Raoul Pal on the Inevitability of Crypto

In this episode, Cobie & Ledger cover the gamut with global macro thinker and investor Raoul Pal: everything from bitcoin to the metaverse. It's a must watch.

Audio Version


Show Partner

This episode is presented by Blockfolio. Trade on an awesome mobile interface fee-free, and still get all the great portfolio tracking features you know and love: https://uponly.tv/blockfolio

Show Notes


  • Worked in finance, started and ran the hedge fund sales business at Goldman Sachs in equities and equities derivatives before moving to GLG Partners, ran their macro and global hedge fund
  • Moved to Spain and began to write for Global Macro Investor (GMI)
  • Has been following the debt super cycle for the best part of a decade
  • Was working on creating the worlds safest bank in 2012 and then a friend, Emil Woods, said to look at Bitcoin
  • First Bitcoin purchase went up 100% in a month, took profits. Got in again around $200 and got out too early in 2017 around $2500. Very profitable trade but it did go up another 10x from there
  • Started Real Vision (@RealVision) in 2014 with Remi Tetot, Grant Williams and Damian Horner
  • Real Vision aimed to let people take control of their own finances rather than trusting someone to manage their money;  to democratise financial intelligence by bringing people access to guests they’d never otherwise get to meet

Bitcoin & Ethereum

  • Believed next time a recession arrived, crypto macro would emerge and so entered crypto again in March
  • Charted Bitcoin vs X and saw it as a super massive blackhole that had a high probability of outperforming every asset on earth and sucking in all of the capital, went 100% into Bitcoin then eventually broadened out into other cryptocurrencies
  • Wrote an article in 2013 about stock to flow and thought that if Bitcoin is digital gold, it should have the same attributes. Napkin math showed gold at $1500 and Bitcoin at $1,000,000 (It was ~$200 at the time)
  • Discovering Metcalfe’s Law and how it applied to networks gave the understanding on how big cryptocurrency could actually be. The only mean reversion is probably to something like the 3 or 5 year exponential moving average, an exponential curve that keeps going but flattens out over time as the network effects get more saturated
  • Bitcoin was the pure play for the current economic situation, easiest narrative, first port of call and lowest down the risk curve. As the rally broadens, people move further outside of the risk curve, with Ethereum next in line and then further on to other assets
  • Bitcoin maximalists on Twitter were not impressed by Raoul writing about Ethereum. “If somebody tells me not to do something, I’m absolutely going to go and do it”. Went on to write an article ‘The Inconvenient Truth About Crypto’ to try disprove John Pferrer’s ‘An (Institutional) Investors Take on Cryptoassets
  • Ethereum is gaining faster adoption than Bitcoin based on the number of developers, applications and rate of increase of wallet addresses. Ethereum is growing about twice the speed of Bitcoin, ~100% a year vs ~50% a year, with the entire digital asset space growing ~113% a year. That’s twice the speed that the Internet grew at, making this the fastest adoption of any technology in all recorded history and Ethereum is the frontrunner right now, it may not always be, but right now it’s clearly winning on network effects and therefore undervalued
  • Bitcoin and Ethereum are two different things, not necessarily in competition but a symbiotic relationship, it isn’t either or, they’ll blend together. Isn’t sure people want to use Bitcoin, a pristine asset, as the basis of everything and instead prefer it as a base layer. Doesn’t think Lightning, Taproot, etc, get adopted as fast as people think, but it will eventually

