Bankless - 178 - Is Crypto's Bear Market Almost Over? with Raoul Pal

Episode Date: July 3, 2023

Are we entering Crypto’s Spring? Raoul Pal is the Co-Founder and CEO of Real Vision, a financial media and education platform focused on Macro, Investing, and Crypto. In today’s episode, we cover:1) The Aftermath of the 2022 Meltdown.2) How to Invest in the face of the current liquidity and external Indicators. 3) Why Raoul thinks we’re headed toward Deflation, not Inflation. 4) What AI will bring to the table, and how it intersects with Crypto 5) Why the Crypto Winter is probably over. ------ ✨ DEBRIEF | Unpacking the episode: https://www.bankless.com/debrief-raoul-pal ------ 🚀 Unlock $3,000+ in Perks with Bankless Citizenship 🚀 ⁠https://bankless.cc/GetThePerks⁠  ------ BANKLESS SPONSOR TOOLS:  🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE ⁠https://k.xyz/bankless-pod-q2⁠  🦊METAMASK LEARN | HELPFUL WEB3 RESOURCE ⁠https://bankless.cc/MetaMask⁠   🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/Toku  ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum⁠  🦄UNISWAP | ON-CHAIN MARKETPLACE ⁠https://bankless.cc/uniswap⁠  🛞MANTLE | MODULAR LAYER 2 NETWORK ⁠https://bankless.cc/Mantle⁠  ------ TIMESTAMPS 0:00 Intro 7:20 The 2022 Meltdown 22:14 The Aftermath 27:26 Liquidity Indicators 34:51 External Indicators 37:54 Raoul’s Deflation Thesis 50:29 The State of AI 56:19 How Crypto & AI Intersect 1:00:43 The Implications of AI 1:08:14 Crypto’s Inflection Moment 1:11:43 Investing in the Current Climate 1:19:00 Raoul’s Portfolio 1:20:39 Crypto’s North Star 1:28:49 The Everything Code 1:35:26 Closing & Disclaimers ------ RESOURCES Raoul Pal⁠https://twitter.com/RaoulGMI⁠  Real Vision ⁠https://www.realvision.com/⁠  Real Vision Newsletter ⁠https://www.realvision.com/dailybriefing⁠  The Everything Code ⁠https://www.realvision.com/issues/the-everything-code-part-1-the-renaissance⁠  ------ RELATED EPISODES: 118 - Raoul Pal | Should We Be Scared Right Now? ⁠https://www.youtube.com/watch?v=nzGMSKbqjco⁠  ------ Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: ⁠https://www.bankless.com/disclosures⁠ 

What's really interesting to me that most people don't think about is what is the compute called for AIs? The tokens, right? You pay for a certain number of tokens, right? It's obvious to me that a tokenization of an open AI network makes total sense. Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Sean Adams.

I'm here with David Hoffman, and we're here to help you become more bankless. Guys, I'm in David's New York City studio today. This is the first Monday episode we've ever recorded in person. And this is all about getting our bearings as crypto investors. Where are we headed? Are we on the right path? Will there even be another bull market in crypto anytime soon?

Raoul Paul is our guest for these questions. A few benefits and takeaways for you. Number one, we rewind to 2022. What happened over the last 12 months in crypto? Did we learn anything? Number two, we talk about why Raul. thinks there's a crypto inflection moment on the horizon. Number three, liquidity indicators. These are the key indicators that inform Raoul's outlooks in crypto investing. Number four, we talk about

why Raoul thinks the popular inflation narrative is complete trash. Maybe we're in for deflation rather than inflation in the coming decade. Number five, we talk AI. Is it a bubble or is it massively underheight? And how does crypto fit into the story? And finally, we end with Raoul's crypto portfolio in the summer of 2023. Has he increased his exposure to crypto or decreased it? Stay tuned to the end to hear the answer to that. David, why was this episode significant to you? Well, other than having you right next to me, which took some getting used to, but I think it went pretty well. Raul finds signals and finds ways to look towards the longest term signals that crypto can offer and just like investing in general. And it's a nice respite for people who like

I know you and I tend to be like sucked into the center of crypto Twitter. There's like a lot of noise around there. Raul does a very good job of zooming all the way back out, tapping in some macro signals, tapping in some internal to crypto signals, and then also just being a strong reminder of some of the fundamentals that drive this space. Like when's the last time we talked about Metcalf's law? Right. Like Raul, he just loves Metcass law.

And there's a reason for that. If your heads down, like sucked into the middle of crypto Twitter, and like I said, like you and I are, like it's easy to forget some of these things that are playing out over the longest term time horizons that crypto has to offer. Raul always will remind us that crypto and macro are the same story. And so even though crypto is so young, it's so risk on, it's so small, it is still a part of the macro conversation. And the macro conversation is very, very big right now.

And so I think we do a very good job defining the contours around crypto, the macro environment that is defining the internal crypto environment and then also trying to parse apart, what's up with the internal crypto environment? Like, there's a story to unpack there. And I think even Raoul is a little bit lost and lost, although patient for crypto to find its footing. These are the themes of the episodes, I would say. And Bankless Nation, of course, stay tuned for the debrief episode. That is available for bankless citizens. It's our episode right after the episode we're about to hit record on. We've also never done a debrief in person either. And we'll be sharing one mic. So, David, we'll have to see how that goes. But if you are a bankless

citizen, you have access to that right now on the bankless premium feed. If you're not a citizen, consider upgrading. There's a link in the show notes to get access to that episode right now. All right, guys, we're going to get right to the episode with Raul Paul. But before we do, we want to thank the sponsors that made this episode possible, including our number one recommended crypto exchange, Cracken. Go check them out. Cracken Pro has easily become the best crypto trading platform in the industry. The place I use to check the charts and the crypto prices, even when I'm not looking to place a trade. On Cracken Pro, you'll have access to advanced charting tools, real-time market data, and lightning-fast trade

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operations with Toku. You can reach out to Toku at Toku.com slash bankless or click the link in the show notes. Bankless Nation, I am super excited to introduce you once again to Raoul Paul. He is is the co-founder and CEO of Real Vision, which is a financial media and education platform focused on macro investing in crypto. He's bootstrapped this company independently from mainstream media, just like bankless. Raoul, it's been about a year since we've had you on. And what a year it has been. Welcome back to bankless, my friend. Good to be here. Yeah, it's been one hell of a year. It truly has. And by the way, for bankless listeners seeing on YouTube, you can see David and I are actually recording this episode in person. This is the first Monday episode we've ever recorded together.

Never would have thought it was possible. It's very cute. Yeah. Raoul's seeing it on the other end. So a bankless listener, you can see how we do with this. Raoul, we were hoping that this episode could be one where we get our bearings a little bit as crypto investors because I think the market, particularly maybe crypto investors, we're all feeling a little bit lost right now. Like, we're unsure of ourselves. We don't know where to go next. So we're hoping to could help with that. Does that sound good? Yeah, of course. You know, where I wanted to start, though, was taking a trip down memory lane, because I said in the intro, it's been quite a year. And I think you agree. The last time we had you on the bankless podcast, we titled the episode,

very aptly, should we be scared right now? Okay. This was May 16th, 2022. Several months prior, crypto had just hit all-time highs. I think people were still feeling generally bullish, but the tires were starting to wobble at that point in time. And there were some bad things that were about to hit us. This is a clip from that episode. And I want to play back for the Bankless Nation just to capture that moment in time. Let's play that clip. Take over here.

Yeah, it's UST, which we talked about earlier. I just interviewed Doe this morning, by the way. My goodness. Well, let's talk about that because he didn't give a lot away. What's happening with UST price? And Raoul, I don't know if you want to pull up a chart too. Well, when you hopped into this recording room, UST price was at 98 cents being defended. Do you know what it is right now?

No. It's at 92 cents. What a day? So that's a billion dollars of stable chlorine market cap that's gotten a race in the last 30 minutes. And as I'm monitoring Twitter right now, and the Luna Guard, the Luna Foundation that has the BTC has just sent their BTC outbound. So they are probably in the process of liquidating Bitcoin. Are they liquidated $500 million yesterday? We continued on in that conversation, Raoul, and we're trying to figure out what in the world was going on at that point in time.

And so I think the answer to that episode title, should we be scared right now? We found out later was very much yes, although we're talking mainly about macro in that episode. I just want to reflect with you about the last 12 months in crypto. So what happened? It was also, by the way, a priceless moment. It's the face of mine when I was going through the ramifications. As I said, you know, the ramifications of people. people who were going to get really hurt in that. That's what was going through my head at that time.

