity has set it apart from the rest of the industry. The appetizing prospect now is that entrepreneurs seeking to utilize tokens and blockchains to build serious, value-added businesses may soon have the benefit of similar clarity, and we believe a wave of innovation should come as a result. While Bitcoin has taken up a large portion of the discussion since the election, other than the possibility of a U.S. strategic bitcoin stockpile, not much has changed for it. It is for the other productive projects that everything is likely to change meaningfully. In the long run, the passage of stablecoin and market structure legislation should have a much larger impact on altcoins than they will on Bitcoin.

Accordingly, there are the first signs of retail capital re-engaging with the broader crypto market. We see this in strong weekend volumes on Coinbase and the initial surge in “last cycle’s tokens”, or those that are still most recognized and easily accessible on retail distribution platforms. As a result, Bitcoin dominance declined on a monthly basis for the first time in nearly two years. We have increasing conviction that we are now much closer to “Phase 2” of the cycle, when the longer-tail tokens, which represent the innovative value-creating blockchain solutions, could begin to outperform.

Entering Phase 2

We’ve observed that bull cycles have two pronounced phases. Phase 1 is the early stage of the rally when bitcoin has tended to outperform the rest of the market. Phase 2 is the later stage when longer-tail tokens, or “altcoins”, have tended to outperform.

We believe the rest of the market is now getting in gear.

Something worth noting is that the magnitude of altcoin performance has been so large in Phase 2 that altcoins have outperformed bitcoin across the full length of the two previous cycles – the share of total market capitalization growth was 65% and 55% for non-bitcoin tokens. We are now seeing early signs that we are in that second phase of the upswing, which has been catalyzed by the US election.

Going Forward

There are many reasons to be optimistic about the digital asset market. When I think about the story of the last few years:

– 2021 was a boom period in innovation and excitement and brought a lot of people into crypto for the first time.

– 2022 was then a natural bursting of that speculative excess, across all asset classes.

– 2023 became a year about headwinds buffeting the industry – whether that was leverage coming out of the system and capital outflows, consumer interest dissipating, or regulators feeling compelled to overreact to what had been an underreaction to the excesses of the prior year.

– 2024 was a year of headwinds becoming tailwinds. We started from healthier positioning and capital flows started to come in (largely from the bitcoin ETFs). User activity has begun to pick up again, and more important, regulators are starting to ease and get pushback in the courts.

2025 is shaping up to be a year of all those tailwinds pushing the industry forward in an accelerated fashion:

– The election changes the paradigm for the blockchain industry. When you think about the reasons why prospective investors and innovators say no, the answer is often lack of regulatory clarity. That bear case may soon be behind us.

– Fundamentals will ultimately drive prices. Fundamentals, as measured by on-chain activity and new innovation, such as AI agents and DePIN, are improving in real time. Yet, the price recovery for longer-tail tokens is still in the early innings.

– Capital flows should improve as digital assets become more mainstream. Bitcoin ETFs should continue to grow distribution, and there may be more ETFs to follow (e.g., Solana). Institutional allocators and sovereign entities are reaching out to us because they can no longer ignore digital assets.

The risk/reward for new investment in the space has improved. Yes, asset prices have increased somewhat from the bottom, but risk reward and returns are a function of probabilities, and the probability of the upside case has meaningfully increased. While Bitcoin may be closer to mid innings, I believe we are still early innings for digital asset price performance at large.

CRYPTO REGULATORY AND POLICY UPDATES

By Katrina Paglia, Chief Legal Officer

We want to provide an update on key policy and regulatory developments in the crypto asset space. From major litigation cases and rulemaking efforts to potential policy shifts under the new Trump administration, there’s a lot unfolding in real-time.

High-Profile Litigation Updates

Ripple Settlement – The Ripple lawsuit has been a central focus through much of 2023 and 2024. Initially, in 2023, Ripple achieved a favorable court ruling when a judge found that certain XRP offerings, particularly those bought and sold on crypto exchanges, were not securities under the Howey test. Judge Torres in the Southern District of New York denied the SEC’s application for interlocutory appeal and, in August of this year, Ripple was ordered to pay a civil fine of $125 million. Since this was a fraction of the initial penalty of approximately $2 billion sought by the SEC, this outcome was viewed largely as a win, although in October 2024 the SEC did file an appeal of the court’s ruling to which Ripple cross-appealed. This will be worth monitoring in 2025. Year-to-date, XRP is up 324%.

Coinbase and Other Platform Litigation – In 2023, the SEC launched a major lawsuit against Coinbase, also in the Southern District of New York, including claims of operating as an unregistered broker-dealer, exchange, and clearing agency, as well as for an unregistered offering of securities through their staking service. The litigation remains ongoing, currently in the discovery phase, with delays pushing the date for final discovery into early 2025. While Coinbase’s motion to dismiss was largely denied — a high bar in any litigation — this should be an interesting case to monitor, particularly with the changes coming in the new administration.

Rulemaking: Exchange and Custody Rules

On the regulatory front, Pantera has been focusing on two rules that the SEC had proposed in 2023 leading into 2024 which could have had material implications for the industry.