Portfolio Diversification & Attention Value

  • Wanted to allocate money into a basket of other alts, outside of Bitcoin and Ethereum, but had no idea what other projects would get proper network effects. Some of them are starting to but none of them really have yet. Decided on creating a basket of 10 with a mixture of protocols and DeFi and just watching it – it all went up ~250% in a ~1.5 period
  • Then rotated more into Ethereum and decided to make some proper macro bets as well as having fun
  • For the future, isn’t excited by protocols, not technical enough to care. Really interested in social tokens and the metaverse because that is where the consumer meets crypto at scale – began buying baskets of these.
  • DeFi will scale and be huge but isn’t interested in yield and the associated risks in a market with already high asset price growth
  • For fun, bought Doge with the thesis of not thinking people understand it has a higher probability of network effects, it has so many retail investors all it needs is applications to change the entire game – it’s won half the war. Predicts that Elon Musk will try to capture the attention of everyone who invested in this ‘joke’ and turn it into something real, then they feel part of it.
  • Cobie: The scarce resource in crypto isn’t capital, its attention. Diverting attention to something is way more valuable, people have finite attention but can make more capital. Moving into a post-value era where things have value if everything is paying attention to it at the same time, de-coupled perhaps from reality
  • It’s an attention economy, that’s what is being monetised. Thinks we move one stage further with the Web3 idea of being in control of your own attention and making community the most valuable thing of all. It will lead to creating much more robust business models by letting the audience share in the economic benefits and they’ll care about the growth of the network – an alignment of incentives directly between creators and communities with less third party share
  • Cobie: There’s a nice article written on this concept ‘The Ownership Economy’ by Jesse Walden from Variant Fund

Is Everything a Bubble?

   •     Most traditional macro people thought the last recession was going to be the end of the debt supercycle, it was all going to blow up, but it didn’t

  • Everybody talks about bubbles, everything is a bubble, but is it? Comparing equities to gold, it’s pretty much in line with the 100 year average, or real estate to gold, or real estate to equities, etc. None of them seem out of line. We’ve got the wrong denominator, it’s fiat that is being devalued and making assets look expensive. Multiplying by the fed balance sheet or the G4 central bank balance sheets, it all looks pretty sensible. 2008 wiped out a lot of performance of assets and they’ve gone sideways ever since, the only two things that outperformed the balance sheet were tech stocks and crypto
  • Migration to a new world of digital assets which is quite different and being built in parallel could lead to the debt supercycle ending with a whimper rather than a bang
  • Unless the fed stops printing money, over the next 10 years equities will probably trade sideways vs the balance sheet but tech stocks will almost certainly outperform, pushed by government stimulus, in what is an exponential age of artificial intelligence, robotics, electric vehicles, green energy, distributed computing and cryptocurrency
  • Bond holders are going to lose because they’re compounding ~1.5% to ~2.5% returns while the balance sheets grows around ~15% so they’re down on their purchasing power

Signals that the Thesis is Wrong, El Salvador & Central Bank Digital Currency (CBDC)

  • People didn’t want to believe that central bank balance sheets were the driver of asset prices, thought it was a Spearman correlation, now it is becoming quite clear to most that it is beyond a coincidence
  • If the central bank continue to print and equities fell, that would disprove the idea and suggest that something has changed
  • A multi-country agreement on monetary supply increases would cause an issue for Bitcoin’s narrative, but not for the crypto narrative, it’s actually the digital exchange of value and not Bitcoin’s store of value narrative
  • Thought that one of the first countries to do something would be one of the Latin American countries, doesn’t think El Salvador is as clear cut as everyone believes as they had already adopted the dollar, what was the real value? It will change over time, there will be uses for it, it’s interesting and a step in the right direction but the bigger game to be played is CBDCs
  • Cobie: There always seems to be talk of CBDCs, even back in 2016/2017. The China programme, Digital Pound in Britain, etc. Never seems to be any actual progress or pilot running, how does it play out in progress?
  • China will be the first, there are others being tested in e.g. Sweden, Singapore, Bahamas and Barbados. It’s very clear that this is where everybody is going, it’s happening. The issue is, should the infrastructure be built in the public sector or use private sector rails? It makes the most sense to use private sector rails with public issued asset and on/off-ramp systems, maybe even an interoperable public issued wallet