It's like, oh, my God. Because my co-founder, Remy was hugely involved in that space. And I'm like, he's going to get wiped out. Can you tell us what happened? So that was going through your head at that point in time. And then what went on in the days and the weeks to come and then maybe zoom out and tell us, like reflect on the last 12 months in crypto? So that was the moment when we realized that there was going to be much bigger implications to the space, because that was the first major domino that was going to start accelerating everything. But having been in this space for quite some time now, since 2012, 13,

I've seen this before many times. And it's where narratives suddenly gets to peak frenzy, a narrative of fear. And so it was by June that I started, I don't really trade a lot. So I just kind of, you know, I'm a cumulative. later, I wait for opportunities to add. And at that point, I had realized that, okay, we're now in the phase where there's mass liquidation, mass fear, and narrative couldn't get much worse. Did it get

worse in October? I'm not sure, because ETH never made a new low. So this was utter panic, because it took people by surprise. By October, we were kind of used to the fact we were in our own banking crisis of sorts. But back then, it was peak fear. So what I was doing was trying to zoom out. try and spend as much time as possible hearing the noise and then trying to step back out of it to say, okay, if you filter out the noise, what is going on here? And it was the de-leveraging of the space. But my liquidity indicators, which I think is the primary driver of, well, all markets, were bottoming. So I'm like, huh, so here we are. Just take the log trend of Bitcoin or the log trend of ETH, we'd come down to the log trend, which is the secular uptrend, and we're

at the bottom of the liquidity cycle, which was turning up. So that to me was like a golden opportunity. And I started making noise about that saying, well, you know, that June period was really an opportunity to start, you know, significantly adding into the space. I'd not sold anything. And that if you understood the liquidity cycle and the business cycle, which most people in crypto didn't really yet understand that this was going to be a good opportunity. Then we play through to the FTX thing, which was, you know, an enormous moment, probably more so for mainstream media than it was for the space itself. And so it became headline news all around the world. And again, by this stage, things like the year-on-year rate of change of M2,

which was a big driver of Bitcoin, which was my secondary order liquidity indicator, had also picked up. So I'm like, okay, here we are when the narrative is completely opposite to the indicators. Now, not all indicators work all the time. You know, everything is a probabilistic outcome, but the probabilities were very high. So again, I kind of added into that period as well, thinking that through, thinking, okay, here's our kind of Mount Gox moment. Here's the big one. It's the kind of puking, the kitchen sinking of everything, of all negative news flow. And then since that date, Firstly, it gave me a lot of comfort that ETH didn't make a new low in October. Right, that was telling me something major. Then we started to see, even over the FTCS period, ETH starts becoming

deflationary. It's like, huh, not even in a bull market, it's becoming deflationary. That was interesting. The Salana story was very interesting to me because Solana had been, you know, as the cheap narrative goes, it's just a VC token. But I started to dig in. I owned a small, and Salana, but I started to dig in in June to really look at the ecosystem and look at the depth of the ecosystem. And I thought, you know what? This feels like an Heath 2018 moment, where it's down 97.5%. There's forced liquidations. And so that becomes interesting. So for me, it was an opportunistic year. It was hard because the narrative was so violent and you felt so under attack by everybody. You know, not only did people from outside the crypto space turn on

everybody on crypto, but everybody within crypto turned on each other as well. And it was a real moment of ugliness. And so it was hard, emotionally hard, to try and tune out the noise. But if you're truly believing in a longer term time horizon, then these are the opportunities you wait for. And I would start to listen to people like Chris Berniske, who was great at this kind of stuff. You know, there's a few people, Arthur Hayes, there's a few people who really understood what this was in the cycle and that it was an opportunity, not a threat. Then subsequent to that, we started to see the Gensler noise ramping up. And my hypothesis on Gensler for over a year had been, here's going to, there's multiple hypotheses on him, but as a negotiator, he's going to start

with hard no, hard no, hard no, you're all going to prison, you're all going to die. And the space is going to go weird. Libertarians, we can do anything we want. We'll rebuild the the Silk Road and, you know, it's like somewhere there's going to be a compromise and we don't know which side of the line. It's all fighting which side of the central line it is. Obviously, Gensler became politicised in the process as well, even more so than when he started and had different ideas of what he wants to do, what that meant because of his relationship with FTCS, whether they just wanted scalps. Who the hell knows? But again, what was really interesting, as Gensler was firing up the narrative and that was becoming the predominant.

narrative in the space, crypto prices were rising in line with liquidity. And again, that just gave me comfort that the macro cycle was actually more important and the adoption cycle was continuing, and none of this mattered. I then started also focusing on, there's too many people on crypto, Twitter, are US-based. And so everybody filters everything through their own narrative, which is they're going to ban everything. It's the US. It's the end of crypto. But when you look at it, the US is only a fraction of crypto. Yes, there's a lot of money there. Yes, a lot of companies building there. But in a world of capital that is liquid that moves anywhere, it's like water. It'll find the easiest path. It flows. Even the EU can't seem to regulate anything very easily. Got a decent set

regs across the line. Then we saw, obviously, Singapore had obviously put that in place. They had a bit of a bloody nose from the FTX saga, but they were still there. Then the news out of Hong Kong comes. Then the news out of the UK comes. And I'm looking at it. at this thinking, we've seen all of this before, is the US is trying to become protectionist over the system of money, because it is the world's reserve currency. But in a global capital market, capital will find a way. And my hypothesis has been, if the US screws this up, it'll just go to the UK. And I remember speaking to Brett Tedgepole and others from Coinbase saying, the probability of you opening your main office in London is extremely high. It's like, yeah,

it's easy to get staff to London. Yeah, the weather's a bit shit. But other than that, it's an, easy place to go. And my entire time in the finance industry, London was the epicenter of everything. You know, Goldman's main office was London. Nomura's main office was London. Society General's main office was London. So we know how this plays out. And it doesn't stop capital. It just moves it around the board. And again, the US people were so US-centric about this that they were again getting confused over the global adoption, which is what we're all in this game for, versus can I trade my bags? It doesn't matter over the bigger structure of things.

So I've been very optimistic over this whole period because the narrative was peak pessimistic. And there was only one hypothesis to test. Is this technology going away or not? That was the only hypothesis you had to have. And if you didn't see evidence of it going away or use cases dying. And the other thing that backed up my theories

were we saw, what, $60 billion of VC money go in? So there's an incredible amount of startups building new projects, building new areas, which will form the next foundation for the bull market. Now, we've never seen that much money in the space before. I mean, it's like 10x the size of the entire hedge fund market in crypto. Just went in like basically two years. So you have to start betting on the outcomes of that. What does it mean?

What are the opportunities that are going to come that we don't realize? We know there's infrastructure stuff. I know you guys are involved in kind of the ZK. side and all sorts of stuff there. We're also seeing some new layer ones. Do they help? Who knows? But we're also seeing, I think, people working on how to get mass adoption. You know, what is the consumerization? It's one of the things that also attracted me to the Solana ecosystem as well, which is really a small part. I'm mainly my main bets are in Heath. But because if I were to say Solana stands for one thing, it's a consumer application chain. Narrative is everything in this game,

particularly in crypto, the meme wins. And if that's their meme, that's a nice mean to have because nobody else owns that. Somebody's going to own blockchain of gaming. Somebody's going to own blockchain of finance in the end because I think that's how the space evolved. So yeah, with all of those macro factors, with peak macro pessimism as well, you know, I started getting along the equity market for the same reason. It's like the pessimism was obscene. People attacking everybody who could be vaguely bullish made me think, okay, if the liquidity cycle is turned, we know what happens, which is over this period, the economy will weaken. So the probability of more liquidity, or more cowbell, as I put it, comes back into the market. And therefore,

forward-looking asset prices, technology, crypto, will out perform. And that's been exactly how it's played out. Never feels that way, because there's so much bloody attacking and misery online, but it's actually played out exactly right. Maybe I can try and put your answer into even more context role. I remember throughout 2021, it was just an endless onslaught of top signals. to the point of where, like, you started to have to ignore them because even though from the start to the end of 2021 was full of top signals, like, it was still beneficial to have exposure to the market. And yet, finally, the top signals played out and the top actually came in November of 2021. And that's when it was down only from then on out. I think maybe what you're saying is that

in the last year or so, we've had just a year's worth of bottom signals, you know, starting with Terra Luna, followed by Three Eros Capital, followed by FTX. But a round. the FTX era, I think what you're saying is that you started to see some divergence in some signals versus some bullish indicators. And like one of them was the fact that ETH did not make a new low during FTX. ETH started to become deflationary. Various signs of strength started to emerge while there was a growing divergence in signals, right? Gary Gensler comes in with his heavy hammer, everyone gets scared, yet there are signals out there, even in the midst of mass pessimism, mass depression, mass like infighting in the crypto world, there are stronger and stronger

signals, sources of confidence for you that we are towards the end of that. And I think that maybe that's really hits home, especially when we get the Bitcoin ETF. I don't know if that's really going to change the game, but it has made people very, very happy at the very least. So maybe what you're saying is just like, man, the pessimism is drying up. And at some point, people are going to start to hear the signals for what they are. Maybe we're not there yet, but we're getting there. I think the final part of pessimism that's washing through, most things in a business cycle terms, there tends to be things that lead and things that lag. So it looks like ETH lead, eye at bottom first. The thing that lags is the further out the risk curve, which is NFTs. So NFTs are having a horrific time right now.