Exchange Rule – The SEC’s proposed Exchange Rule posed significant challenges for decentralized finance (DeFi). The proposed rule would, among other things, potentially have required DeFi protocols to register with the SEC as exchanges, solely on the basis that such protocols “make available” the means of bringing together buyers and sellers of assets, including crypto assets, that the SEC considers to be securities. And given the way that DeFi operates today, it would not have been feasible to comply with the requirements prescribed in the Exchange Rule. The proposed rule has not yet been adopted, and it is possible that a future administration may choose to abandon it in the face of significant industry opposition.

Custody Rule – The SEC had also proposed changes to the safeguarding of customer assets by registered investment advisers, commonly referred to as the Custody Rule. These changes sought to bring digital assets explicitly into the qualified custodial framework, requiring tokens to be custodied at all times by “qualified custodians”, i.e., banks, broker-dealers, futures commission merchants, and/or foreign custodians. The proposal raised concerns due to the technical and operational challenges of supporting all tokens in such a framework – there are currently very few entities that are considered qualified custodians for crypto assets, and they support a limited range of crypto assets. It is also not clear how crypto assets can be meaningfully utilized (for staking and other purposes) or traded on centralized exchanges if they are required to be kept with qualified custodians at all times. The rule went through several comment periods and is currently back with the Commission. The crypto and asset management industries remain hopeful that their feedback will lead to a more practical approach.

Outlook: Crypto Policy in the Trump Administration

There has been a lot of discussion around potential shifts in crypto policy in the next administration. We want to cover some interesting topics and potential developments in the near- to long-term.

Pro-Crypto Appointments – President Trump campaigned on supporting blockchain and crypto, and his initial nominees and appointments reflect this commitment. Treasury Secretary-nominee Scott Bessent, US Attorney-nominee for the SDNY Jay Clayton, RFK, and Vice President JD Vance have all been publicly supportive of blockchain-based innovation. The positioning is optimistic.

Crypto Council and “Crypto Czar” David Sacks – Trump has proposed establishing a White House crypto advisory council and recently appointed Craft Ventures’ David Sacks as “crypto czar” to coordinate policy across various offices in DC.

New Pro-Crypto SEC Chair – Last week, former SEC Commissioner Paul Atkins was nominated to be the new SEC Chair. Atkins is known to be pro-crypto, having joined the Board of Advisors for the Chamber of Digital Commerce in 2020. And starting in 2017, he served as co-chair of the Chamber’s Token Alliance, a working group focused on token issuances, trading platforms, and other areas under the SEC’s purview. Among other changes at the SEC, we have already seen the departure of the SEC’s Director of Trading and Markets, Haoxiang Zhu, although his replacement is yet to be named.

Potential Case Resolutions – Under new leadership, the SEC may reconsider its approach to ongoing crypto litigation. Potential options include withdrawing certain cases altogether, reassessing claims that are currently in litigation, or choosing to settle them, and thus remove them from the court system.

Regulatory Frameworks – Legislative efforts to establish clear regulatory frameworks, such as FIT21, are ongoing. FIT21 cleared the House by a significant bipartisan majority in May 2024, although it is yet to be introduced in the Senate. This bipartisan proposal outlines standards for what a digital asset security and what a digital asset token would look like. FIT21 could serve as a solid framework and starting point for future crypto regulation.

Pantera Involvement

Overall, we are open to collaborating and partnering with regulatory agencies. We are always willing to contribute our insights to help shape policies that are practical and beneficial for the industry.

With the hundreds of portfolio companies we engage with daily, we have a deep understanding of the industry’s challenges and pain points. With that knowledge, we could potentially help shape solutions that can drive more-efficient and effective operations for the broader crypto ecosystem.

THE TRILLION DOLLAR OPPORTUNITY

By Ryan Barney, Partner, and Mason Nystrom, Junior Partner

Stablecoins are a trillion dollar opportunity.

That is not hyperbole.

While crypto is often thought of for its volatility, tokens, and liquidity-profile, the other side of the crypto barbell that more silently carries the banner for crypto adoption is stablecoins. For folks that are new here, these are cryptodollars that are pegged 1:1 with their underlying fiat using either algorithms (less popular) or reserves (more popular) to maintain the peg.

Stablecoins have gone from 3% of blockchain transactions in 2020 to now consistently representing over 50% of blockchain transactions. Stablecoins are crypto’s killer value proposition and, unlike a lot of crypto, are non-speculative in nature.

In a short period of time, stablecoins have showcased their ability to be one of the transformative innovations within crypto. And 2024 has been a breakout moment for stablecoins, transacting ~$5 trillion in adjusted volume and over one billion transactions across nearly 200 million accounts.

Stablecoins witnessed impressive growth during crypto’s last bull cycle, but this time around, stablecoins are being used beyond the DeFi ecosystem. Over the past few years, stablecoins have demonstrated the core value proposition – seamless cross-border payments, initially through access to U.S. dollars. Correspondingly, the geographies that see the greatest stablecoin growth are in emerging market corridors where access to dollars is in high demand.