Fading the Crowd

  • Ledger: Cobie tweeted the CS Lewis quote “When the whole world is running towards a cliff — he who is running in the opposite direction appears to have lost his mind” and Raoul mentioned earlier about wanting to do something when everyone is saying not to, expand on that?
  • Being a contrarian for the sake of being a contrarian isn’t a good strategy because you tend to get run over. It’s trying to isolate when everybody is telling you something you don’t see being confirmed in the price. It’s usually because people have gotten lazy in their assumptions on why they’re doing something. When everyone is buying something and telling you that you can’t buy anything else, it’s usually the time to buy it
  • It’s noisy within the crypto space and feels like everyone is going the one way, taking a step back from the space you can see it’s still going against the huge ecosystem of normal people and institutions that aren’t involved in crypto
  • Cobie: When a narrative gets larger than reality and people become complacent to observing the factual reality, instead relying on the narrative they’ve heard from everyone else, there’s often opportunity in picking that apart. If everyone believes the narrative rather than the reality then they’re positioned incorrectly and you can normally do very well

The Cathedral and the Bazaar, Launching a Project

  • Ledger: The Cathedral and the Bazaar concept plays out pretty frequently in blockchains, teams spend forever building the Cathedral but they don’t have the organic network effects. Bitcoin and Ethereum are both garbage from a processing time and transaction perspective, etc, they’re the Bazaar, they evolve over time and the technology comes to solve the problems due to the network being used, whereas e.g. EOS, ADA, ICP, are building a gigantic Cathedral but nobody wants to visit it
  • The build it and they will come strategy is not as good as the scrappy community who builds on to something imperfect and tries to create something better, it tends to be more self sustaining
  • Cobie: There is something really interesting in building and when these projects launch, the viral coefficient of a user or an investor increases over time. It would go through the roof in a bull run e.g. 2016/2017 ICO investors will have had a relatively stable but decent k-value, over time as the bull run continues and gets frothier, people feel more confident telling friends about the technology and to invest. The value would continue to be high for ~6 months after the top as people don’t recognise tops very well, then at the bottom of the bear market, the viral coefficient drops as it’s just developers and people in it for the tech, etc. Launching at the bottom of a bear market and having a steady build up over time is better for the viral coefficient compared to a launch mid-late bull run and people see big sell-offs and the price only going down
  • Coinbase public launch will lead to the absorption of billions of dollars of institutional capital who would have otherwise had to figure out Bitcoin, all new flows from institutions basically stopped from March onwards after the launch
  • Ledger: The day Coinbase launched was the wick on the weekly chart that marked the high, looks like a liquidity trap
  • Ethereum 2.0 is going to end up being a buy the rumour, sell the news event and mark a macro top
  • Cobie: It could be a macro top for Ethereum, thought EIP-1559 would be, now it may just be a non-event but that could be hopium
  • The Metaverse
  • Cobie: Struggle to imagine the metaverse, view it like Ready Player One. How do you see it playing out?
  • There are a number of trends, Apple is re-orienting around augmented reality e.g. interactive world map, 3D designable objects and spatial sound. Facebook is cornering technology around virtual reality.
  • Was given a co-ordinate within Cryptovoxels that gave a borrowed avatar and it landed in an NFT record store. Reaction was “well, that’s the end of websites”. 2D websites aren’t going to cut it anymore
  • As the whole world moves to augmented reality and then to virtual reality, literally every single person needs to change their business model, how they socialise; seeing it now with kids living on e.g. Fortnite. It doesn’t have to be dystopian it can be powerful for people
  • There will be interoperability between each metaverse, the ability to move an asset from one to another. Creates economic systems that allows money to flow and will develop network effects. If you can start earning value in the metaverse and move it around, then you drive all sorts of economic benefits and face competition, a metaverse has to develop and improve or they lose people and money to another metaverse
  • It is a whole layer of GDP growth that doesn’t exist, it’s like discovering the Americas all over again