You know, you can blame it on blur and other stuff. But really it's a factor of NFTs are recycling of capital within the space. So when people are making money, they want to buy premium NFTs. Crypto-Punks or Fidenzers or whatever it may be. And when everybody's losing money, they don't do the same. It's the same with high-end real estate. It's the same with Rolex watches. We saw that Rolex watch prices come down because of the same reason. Once you go out, the kind of trophy assets and stuff, there's not enough money around. So that is still washing through the space. So that's, I think, the last part of what has to happen. And then as you say, the ETF is the tink of light on the other side. Now, the ETF in itself doesn't cause a stampede. If you launch the ETF between June and October,

you would have had zero uptake. But the ETF, as prices rising, becomes very powerful. Because most people in this space are momentum investors, particularly the RAAs, the pension plans and others. Most people have done, the institutions have done the work on this space. And all they need is price, because they don't want to look stupid. You know, everyone's investment committees, beat them over the head saying, see, you were stupid thinking about this. everybody I speak to, it's still on their plan. I mean, don't forget, BlackRock were talking about this during the last cycle. You know, remember they had Bitcoin on their website and he was talking about, Fink was saying, you know, we've had more hits on our website than we've ever had in history.

You know, they've been thinking about this through, as have most of the big players. So it feels that as the darkness is on NFTs, we see the light coming for new capital into the space. And then it flows through. And again, very typically, in a cycle, you start with the benchmark asset, Bitcoin, that outperforms. Then as the capital comes into the space, because other part of the space is less liquid, you put the same amount of money in as it spreads down. It causes an outsized reaction in other parts of the space. So what the space does need is new capital, because we've been recycling capital for a while. It's the same with economies. There's no new investment anywhere going on in the global economy right now, except AI,

because of, you know, the economic situation, nobody's got money. But the moment people start making money again, it flows through and we'll see, again, stuff like the ETH Bitcoin outperformance begin again. Now, interesting enough, I've been digging work on that too, and I found that's entirely correlated to the business cycle, that I've got a certain set of indicators that kind of suggests when that happens. And it's, again, it's based on liquidity. So it's the same thing.

So that gets interesting to me as well. Raoul, we're going to talk about macro in just a minute because there's lots going on the macro side. But in the first part of this conversation, two questions arose in my mind as you were speaking. The one is, how's your co-founder doing? How's Remy doing? You mentioned you got kind of hit hard. I think he used the term wiped out in the Luna Terra thing. Is he doing okay? Look, I think it's very hard because he had left Real Vision and was pursuing some other stuff and he was thinking about the crypto space. So it's very hard for him because you have to rebuild your capital. again. But, you know, he's building his own research service out, doing some other stuff, mainly on the

macro side, because he used to work with me at global macro investor as well as my macro analyst. So, yeah, you know, it's hard. We saw a lot of people. I thought more people got hurt by the lunar thing than got hurt by FTX. Felt like more retail people as well. Yes. And same with Celsius and all of those, you know, the centralized exchanges, you know, the CFI stuff. That really hurt people. So a lot of people I know got caught out in that. Not that many people. people I knew were actually using FTX. Yes, some funds were. I've got an asset management company, exponential age asset management, which invest in digital asset hedge funds. It's a funder funds because I think one of my hypothesis is the secondary markets are starved of capital in the

space and we need more participants who need to create vehicles, much like the ETF does. Most people will use stuff like hedge funds to give them exposures to the other parts of the space that aren't Bitcoin. So I can't remember why I was coming on to that. Well, let me dive into maybe my second question here, brought it up a couple of times. And I really want to hear your perspective on the market right now, because at bank list, I feel like we cover sort of the builder side of things very well. But something that you said that I don't think we cover enough here. And I want to get your lens on this is liquidity indicators. There's a series of liquidity indicators you kind of evaluate from time to time. How can investors look at crypto from a liquidity perspective?

Like what liquidity indicators do you use that sort of indicated that, hey, June is a good time to buy? Hey, October, November might be a good time to buy. Tell us more about that. So it's complicated. The business cycle is what drives liquidity. So we can use stuff like the ISM survey as where we are in the business cycle. If it's below 50, we tend to be in recessionary or contractory times. If it's expanding and above, we tend to be expansionary times. But what we know is when the economy slows down, the answer to that is more liquidity, because that's how you stabilize the economy, whether it's cutting rates or whether it's increasing the Fed balance sheet. And I've spent a long time looking at this and developed something that I refer to as the Everything Code. We could talk a bit about that later. But so there's a bunch of liquidity measures. They're not easy to do. Some of them you can get on Trading View, I think, because some people have built them. One is Fed net liquidity, which is U.S.-centric, which I don't think is the most important. And That is basically the Fed balance sheet minus the Treasury General accounts, which is the Treasury building or reducing liquidity and the reverse repo, those three things. And they actually have mirrored asset prices pretty well. But it's not all about the US, as we talked about before.

So then you need a global proxy. So the global proxy that's easier for people to find is global money supply. But again, even that's difficult because there's no one measure of global money supplies. You have to kind of construct it yourself. But again, I think people have got that on trading view now, whether how good it is or not, I don't know, because we use Bloomberg and refinative and other data sources. And then finally, the big daddy of all is we've got the global macro investor, which is my research service, the weekly liquidity index. That's based around the G5 central bank balance sheet. So that's the US, the ECB, the PBOC in China, the Bank of Japan, and the Bank of England.

that seems to explain 97% of the entire price movement of the NASDAQ and about 87.5% of Bitcoin. The reason why Bitcoin actually has a lower correlation than NASDAQ is because of the up cycles, because the adoption rate is so high. Because it goes up. The blow off tops, right? That is the reason because of the compounding of that. But other than that, it's all driven by this factor, which is the central bank balance is different to the general liquidity in the market,

i. money supply and stuff like that. The central bank balance sheet is actually debasement of currency. So debasement of fiat currency is a thing that most people don't understand because it's not obvious. But when you are printing more of a currency,

particularly when all the central banks are doing it, you're lowering the denominator, which is the same why the Venezuelan stock market looks like it goes vertical. It's because the bolivar keeps going lower. So that is what is driving almost all asset prices. So once I started adjusting for that, I realized there was two assets that did better than anything else.

Everything else, like equities divided by the Fed balance is a simple way of doing it, you know, for people who can't find a larger set of thing. The S&P's gone nowhere since about 2012, since QE really became prevalent, or 2008, really, and we found the same with real estate, gold, everything. Technology, yes, why? Adoption trends, right? Technological adoption is relentless. And the other one that beats it all, obviously, is crypto, because it's got the technological adoption and it counteracts the debasement. So once I found those out, I realized liquidity was going to become the really important driver. And I think it'll be the thing people talk about for this cycle. And now, whether it fully works all the way through or not remains to be seen. So it's a little bit hard for people to look at it themselves.

Some people have got some indicators of it. Tech dev on Twitter. I post a bit of this stuff. I understand it's hard for people to do. And if I can in due form, we're just building out a new Real Vision platform. I'll try and make some templates for people that they can use to make it a bit easier

because it is incredibly powerful and really helps. But Raoul, the basic story is when you see central bank balance sheets growing, when you see currency debasement, when you see that denominator being debased, then that's an indicator to be bullish on assets and particularly crypto assets. That's generally the all-in indicator.

Get exposure now. That's right. So usually it stabilizes first. If you remember 2018, the Fed had been shrinking the balance sheet. Most of the global central banks did. The Fed go and pause. Some of the other central banks start doing the same. That moment assets took off.

Bitcoin was up 300% into June or July of that year, then corrected into 2020. But that period of pause is like somebody taking the foot off the beach ball and it rises out above the water. Then the thing that lifts it is when they really start expanding the balance sheet, i.e. when recession is coming or you've got a banking crisis, both of which we're toying with right now. This is the summer month, so it tends to get a bit quieter. But that narrative probably picks up again and the beach bull gets lifted up by the gust of wind. So this is the kind of moment in liquidity where things are bottom because the central bank balance sheet stopped at shrinking.

and Japan started printing a bit. China started increasing money supply. The UK had to print quickly because of it had a pension crisis. And then the Fed had to print quickly for the bank crisis. These were isolated events, but they're the markers that we know the more cowbell is coming. And then we're waiting for, okay, when do they really swing into action? Money printer go burr. You know, you can use the very simple bell curve meme of the money printer go burr. That's the big signal. So really it's all about setting yourself up for the money printer go burr. You know, you can use the very simple bell curve meme of the money printer go burr. That's the big signal. So really it's all about setting yourself up for the money. So really, that big signal because crypto spring, which is where I think we got to from October, tends to be choppier, harder to trade. It's not an up-only market. Tends to make good progress, but it tends to be complicated because there's a lot of opposite narratives, which we're seeing, right? People don't trust this rally because of banning or because of this, because of that. Yeah, setting ourselves up for the big indicator, the big moment. I think that's kind of what we're all dancing around so far in this conversation. We've talked about like the internal to crypto conversations, right? Like just a year's worth of negative signals seems to be like not having

the same impact. So that means that the big signal that's hopefully bullish is, you know, sooner rather than later, hopefully. And then we have the external indicators, which we're talking about. You touched on one of them, but there's a few others, well, that I can think of. Inflation is not yet tamed. We have a geopolitical tectonic shifts going on right now. Like you touched on the banking crisis. What are the big external indicators that are worth noting? You talked about the banking crisis, but if we're looking for the big signal that tells us, like, hey, it's safe to go risk on because that denominator is about to shift in our favor, what are the big macro external signals to the crypto world that you're paying attention to?

