According to Pantera Capital, Crypto’s Lack of Focus on Cash Flow is About to Change.

Pantera Capital’s Cosmo Jiang Predicts Crypto Will Shift Toward Fundamental Investing as Industry Matures

As the cryptocurrency market matures, Pantera Capital’s Cosmo Jiang envisions a future where fundamental investing takes center stage. The current crypto landscape, often driven by speculative and meme-based tokens, will give way to more traditional investment principles, according to Jiang.

Many cryptocurrency investors tend to gravitate toward highly speculative tokens—such as those named after animals or internet memes—that may outperform more serious projects. However, Jiang, who joined Pantera Capital in 2022 after years in banking and private equity, believes this is a temporary trend. “If fundamental investing doesn’t take root in crypto, it signals that we’ve failed,” Jiang said in a recent interview with CoinDesk. “All assets, eventually, follow the laws of gravity. The only thing that truly matters to investors—has been for millennia—is cash flow.”

Jiang points out that the cryptocurrency market has grown from nothing to a staggering $3.4 trillion market cap, largely driven by retail investors. However, for the sector to continue expanding, it will need to attract institutional capital, which is focused on fundamental value, not just speculation. “The only way for this asset class to sustain its growth is to appeal to institutional investors, and those investors care about fundamentals,” he noted.

Pantera’s Focus on Fundamentals

With about $5 billion in assets under management, Pantera Capital has firmly established itself in the crypto space. Approximately 75% of its assets are locked in venture capital vehicles, while the remaining funds are allocated to liquid assets. As portfolio manager of the firm’s liquid token fund, Jiang focuses on tokens that are publicly traded.

So how does he choose which tokens to invest in? Jiang’s approach revolves around evaluating product-market fit—looking for projects that meet a high demand with a promising product. He asks two key questions: Can the team execute their vision? And will the token capture a meaningful portion of the economic value created by the project?

“This might sound basic to anyone familiar with traditional asset classes, but in the crypto world, this is still not the norm,” Jiang said.

Layer-1 Networks: Ethereum vs. Solana

Among the various types of crypto projects, Jiang has a particular interest in layer-1 networks, such as Ethereum and Solana. These smart contract platforms have established business models, earning revenue from transaction fees and benefiting from an increase in network usage. However, Jiang sees a shift in the balance of power between Ethereum and Solana.

Solana, with its high throughput and efficient design, has been attracting significant attention. Over the past six months, Solana has seen nearly 3 million daily active addresses, compared to Ethereum’s 454,000. Solana has also significantly outpaced Ethereum in revenue growth, increasing by 180% over the past month, while Ethereum’s revenue grew just 37%. In terms of annual revenue, Solana is rapidly catching up to Ethereum, generating $1.27 billion compared to Ethereum’s $2.4 billion. Despite this, Solana’s market cap is still much smaller than Ethereum’s.

Jiang is particularly impressed by Solana’s growth, noting the stark difference in the rate of adoption between the two networks. “If no one uses it, it doesn’t matter how good the project is,” Jiang remarked.

While Ethereum continues to be a strong player in the space, Jiang highlights its challenges. Ethereum’s shift to a modular blockchain design, with tasks split between the Ethereum mainnet and layer-2 solutions like Arbitrum and Optimism, creates more complexity compared to Solana’s more unified approach. Jiang believes this gives Solana an edge in terms of user experience and capturing value through its native token, SOL.

“Ethereum’s approach has been to prioritize decentralization at all costs,” Jiang explained. “For me, decentralization for the sake of decentralization isn’t always the best choice. There’s probably a sweet spot—’minimum viable decentralization’—that would work just as well.”

DePIN: The Next Big Thing

In addition to layer-1 networks, Jiang is also exploring the potential of DePIN (Decentralized Physical Infrastructure Networks). These projects leverage blockchain technology to build physical infrastructure. Examples include Render Network (RNDR), which allows users to lease unused computing power, and Arweave (AR), a decentralized data storage network.

Jiang sees DePIN projects as a key area for growth, particularly because they involve real-world use cases that appeal to institutional investors. “DePIN is an area that really excites liquidity providers,” he said. “These are tangible businesses with real-world applications that people can get behind.”

Though Jiang focuses on more established projects, he is not opposed to investing in meme-driven tokens or the platforms that facilitate trading them. He draws an analogy to the casino industry: “I would never invest in a blackjack player, but I’ve made a lot of money investing in casinos.”

Looking to the Future

Jiang acknowledges that his investment strategy hasn’t outperformed Bitcoin (BTC), which has seen a 132% return in 2024. He attributes this to Bitcoin being more advanced in its bullish cycle, whereas blockchain projects are still catching up. However, Jiang remains optimistic about the future.

He believes that as blockchain technology matures and scales, the returns on many tokens will exceed those of Bitcoin, especially with a more favorable regulatory environment in the U.S. under a potential future administration. “On a compounded multi-year basis, we will do extremely well,” he said. “If blockchain reaches billions of users, everything else will likely grow much faster than Bitcoin.”

In conclusion, Jiang’s approach at Pantera Capital is focused on sustainable, fundamental growth, and he believes the crypto market is moving toward a future where institutional investors will drive much of its value. If that happens, Jiang is confident that the rewards will be substantial.