  • Q&A
  • What is a likely scenario for crypto if fed raises rates to combat inflation and what if they don’t?
  • Generally, crypto doesn’t do well when central bank balance sheets are not growing. If rates are raised it’s probably crypto winter, more likely to maybe happen in 2023. Unless it’s a supercycle, if fiscal push continues for retooling the economy, a big green drive, universal basic income, etc, we could be on a longer monetary expansion
  • How important is Paul Tudor Jones equalising Bitcoin in his portfolio in terms of impact on institutional money in crypto?
  • Paul Tudor Jones, Stanley Druckenmiller and others saying that they’re interested in crypto, gives basically every hedge fund the green-light. It doesn’t really mean anything for the institutions. Whatever Paul is saying he’s doing, it may vary in the next 10 minutes, he’s very tactical. Stan can be more structural. The numbers Paul mentions are in his head ideal weightings but is a trader at heart, it will move around and he isn’t afraid to short things that he loves. Overall thinks Bitcoin plays a bigger part in inflation, it’s a credibility statement, he’s well respected
  • What is your exit strategy?
  • It changes over time, idea was to trade the cycle like last time then side-step crypto winter if it was to occur. Will probably do some of that but also will go into venture capitalism and hedge fund strategies within crypto, it’s this point in the cycle that you want to be investing in the interesting projects. The space doesn’t care about the volatility anymore and has done such a good job telling people about the cycle that even institutions won’t be put off, people would be more freaked out if it went long term side ways compared to if it went down
  • Opinion on Blackrock buying up houses?
  • It’s everyone’s pension plan buying the homes, you’re renting from yourself. They’re not an investor in their own right. Most Americans have been priced out of the owning market, as have most of Europe, it’s only really the UK and Spain that is a big owning market. Germany, France and Scandinavia are all renting markets. If you don’t own your property it isn’t the end of the world, you just have to invest in something else, it’s about having an asset. It’s a function of the world we live in, pension plans with no yields trying to pay retirees with money they don’t have
  • Concerns about a housing crisis?
  • Central Bank won’t have it again, the future problem will be something else. Divide the Case-Swiller index by the fed balance sheet and it has gone sideways, it’s an illusion, the problem is that wages have not gone up. Wages are stuck due to demographics, technology, globalisation, etc. There are too many people in the labour force, baby boomers and millennials are the two largest charts in history and competing for jobs. Pension companies owning property is probably a safer place compared to individuals owning too much property due to less leverage. The bubble is in fiat currency, there’s too much of it
  • How can the average person take advantage of the changing macro variables?
  • Wrote an article ‘The Reason For Everything’ which covers this. Overall the price of things that make you wealthier over time have become disproportionately expensive, unless you’re an entrepreneur it’s almost impossible to solve. People have to have side gigs and work a lot of hours to stay the same. Tokenisation model will change this, real estate will be tokenised and fractionally owned and level the playing field for creating wealth proportionately.
  • Ledger: What about less tech savvy people, people who build things?
  • In Japan, robots are taking over mass production and artisan production is going to humans, there is a place for that. The general job in retail is going, it won’t be easy and UBI will be needed to transition, it’s inevitable. Once you let the genie out of the bottle of CBDCs you let out the genie of behavioural economics, people assume nefarious Big Brother behaviour, but you can actually solve a lot of economic problems that interest rates can’t solve
  • Cobie: It sounds like it’s from an Aldous Huxley novel but 50/50 as to if it’s ‘Brave New World’ or ‘The Island’. Can see the utopian side of it theoretically but also thinks about the kind of people working in government policy today and fumbling

Final Alpha The best investment you can make in yourself is to travel and to do so outside of your comfort zone. It’s the secret of life, a broader understanding person, eyes opened to more opportunities, see things in different ways and become less influenced by others – it’s the greatest education you could invest in. It costs pretty much nothing to get on a plane to Nicaragua and go backpacking for 2 weeks, do that and tell me it hasn’t changed your life, it will do

Notes by Luke

Music by GiovanniPickle