So one is banking crisis, right? The proven outcome for a banking crisis is inject liquidity into the system. We also know that there's a commercial real estate crisis. So there's two parts of this crisis. One is the banks themselves having deposit flights because of the mismatch of interest rates between what they offer their customers versus money market funds, right? That's not going to stop until the Fed cut. So there's a bleed of assets that come out of the banking system. But the big one is commercial real estate. Nobody goes to the office anymore. Ryan comes to my house. Exactly. We don't know how big that is, but it's in the one to two trillion dollar range. I mean, that's trillion with a T. These are big numbers. And this stuff, nobody's ever going to

use this offices ever again. So it's going to end up on somebody's balance sheet and it'll end up on the central bank balance sheet. But that's probably a 2024, 2025 story when things really pick up. So what else forces the central banks into the game? It usually is the old ones inflation falling or unemployment rising. So we're watching those. So, you know, as a good proxy for where inflation's going to be, headline inflation is going to be in a couple of months, just use truflation. You know, it's the on-chain inflation thing, that's about, what, 2.3%. I mean, I've been saying this for a while is I think there's a probability that headline inflation, certainly PPI inflation, is negative over the summer.

Now, core inflation is a bit stickier, but there's a extremely strong narrative, maybe the strongest narrative I've ever seen in financial markets, that inflation is going to be around forever and it's sticky because people pull up the chart of the 1970s and say, see, it's going to happen. They're imposing their own belief system onto markets as opposed to observe markets as an impartial participant. So I think that narrative needs to get crushed. Now, don't forget, a banking crisis is the single most deflationary thing that could ever happen, except for AI, which is the single most deflationary thing that could ever happen.

Okay. Can we talk about that for a minute? Because I don't know that the bankless listeners have fully absorbed your take on inflation, right? I feel like somewhat the accepted narrative on inflation right now among kind of macro gurus and the rest of, of crypto is that inflation will be a persistent thing this decade. Right. So we had, what, eight, nine percent in kind of the government inflation rates and that's dropped. I think we were like four percent annualized a couple weeks ago. And so it's going down. But people are saying, well, that's a brief dip and then we'll go back towards double digits. Inflation will be a persistent thing for the 2020s. For many of the reasons, debasement reasons, other reasons that macro folks

mentioned, I think you take the opposite view. You think that, why don't you tell us what you think, actually, Raoul? Because I think it's a bit more, you think deflation will be more the take here. Yeah. The largest driver of everything of all economic activity in all of the developed countries is demographics. GDP growth is driven by population growth, productivity growth, and probably debt growth. What we've got is population shrinking in most countries or in the U.S. are least stable. But the birth death rates collapsed, right? So there is no population increase and most people have closed borders or throttled their borders somewhat because there's a scarcity of job opportunities because of globalization. So people have tended to throttle back on immigration. Okay. So that tends to be

the big forward indicator for inflation. It's very difficult to have an old population generating inflation. You know, I've talked about this a lot when I saw my father retired. I mean, his spending probably fell 65% in the first two years of retirement. It's a psychological effect. The psychological effect is, I don't know how long I'm going to live for. Am I going to run out of money? That is so powerful as a fear that people will entirely change their spending patterns. There is a school of thought came out of one paper that an ageing population is inflationary because those people will spend their money. But it's the rate of change of spending money that's important here. The baby boomers might have a lot of money, but how do they pass it on? What was very interesting is we saw this in

Japan. Their old population eventually ended up living longer than expected, pass it on to their kids who had retired. So it just didn't get recycled into the economy. Never did. So I'm a believer that the demographics are a problem. I understand that there is a scarcity of jobs in some areas, and that drives wages up. But when the labour force participation rate is 62%, there's 38% of the people, who don't get wage rises. So at aggregate effect, wage rises aren't as pervasive. They don't drive demand, which drives inflation. So that's that. The productivity side of the equation of GDP growth, we're seeing things like AI and new technologies coming in that replace workers. So if you look at Amazon, Amazon now has, I think it's a one and a half million employees and half a million robot employees.

If you think of them in those terms. Those robots work 24-7, 365. They're more productive than humans in the roles that they do. But let's assume that the same productivity. So they've got an equal robot man hours versus man hours. And that equation is going to keep happening. Because technology does one thing. It looks at the highest cost and destroys it. So everything that gets digitized goes to zero in cost. We've seen it with cloud compute, with mobile phone data, with literally everything. So that pervasive trend of technology and the productivity of technology plus demographics makes it almost impossible. So why we got the inflation is not a function of the money that got printed. That washes in and washes out. It was a function of no supply because factories

were having to re-get back up online and supply chains were broken and everybody coming out of lockdowns. That demand and supply, we saw exactly that after World War II. Same outcome. We've been following the chart's identical is inflation rises up and then it just collapses back down. You'll have an echo because of the year-on-year effects, but it doesn't come back. And I don't see a reason why it's going to come back. When I press people to say, show me, they say de-globalization. I'm like, fine. When I look at the amount of world trade, it's basically stabilized. It's not shrinking. And we're also seeing supply change change. So the US moves away from China and moves to Mexico. It's not all coming back to the US. So I'm like, somebody needs to show me a real data-driven

reason why inflation is going to stick. Usually when you get down to it, when you open your mind and listen to what they're saying, they're manifesting their own fears or desires. It's the fear of the 70s redux that's coming from an older group because they want justice for what central banks have done. They want their justice. They want to be proven that if you mess around with money, it creates inflation. I don't think it does. It creates asset inflation because of the denominator effect. I think inflation is very hard to actually create for extended periods of time without demand. And that has to come from population. So just to be clear on what you think, you believe in your thesis. So you're a big believer like debasement. You see that as happening right now,

kind of inevitable, and you're tracking that very precisely. You don't think that will manifest in terms of CPI price inflation, kind of the common definition of inflation, although you do think it will manifest an asset price inflation, which is sort of a separate category that will put aside. And the reason you don't think it will manifest in the form of CPI inflation, consumer price index inflation, is because aging population, demographics were not growing as fast as we used to. Baby boomers are aging, and they're going to be spending less in developed countries in particular, and also because of technology innovation and digital technology innovation, AI, that sort of thing. So you think that counteracts. My question you then, Raoul, is where does all this debasement manifest? Does all the debasement that you see

happening? Does that just get pushed into asset prices? Is that where it manifests? It doesn't go into core CPI inflation? Correct. So look what's happened. Once you understand this process, you can see that Real wages have not risen since 1972. The reason being is you put the largest population boom in all history, the baby boomers, into the workforce at the same time. They compete with each other for wages, so wages didn't go up. After that, you get globalization and technology, and it makes it really hard for wages to go up. 2008, the world changed. We reset all debt to zero interest payments, and we started printing money. And what happened is asset prices took off. Now, if you changed the denominator, many of the assets actually didn't really take off.

They just were cyclical. But it meant that the average person was now poorer every year in the number of assets they could own. So the assets going up doesn't really help a lot of people because the majority of people don't have assets. Yeah, the house you live in, maybe, but you live in that. What are you going to do? Liquidate it and live on the street. I mean, it's not really, it's a lifestyle asset, but it's not an, asset per se. Yeah, in an emergency situation it could be. But people own, you know, the average

millennial can afford a fraction of the S&P that their parents, their baby boomer parents could when they were 30. A fraction of the real estate, a fraction of gold, a fraction of everything, which is why I've been a big proponent of crypto as the one opportunity for the younger generation and technology, because those are the only things that are going to really accrue wealth in the same way that your parents did from just buying the S&P 500. And you need to beat the balance sheet as well, which is growing at what, 7% a year or something on average. So you've got quite a high hurdle rate to actually get richer. So once you understand the world in these terms, you understand why populism rose so fast. People just turned around and saying, well, I'm not

participating. The markets are all-time highs. The billionaires are all laughing, drinking champagne, flying jets. And we can barely afford anything. It's also the same discussion, why, people get very voracious about the argument about not ruling out fossil fuels, particularly in the US, because fossil fuels is the cost input traveling to work and the basic things of life. And everyone's fearful that if you change systems like the EU is doing, you'll increase the costs of living on people and nobody can do it because they're all like this. So it's a really complicated world. And it's not necessarily inflation that's the huge enemy here.