Stablecoins offer a 10x value proposition to the traditional payment rails across both B2C payments (e.g., remittances) as well as in B2B cross-border transactions.

Cryptocurrencies have long promised a solution for the trillion dollar cross-border payment market. In 2024 there will be ~$40 trillion cross-border B2B payments made via traditional payment rails (excluding wholesale B2B payments) (Juniper Research). Within the consumer payment market, global remittances account for hundreds of billions in annual revenues. And now, stablecoins offer the means by which to make global, cross-border remittance payments on crypto rails a reality.

Amidst this rapid adoption of stablecoins among both B2C and B2B payments, the supply of stablecoins onchain and transaction volume are reaching all-time highs.

The Trifecta: Better. Faster. Cheaper.

There’s an old adage in business – it’s rare that a product comes along and is able to offer something that is better, faster, and cheaper. Oftentimes, the product can be two of those things, but not all three. Stablecoins offer a better, faster, and cheaper way to move money around the world.

Stablecoins offer a 10x value proposition to traditional dollars for both businesses and consumers.

Better: Stablecoins offer a more accessible product, one that’s available 24/7, 365 days a year. They can be transmitted globally, across borders with ease, and offer a programmability that makes stablecoins a superior product to fiat.

Faster: Stablecoins are unquestionably faster, settling instantly versus T-minus 2 or T-minus 1 days to settle.

Graphic from BVNK report

Cheaper: Stablecoins are cheaper to issue, transfer, and maintain than fiat. In 2023, Stripe facilitated over $1 trillion in payments volume with a fee structure that starts at 2.9% with an added 30 cent charge for domestic card-based transactions. On high throughput blockchains like Solana or Ethereum L2s like Base, average stablecoin payments cost less than a cent.

Looking Ahead: The Next Decade of Digital Dollars

The tokenization of dollars is still in its infancy.

Even as stablecoin monthly active users (MAUs) reach ATHs, we believe adoption will continue as hundreds of millions of people interact with stablecoins over the next decade.​

More important, stablecoin users continue to rise even amidst the volatility of exchange volume. From bull to bear, stablecoins prevail and expand their digital reach.

As crypto rebuilds the financial system from the ground up, stablecoins exist in parallel, integrating into the traditional financial payments network.

While large players like Stripe, Visa, and Paypal have all entered the stablecoin market, we see abundant opportunity for new stablecoin-focused protocols and companies. Some of these are discussed in our recent blog post.

Closing Thoughts

Stablecoins represent a trillion-dollar opportunity. We’re looking to back the founders and visionaries who see what stablecoin can be, unburdened by what the financial system has been.

MAJOR WINNERS IN 2024

By Cosmo Jiang, General Partner

Solana

Solana is a blockchain platform designed to host decentralized applications. It is the market leading monolithic blockchain.

Solana proved that its faster, cheaper approach onboarded more users to blockchain quicker than anyone else. Solana, in addition to TON, effectively contributed a hundred percent of all incremental user and transaction growth in the industry this year. Solana’s financial picture has commensurately improved, as it is now the blockchain with the highest free cash flow generation at $5 billion annualized last month, surpassing Ethereum.

Key Highlights

1. Total Economic Value: Solana is now the blockchain with the highest free cash flow generation as measured by “Real Economic Value”, surpassing Ethereum.

1. Enterprise Partnerships: last year, Solana announced partnerships with Visa and Shopify – proof points of Solana’s capabilities.

1. User and Developer Ecosystem: the ecosystem has shown resilience and picked up meaningful momentum after recovering from the collapse of FTX in 2022. Both TVL and active addresses have increased over the last two years.

TON

The Open Network (“TON”) is a high-performance generalized smart contract blockchain. It has a strategic partnership and shared history with Telegram, the third-largest global messaging app.

TON was a big winner this year. Its distribution partnership with Telegram has already started to pay off. TON-based gaming mini apps have really taken off with user bases exceeding any prior crypto game by many magnitudes. For example, Hamster Kombat reached 46 million daily active users at one point. That’s more than 20x larger than Axie Infinity, which is often hailed as the most successful consumer app in crypto-to-date. TON has the potential to drive mass user adoption for blockchain by leveraging Telegram’s extensive user base.

Key Highlights

1. Telegram Integration: Telegram, with its user base of nearly one billion MAUs and still growing, has goals to onboard 30% of its users to TON by 2028, potentially reaching 500 million TON users, thanks to its native integration with TON, including an in-app TON wallet.

1. Strong Signs of Early Traction: TON has been one of the fastest growing new Layer 1 networks this year, starting from a small base. Games launched on TON this year have attracted multiple more users than the most widely-played game last cycle.

1. Broadening Developer Adoption: TON Is attracting a new cohort of developers that would not otherwise have been interested in blockchain. In particular, this Includes a cohort of former WeChat App developers who recognize the same advantages and user growth trajectory that they saw in the early days of WeChat, and who are accustomed to an asynchronous transaction environment.

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