Yeah, inflation really hurt people over the last. two years really hurt people because price of goods never goes down deflation you know might happen for one or two percent never comes down so the cost of living has gone up and it went up more than their wages and that won't change we've uh opened up the ai conversation i want to make sure we fully unpack that it seems to be like schrodinger's position of is ai in a bubble or is ai about to cause massive deflation i think there's without a doubt a lot of bubble signals but also the last jobs report I saw there was actually a line item for reasons why you lost your job. And some thousands of people said that they lost their job because of AI. So I want to ask your perspective on the AI industry in

this present moment. Like it kind of feels bubbly. Nvidia is priced 30% higher than its 2021 top. The world can't stop talking about chat GPT. Like the crypto people are jealous of all the attention that AI is getting. Jason Calcanus tweets out, if you're in crypto, pivot to AI. But also at the same time, like we are also seeing people report that they're losing their jobs to AI, indicating there's some sort of deflationary pressure. So I can kind of see the argument for both cases. Like, yeah, like companies are raising hundreds of millions of dollars for ideas that they just started a couple months ago. But like I said, at the same time, there are deflationary forces. So like overall, what's your whole read on the state of AI in this present moment and as it relates

to just like the rest of investing in markets? I think AI is the most powerful technology, humanity has probably ever developed, maybe with the exception of the splitting of the atom. I don't think people understand what this means yet. They still think it's like a gadget or a widget or a bit of the internet. It is in fact, if you think of scarcity, the world everybody in crypto understands. We replaced the scarcity of humans by creating the machines. That was the agricultural revolution, the industrial revolution, the technological revolution. The one thing that we had as humans that were scarce was knowledge. Knowledge is now infinitely scalable. There is no reason to have as many doctors, lawyers, accountants. Almost anybody. Producers, editors, writers, marketers, you name it. I mean,

it's staggering. And we've only, don't forget, here's us going, oh, well, it's a bubble. We're six months into this since GPT4 came out. It's gone from zero to 120 million users. It went there in five weeks. I will say, my frame of reference is crypto. And if you got into crypto six months after you heard about it, you're halfway through 2021. I don't know if AI moves at the same time frames that AI does. But that's my perspective on just like, yeah, we're six months into it. That could be kind of late. So if you bought Facebook in 2012, it had some big ups and downs, but it just kept going, right? That was the wave of social media. That's part of the internet. So where are we in the bubble? Well, it's virtually uninvestable. You can buy some semiconductor stocks. You can buy Microsoft that does a whole shit ton of other stuff. You can buy Google. We haven't started the bubble in this. If it's as big a disruptive technology, we're going to have one epic bubble. In what, though? So that's the question that I was going to ask as well, Raoul, like, how do people invest in this thing? How do we get exposure to the bubble? Yeah. I mean, one way to do it. One thing I would advise everyone listening to this is make sure you have an

AI-proof career and job. And that begins with leveraging AI to the maximum degree in whatever you are doing right now. Are you creating content? Make sure you are using an AI assistant to help you create that content. David is pointing to me right now. Are you writing marketing copy? Make sure you are using an AI. Are you a graphic designer? How are you leveraging something like mid-jurney to actually help you, you know, kind of plan the next thing to develop. So that's one thing from a career perspective. But, I mean, this is an investor podcast too, Rowland. I can't figure out how to invest in this thing. I'm not going to go buy NVIDia stock. No, I mean, what I've done is by the SMH, the ETF. That's the semis, because it's not just Nvidia. So it's less scary than

invidia. And the semi-cycle is just turned higher. Again, it's driven by the business cycle. We have forward-looking forecast. That should last for another two or three years. And it tends to outperform the NASDAQ in these cycles. The NASDAQ itself, pretty easy way of getting exposure to this whole space. Then you could go down to individual stocks. They've got so many other component parts, Microsoft, Google, Tesla is a no-brainer in this. I mean, there's a reason Elon bought Twitter, and it's not because he wants a open playing field of debate. It's because he wants all of the natural language of humans in the way that they interact with each other at scale. Because don't forget, he's got the optimist robot, he's got the self-driving cars, and he's got. He's got the self-driving cars,

building the world's fastest supercomputer dojo. So everybody's in this game. So those stocks will do well. And then there'll be other opportunities that come, whether somebody manages to go public, whatever it is, or it ends up being a gigantic VC bubble. Of course it will do. You know, we've seen this play out and play out. But the bubbles, I mean, we've only been going for six months. These things usually go three, four years before you have a big wipe out of capital or reset and off we go again. Metamask has something new. Introducing Metamask, Metamask portfolio is the best way to view your crypto portfolio from a holistic level. See everything across all the chains all at once.

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and, you know, David as well, Bankless is early in thinking of crypto as a potential AI investment vehicle. Okay? This may be ways ahead of the narrative. This may also be my bags and bias talking as well. But you have to start thinking about all of the AI agents that are emerging.

I mean, you just mentioned Amazon's workforce, right? If you think of like artificial intelligence agents, AI agents, they will compose the largest unbanked population in the world. They don't have an identity. They don't have a social security number. They don't have a driver's license. What money system are they going to prefer? It's not going to be Wells Fargo dollars, that's for sure. It's going to be some sort of programmable digital ledger system. And so when you start to think about that, and again, this is still ways out in the future, you start to look at crypto again and say, well, we've built a digital programmable money system for AIs potentially, right? You want to create a capital structure as a set of artificial intelligence agents. You're going to register a Delaware LLC? No, you're going to form a Dow. You're going to register it on chain. You're going to have your banking apparatus in Defi, not JP Morgan. And so we might be ahead of

that narrative. But is this just my bags talking or do you think there's something to that? Fun fact, if you actually ask Chat GPT what money system it would likely use, what crypto money system, it'll tell you Ethereum. Well, it's proven to be the money of the internet, right? If there's a single currency of the internet, currently, it'll be Ethereum. Okay, here's how I think about it. I developed a thesis called The Exponential Age, which you've heard me bleat on about. That's the nexus of all of these technologies, from crypto to AI, to robotics, to genetic sciences, to space, to distributed computing power, and all of these Internet of things, all of this stuff. They all are part of the same thing, which is an entire.

highly new technological infrastructure of the world and applications of the world. So the blockchain sits at the middle of that and helps a lot of it become more efficient. As you rightly say, the currency of the machines is likely to be a cryptocurrency in its format. So I think that is a decent thesis, but that's a way off. You know, your fridge paying Amazon to upload will happen, right? The Internet of Things. What is it going to do that streaming payments in? We don't know, you know, the central banks are trying to get into this game as well by figuring out can they get faster and faster ways of payments. But there's that. The other thing is, what's really interesting to me that most people don't think about is what is the compute called for

AIs? The tokens, right? You pay for a certain number of tokens, right? It's obvious to me that a tokenization of an AI, open AI network makes total sense. Because you've, create a payment system for paying the tokens, using the tokens, it can create an economy. So if there's one way for the machines to create an economy, it's the tokenization of itself as a network. Most of these are not closed networks right now. Now, stability, AI, and there's a few others are open source. Okay, that leads itself, even the fact that you are paying for tokens to use tokens for that. I think that makes a tremendous amount of sense, as it does with cloud compute and other big open networks of this sort. And finally, the other one is, I know you

guys are involved in the kind of ZK ecosystem. I think identity is going to be the most pressing and urgent part of this first, because we are going into a US election. Let's see how hot it's going to be as an election. But if we've got a very polarising set of candidates, we are going to see an enormous amount of use of AI, both good and bad. And we will not know what content is authentic, what people are authentic. We're already struggling with Twitter with authenticity. All of this needs to get resolved. And I think blockchain is the way of doing it. So, Raoul, you think AI is every bit as hypey as it should be. Let me just say it's definitely going to live up to all of the expectations and all of the hype that has front-ran it already.

Over time. Look, just people need to get their heads around simple things. It's like, watch the Deep Mind Go documentary. When Google built this large language model called Deep Mind, they kind of pioneered it, came out of the UK, that thing started competing against the World Go champion, which is supposed to be the most complex strategic board game that humans can play. It wins the first bunch of them,

playing normal kind of go strategies. It then loses a game. The next game after that, the commentators, and it's all filmed, are like, what the hell is it doing? This is stupid moves. This doesn't make any sense. It then never lost a game ever again. And the only thing that can beat it is new versions of deep mind. It had learned to play Go in a way that humans had never played Go. And it had never had been taught the rules. It learnt the rules. And it was that transition. You see it on the documentary where people are like, I don't understand this. Then we've started to hearing stories out of Google X, their internal labs, which is like, this thing has some elements of sentience. Whatever that means, these are all charged terms. Just go and say, does it have a form of intelligence that we don't understand, or a way of

learning, even simpler than that, a way of learning, we don't understand. Then go and watch the Sam Altman, Lex Friedman interview. When Sam stops and goes to Lex, do you think we've built AGI? And Lex pauses and goes, I don't think so. No one knows. They don't know. Because the issue is here is this thing learns in ways we don't understand. We've seen it learn languages that it had never been taught.

So it's learning. And every time we ask it questions, it's learning more. The more data we put in it, it's learning more. We don't know how it learns or what it learns. So what we're now stuck with, and nobody knows how these models work. Not Sam Altman, nobody. So how I think about it is we're restricted by our own language. So it's like if you've got broken Spanish and you speak to a Spanish person, a native Spanish speaker,

you can't assess their intelligence because you don't even know how to ask the questions, because you're limited by your language and understanding. And that's where I think we are with this. I'm not saying we've developed AGI, but I'm saying is we don't know what we've developed, but the power of it is enormous. So, Raoul, we've done a few episodes now on kind of the existential threat of artificial general intelligence, superintelligence systems, of course. And I don't want to run us a field and talk about that. But rather, I want to ask you

a question. I'm wondering if you've given any thought to this about the societal impact if what you say comes true and what you're talking about comes true. So we are talking about already asset price inflation for all the reasons we've talked about, which is just going to exacerbate wealth inequality. now people are also going to be hit with the same time their jobs literally being taken away by artificial intelligence agents. It's not clear that society's governance systems, Western liberal democracies, let's call them, can adapt fast enough to respond to this level of change. Think even about the tax code, right? There are so many ways for wealthy individuals to kind of circumvent taxes and all sorts of various ways, right? And so, you know, their wealth can

crew far more rapidly. How are we going to tax AI agents? What does that world even look like? And I'm almost wondering if the world doesn't and societies don't start to buckle under all of these external forces that are kind of hitting them. They're not able to respond fast enough to this level of change. And before we have to worry about some sort of existential risk from an artificial general intelligence, we have to worry about kind of late 1930s level populism and societal decay as a result of all of these forces coming to play, and the change being far too rapid. What's your take on this?

Do you think we will be able to weather these storms as a world, as a global collective of humans trying to navigate our way? Or do you think that we're in force and tumultuous times as a result of these changes? So if you think of the AGI of the global population of 8 billion people trying to solve a problem, it's still very, very powerful. The machines are not at that level. So my guess is we reorganize society, which we know we're in need of and it's underway, right?

Crypto was one of the first parts of that. It came precisely from a moment where it's like we need to reorganize the financial system. I think we reorganize society. And many of the jobs that people do, they don't want to do. What are the jobs in the future? And I go with Mark Andreson, I don't think of it's all roses, for sure. But I go with Mark Andrason's idea that humans will reorganize and create different opportunities. My thesis, and I don't know, is that community-based work, because people are social and working within communities enabled by Web 3, I think, is a big way for people to earn a living. You know, if they help bankless increase, you know, bankless reach productivity, economic situation, and their participants in your network, and they participate in it, then everybody's got alignments of interest. We live in a globalised digital nation states right now, and I think we'll fractionalize into smaller and smaller digital nation states of which we can earn a living from.

So I do think there's different opportunities that will come, but I think basis of knowledge is not going to be the human opportunity, much like physical force is not a human opportunity any longer. But I do think also within this is we're entering a renaissance period of productivity growth. So opportunities are going to be vast for a period of time. opportunities to use the technology, to utilize it, to augment yourself, to augment your businesses is staggering in nature. So I do think there's a lot of opportunity to be gained by many. And so there will be that friction of the opportunity to be gained, the advances, and then the reorgate of societies in new ways. And that's going to feel frictionful. But I do believe it's part of the fourth turning, the Neil Howe William Strauss thesis, feels spot on to me. It's the changing of generations.

It's the changing of systems. It's the changing of the rules-based global order system in the way that it stands today. As you said, our institutions are really not able to deal with this. Like they're not able to deal with crypto. They're barely able to deal with the internet. We're still regulating internet stuff. And we can't get round to figuring how this is. So it's going to happen naturally in a way that we don't yet understand.

I want to zero back in on the crypto side of this conversation because I think we've illustrated the contours around crypto pretty damn well. We've talked about macro, talked about AI as the big, force that's parallel to crypto. There's sentiment in and outside of crypto. I don't think no parallel, by the way. I think they're converging. That's the important thing. Yes, yes, yes. Yeah, certainly on a collision course, specifically, though, on the internal to crypto side of things. And I really like the articulation of just like we're all kind of waiting for the big inflection moment. And that's also how the crypto bull market started last cycle. 2020 compound launches,

their governance token. And all of a sudden, we had the appetite for tokens. And before, For that moment, there was brewing bullishness. There was brewing excitement. But that was a very clear single moment of just like, oh, it's on. And I think everyone in crypto is waiting for that. I think my personal take is we are just now starting to heat up from being going through a very, very cold winter. And we're still looking for that inflection moment.

It's like, oh, we all have conviction that it's on now. But as an industry, we still feel lost, right? Like I said, AI is the sparkly new thing that has stolen our attention. there's still macro overhead clouds. We still have Gary Gensler. So I'm wondering just, for the crypto native investor who is looking to get their foundations strong

and be prepared to capture the maximum amount of opportunity to go into the future to wherever this next cycle in crypto, this next phase in crypto leads us, how should investors be positioned? How should they get their feet fixed on the ground? Like, what should they be thinking about in terms of making sure that they actually capture the upside that hopefully

inevitably does come. Look, it gets harder and harder each cycle because you've got more and more and more applications. So it's actually not easy. So for the general person, you know, ether's a good proxy. Any time you try and stray outside of that, you're just following narratives unless you really are involved in a space and you understand what drives it, the adoption rates, you know, the Metcalfe law stuff, all of this stuff. It is very, very hard to figure out how to trade it. So I think keep it simple, stupid is generally the best outcome unless you're deep into a particular area of the space, but then you still can't be blinded by your own biases. Because we don't know what the next big breakout is going to be. You know, we didn't know it was going to be defy, we didn't know it was going to be NFTs, we didn't know many of these things.

What's it going to be this time? I have no bloody idea. What are it going to be the big applications this time? Is it going to be gaming? I have no idea. I'm not a gamer. And it has zero appeal to me, but to other people it's everything. You know, is it going to be the application of music and culture and all of the other things that, you know, I've been working on?

Possibly. Could that happen? Yes. We just don't know. Could it be something to do with AI and tokenizing the tokens? Possibly. Could it be with digital ID? Possibly. That's the hard thing about this space now. You have to be a kind of deeply knowledgeable VC investor. You know, and that's not my skill set. So it is hard. And that's one of the reasons I set up the asset management firm, because I'm just far much. to get out to hedge funds because it's their job to do it because it's hard. So I don't really have a good answer for you. I wish I did. What about in crypto generally? I mean, are you a believer, maybe this is more broadly to all the kind of investors, like retail investors. Are you a believer in kind of active investing or more passive? Right. So if you're talking crypto, you just mentioned, hey, keep it simple, stupid. ETH is a good proxy for a lot of the innovation and upside in the space. So maybe we're kind of saying, like, not financial advice, of course, but ETH is a reasonable hold in this type of a market. But like passive versus active investing, you know, maybe make the bullcase

for active for us and, you know, the bull case for passive, because I could see the merits of both. So I look at Twitter and see the active. So that means generally you've got a short term time horizon. This is a very volatile asset class. So it's really difficult to figure out what's a real trend and what's not. We're seeing that with the meme tokens, right? You know, attention and a meme can be pervasive. and last decades or millennia in the case of religion, or it can last a weekend in the case of a meme token. So it's really hard to be able to trade that. And I think most people end up net zero or net losing money. Then there's the people who do the fundamental work. We've seen that work quite well in NFTs, but there's a lot of people who have been absolutely blown to pieces in that

space too, because they always see somebody else getting hilariously rich and they think that they should do it when if they just had some basic exposure, they would do better doing it. The other side is the completely passive way, which is you just buy a basket of stuff or just hold some eth and just sit with it and forget about it and add at those macro cycles and just keep going. That works really well. It's worked for the Bitcoin people who've been in it forever, works for the eth people, it just works. But most of us want to feel like. We're just doing something that we're not just because we get bored and we like the attention span. There's all the noise around it.

So what I tend to do is I have a few cross rates that I look at. So back in 2020, I had the Bitcoin ETH cross all the time staring at it and I was waiting for that breakout. Then I switched most of my portfolio because I saw the changing narratives between the two, the adoption, everything else. and I switched most of my investment into ETH back then. I'm looking at, and I wouldn't do it to the same extent because it's not as big, but I'm looking at, for example, the Salana ETH cross. You know, does that stop moving? So would I switch capital based on something like that?

Yes, I might increase in allocation. So I at least feel like I'm doing something. Because it's otherwise, you know, half the time I've got the hourly chart of ETH next to me, but I don't trade it. You kind of drive yourself now. Sometimes you just want to trade it. we don't all have infinite capital. We can keep buying it and keep buying it. So you just kind of have to pretend you're in the game partly and then maybe make these bigger asset allocations

that you think could move the dial. And I think those can be very rewarding. One thing I appreciate about your perspective, Raoul, is you seem to be a juggler of many signals. You've talked about you've got the ether Bitcoin price chart. Maybe it's somewhere to your left on a screen or something. And you looked at the liquidity indicators. And then you also talked about narratives. Where do you get some of the more social squishy signals from, like obviously crypto Twitter, but maybe an answer more precise than that would be great. If indeed, like, investing is hard. There's so many more assets now. There's so many more potential bullish use cases that might emerge first and foremost out of crypto. Where are you looking in this sphere of crypto information? Are you getting those kinds of signals from?

Yeah. So what I'm trying to do here, using all of these things, there is no single source of truth, right? All we're trying to do is create a probabilistic framework. And the best we can build our probability set, and again, it's not a mathematical thing. It's kind of intuitively, if I've got all of these signals, then that's giving me a higher rate of conviction. So I tend to operate with crypto Twitter at two levels. One is overall sentiment. Who's killing who? Who's attacking who?

Who's angry? Why are they angry, right? It's not who and what they're angry about. It's why that really matters. and understanding whose narrative is under threat, how they're feeling emotionally threatened by something happening, what does that mean? Is there opportunities in this? Is there something informational of value? Then I try and look at the people, and it rotates. It's not always, because nobody has a source of truth and not everybody's right all the time. But you just start

trying to keep an eye on people who are doing something interesting or thinking in different ways. And I think that becomes interesting. You know, there's people like Chris Bernerski who just kind of is not, affected by all the noise and sticks to his own thing. Doesn't mean he's always right. But I find that very interesting. You know, people like Arthur Hayes, Arthur's pretty good at this kind of stuff as well. Doesn't mean he's always right. But he's building a thesis. You know, he's bought a thesis around NFT platforms and then stuff like dexes and what you could do there. Interesting macro thesis, looking for supporting evidence, stuff like that. So I try to look for people who talk about interesting stuff from a non-emotional standpoint that's driven by a deeper understanding of the

space that's not just because they're actively involved in it, but something about, you know, this is why I think it's interesting. Here's the application and here's what I'm seeing. That becomes very interesting to me. And then crypto Twitter on top is just the monkeys throwing poo at each other and you just see who they're throwing poo at and why. And you derive some signal from that. Yes. Because increasingly I'm having a hard time with that. Well, it is because, you know, So, NFT Twitter has been busy destroying each other. Bitcoin Twitter has been reshuffling its own narrative, which is actually great to see. I agree. Really, really positive to finally to see a change of narrative for that ecosystem. That's great. ETH doesn't really have a new narrative yet because we haven't seen a new application come. It's quiet. So it's like it works. It's got its yield. It does its thing. But we don't have a new narrative. Most places in the space are still missing. narratives. So that's why everybody's feeling a little bit under threat and hates each other for

anything anybody says. But it's, you know, crypto, Twitter is still very toxic. You can't say anything without somebody criticizing you for something you've said. And not in a normal, debative fashion, but it's just insult after insult after insult. And because people are losing money. And as soon as they lose money, they get angry. It's like, you've got to understand time horizon and what the game you're in. Because if you think you're in a different. game, you're going to get blown up. I think they lost money and I think part of the prevailing sentiment coming from 2022 is they were scammed by a particular set of actors. So now there's just a blanket distrust and crypto Twitter is overly volatile for the smallest of things

can set your tribe of pitchforks after you. And I'm sure you've experienced some of that, as have we certainly. I'm curious what all this means for your portfolio though, Raoul. Like one thing we always ask toward the end of these episodes is what does your portfolio look like today. So this is summer 2023. Is it a super boring portfolio or like what are you doing? Yeah, I don't change a lot, right? I'm very consistent in what I do. So it's still

80% ETH, a bit of salana, small bit of Bitcoin and a tail of a few things that I bought because I want to just feel the price you know, mattoe or whatever, that I'm not tied to because then you mention anything on Twitter and everyone destroys you and attacks you. It's like it's so

tiresome. So basically it's the same bet that I've had. I don't really change it. You know, I put money in when I could, and I'll wait to see, you know, when I got a bit more cash, I'll maybe put some more in, given the right opportunity, depending on the market trades. Have you increased or decreased your net exposure to crypto as a part of your greater portfolio? So I haven't sold anything. So that answers something. And then I added, so I probably increased it by 30%, 40% in June. All right. Nice. June to October. Nice. A good time to do that. Well, Rawell, as always,

this has been a fantastic conversation. I want to maybe end in kind of a summary form with the question we sort of started with. And what I think has been the theme of this episode, as we've talked about, you know, the last year, how crazy that was in crypto's. We talked about macros. We talked about AI's. We talked about this exponential age just with getting our bearings. And, you know, that term kind of getting our bearings. I feel like, as David mentioned earlier, and we've talked about a few times this episode, crypto feels a little bit lost right now. Like it doesn't know where it is. It's somewhere out on the sea, and it's not sure what direction to point to. And that term, you know, getting your bearings was a nautical term, right? It's like getting your bearings on

the compass. And it kind of brings the question of like, what is our true north in crypto? Where should we be pointed? What are the use cases that will still remain going into the next cycle? What are the narratives that will still remain? Can you kind of summarize this for the typical crypto investor who's maybe feeling punched in the gut from the last year or so? of a bare market. What is the true north for crypto in your mind? The true north is not narrative because narrative changes. And this bull market will have a different narrative and the next bare market will have a different bear market narrative. So narrative shifts. There is one way of navigating it, which is a very simple way that I use is the log trend channel of this. And that

keeps you honest with where you are and what's going on. So I find that very useful. The other thing is I did a lot of work on what drives price action in the space. And it's Metcalf's Law that I've written extensively about. And you can basically estimate Metcalf's Law by two factors. One is the number of active users. And this applies to the whole of crypto or just any ecosystem you want. And then the other predominant factor is that value transacted in a week or a month in dollar terms. Right?

People have all sorts of different measures, but those two together basically describe most of price. And what I found is that I checked it against pretty much all of the major tokens, and they all are priced accurately. So, like, there's no informational edge in knowing that thing. So it's not like an arbitrage opportunity. ETH is different. It trades at a premium, and I think that was because of yield. whether it's yield or whether it's the burn mechanism. I'm not sure all the combo of the two.

So, okay, fine. I think we'll see that in other chains that do similar stuff. But if you step back and say, okay, what is the informational value I've got there? You only need to know two things for the entire space. Whether the economy of crypto is growing or not, are the active addresses going up or down, is the value being transacted going up or down? And if those things are trending up over time,

the ecosystem is in economic expansion. if it's not in recession. It's really helpful because it goes to data as opposed to narrative. And what are we right now? Are we, you know, in expansion? We are still relatively flat. We're starting to see activity coming back. You know, we've started to see the active addresses rising.

We're starting to see activity rising, as we should be at this stage in the cycle, the crypto spring. We're starting to see people come out of hibernation, start exercising those muscles again. But we're not operating across everywhere. So we're seeing, you know, NFTs are dead as a doornail, but we're starting to see more activity in Bitcoin. Now, Bitcoin's great because it has huge value transacted. Ether's a lot more transactions, but there are lower in economic value, just the nature of the chains. So this is really, you know, and XRP really interesting is because it has very low value transactions, but a lot of them. All of these work out roughly.

It's fascinating. I think, Ra, a lot of the indicators that you kind of just listed just now are all lagging. indicators. Like, one of the indicators I look at is, like, gas fees. When there's more gas being burnt, when there's more ETH being burnt, it's bullish. And usually it's after the price has already risen, right? Transaction fees go up when there's more activity. And so these are all lagging indicators. I'm wondering what your disposition or perspective is on when the timing to get exposure is as a result of like confirmation of indicators that, you know, are lagging versus things that you actually try and predict the future about. So, if, if you're a time, you know,

My hypothesis is that price is correct versus network activity, i.e. all crypto, most tech stocks as well, are priced on Metcalf's law. If price, because there's so many participants discovering price every day, is roughly right, that actually means that technical analysis is pretty useful, which is really interesting, because price doesn't lie. So I think there's that, and then there's the liquidity, business cycle, the understanding of the flow of money around the world, and debasement. Those things give you a forward look. Everything else is just checking your hypothesis. You know, am I getting caught away with an excess narrative? Or is this continuing to confirm my hypothesis that over time, activity in blockchain technologies will increase? So it's a check versus a forecast and you just keep looking at those two things. Some people, though, Raoul, you said kind of the economic indicators are flat right now. So some people right now are saying, and they're going to remain flat, right?

That's it. we've seen kind of crypto bubble. And, you know, I feel like they say that at this time, at every point in this type of a cycle at the same time, maybe this time is different, right? What are you saying in terms of the average crypto investor getting their bearings? Are you saying that we should just maintain course, be patient, that this is just kind of early springtime? How do you know that we will get to you another summer season, that we will have another bull market in the future? Are you taking that on Facebook? or is there something more to the thesis here?

So if there are two factors that drive the crypto market overall at a macro level, one is liquidity and the other is the adoption of the technology. So if you assume that liquidity doesn't come back, i.e. nothing changes. Does the ecosystem grow? Do we get new applications for the technology, in which case it will perform, just not as well as previous cycles?

If you've got liquidity as well, which is, is the economy looking shit, is it going to remain shit, are the central bank's going to have to do something about it because unemployment's starting to rise or inflation is starting to come off too sharply or the banking system's blowing up, those factors, then you bring the liquidity equation back in. Currently, we've got the liquidity equation and a little bit of the adoption equation coming in. The sweet spot of the market is when both are happening.

So I don't think we would have it to do something catastrophically different, i. be very negative. We'd have to see an ongoing decline in the use of the technology. and an ongoing rate of change negativity to liquidity. But rate of change liquidity, even if they just stop tightening rates and stop shrinking the money supply and stop decreasing the balance sheet is enough for the beach ball underwater.

The beach ball is the adoption of technology plus animal spirits. So these are the factors that everyone needs to assess at all times. And again, nobody has the truth. Nobody has a crystal ball into the future. I think I've developed one with this thing called the everything code, but it's a hypothesis, and I can't trust it yet. Well, so as we draw to a close then, just update us, Raoul, and what you're doing.

So what is the everything code? And what are you doing? What are you focusing on over at Real Vision these days? The everything code is actually culmination of 19 years of work, where, you know, I spend the whole time in macros trying to solve bits of puzzles, and then suddenly, occasionally everything comes together. And this was 19 years of work coming together to understand everything from the demographics, which I've been working on for a long time.

Plus, what happened in 2008, the political climate, globalisation, all of these things come together. And I realized that to cut to the chase, the central banks, their printing is actually to pay the interest on the previous cycles debt that they accumulated. And it's proven out over time. And so that's a very powerful hypothesis because the last cycle was the massive printing for COVID. So it suggests we get a huge amount of printing to come in 2024, 25.

And I think the central bank balance sheet goes from wherever it is now 6.5 trillion to maybe 12 trillion. So that's an enormous amount of money to come into the system. Interest rates have to come lower because everybody needs to service the debt. But what I've done in the whole everything code is because I've got a lot forward-looking indicators. I kind of think I know what drives liquidity and how to look forward. This will not, it's a hypothesis.

but therefore, because I know the correlation between assets and the balance sheets, I can forecast asset prices out to 2026, which is arrogant and hubristic. And I'm not expecting it to be perfect. But I think I've found something really fucking big. And nobody else has done it. But specifically, the Everything Code is an article that you've written that details this, correct? Yes. In Global Macro Investor, which is my kind of high-end research service, I've just started publishing

in Real Vision. So if anybody's a Real Vision member, I think all members for the essential membership got one part of the article. It's a three-part article on Real Vision. The Real Vision Pro-Crypto-Macro guys are getting it right now. So it's the most important thing I've ever done. Whether it's right or not, I don't know. So I've been on that. And then, you know, I've built two other businesses in the crypto space.

One is exponential age asset management, which is to allow RIAs, pension plans, family offices, access to the market in a way that's very high. helpful to them, which is via hedge funds in the space, in the crypto space. And then I was a co-founder of Science Magic Studios, which is tokenizing culture, music, fashion, sports, entertainment. And that's a really interesting space because that's one of the big bets that I think will play out over this cycle. And then at Real Vision, we've rebuilt our entire tech stack to build out a platform that is the kind of nexus between community, Web3, AI, and just the place for people to live their financial lives. So we're working really hard on that now. We've got the ultra first beta stage internally.

We're now just building on top of that as we start launching that. And that will be an iterative process. But sometime over the summer, people will see this new platform. We think we've got some really interesting stuff that's not been done before to give people the power of knowledge, augment people, augment people in their financial journey, that kind of stuff. Yeah, I've been noticing a lot of the engagement with the Web3 community built right into the platform, which I think is fantastic. I just want to confirm something with you, Raoul. You are indeed an MFer, correct? I am an MFFer. I'm a punk, an MFer, bored ape, and wreck guy. Those are the communities, and crypto dick butts, obviously.

Yes. It's quite the portfolio there, Raoul. So as we draw to a close with the everything code, so you mentioned that you're predicting prices in 2026. I'm curious about crypto prices in 20206. You don't have to give us the specifics. People can unlock that in the article, but are they looking bullish? Yeah, look, it looks very bullish from here on out. This year, this is why I'm really reticent, so I'm never going to name numbers. I'm really reticent because this year looks more bullish than even I expected. But what is really interesting is everything codes also just matches the log channel. It kind of is in the same direction or whether it's the wave version of that channel. They're all consistent amongst different ways you back in and out. So yeah, it just looks like a crypto cycle. And it looks like it should be. I don't think it's a pure function of the debasement if it was. then 2021-20 cycle would have been even bigger. So it's not, right? So it's a function of the amount of capital available to move the space, etc. So, yeah, it looks very positive to me. And I don't think we need to get worried until 2025. This has kind of been my base take as well. And it almost seems so simple that we're just going to repeat an entire crypto cycle yet again on that kind of, you know, three to five year. I know why. You've got, you've got the receipts, huh? You've got the data to prove that point. Well, the everything code explains why. And it's not to do with the halving. The halving happens to be coincidental with the big reset.

People talk about the big reset to come. We had the big reset in 2008. All interest rates went to zero everywhere. It was like a debt jubilee. You don't need to pay your interest on your debts. What that did was force every government and most corporations to reset all of their lending, all of their borrowings, into this three to five-year window. So most government debt is three to five year debt.

What that meant is it created an interest rate cycle and a business cycle and a liquidity cycle that was three and a half years on the nose or four years, which is exactly, because Bitcoin came out exactly the same period, its cycle is driven by the same things. It's driven by this debt cycle. This debt cycle is not going to go away yet until productivity is large enough to destroy the issue of the debt itself. We're not there yet. So I think it just keeps repeating. And once you understand this thing, it was one of the big unlocks in the everything code. It's like, oh my God, everything makes sense now. I don't have to chew myself up with trying to figure all this stuff out.

It's kind of in plain sight. This is just it, Raoul. And as we close out this episode, it's as always been a pleasure. You bring tons of insight into this conversation. And I think the answer for, you know, anyone who is a crypto investor in terms of getting their bearings is probably just as simple as don't overthink it. continue to dollar cost average in, okay? Not financial advice, of course. You have to figure out what percentage of your portfolio into crypto makes sense, but it feels like we are destined for another run-up in another bull market. Crypto isn't dead. It's not over. Just be patient. We've

seen this play out before. Go talk to some other crypto veterans who've been in some of these cycles. They will tell you that this is what it feels like to be in a bare market. And Raoul, thank you so much for talking through all of the issues related to this. As we draw to a close, I'm curious, where can people get access to the everything code and subscribe to Real Vision get access to some of the resources you've been mentioning? Yeah, I mean, it's like a dollar to take a trial for Real Vision and you get the first part of the article. So you should do that anyway because there's a lot of great content. You know, I've been a big proponent of explain to people, macro and crypto are the same thing. Everybody needs to understand all of this. It's all part of the new future. And Real Vision,

you know, that's where it really excels. So just go to realvision.com and just get a free trial there and go and read the everything code article, see some stuff there. Who knows, you might see you guys on there pretty soon too. Oh, hey, tease. And that's the whole point. We're kind of all in this journey together, all of us. And, you know, I think it's very important for us all to lead by example to show how

this new world of Web 3 is all about a larger community. While Twitter is busy destroying itself, I think we need to show the way to show. No, it's an abundance mindset we should all have. And the more we help each other in our journeys, the better this whole space will be. There you go. Well, Raoul, thank you for joining us on the Bankless podcast and updating us on those things. It's been fantastic to talk to you, as always. Yeah, loved it.

Thanks, guys. Bankless Nation, David and I will actually be recording an episode where Raul and team interview us. We're recording that tomorrow. So you can expect that on the Real Vision platform as well. We'll include some links to the resources. Raoul mentioned in the show notes. It's got to end with this. As always, risks and disclaimers, of course, crypto is risky. None of this has been financial advice. You could definitely lose what you put in. But we are headed west.

This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.