Bankless - 80 - Ethereum is the Greatest Trade | Raoul Pal

Starting point is 00:00:01 Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. I'm Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, Ralph Paul, on the podcast, again, really interesting concepts and ideas. We had them on nine months ago. This was a different Raoul Paul to me, like similar in many respects, but definitely some different thesis. coming out of this episode versus the last one and a totally different portfolio.

Starting point is 00:00:47 What was your take here? It's really interesting to follow Raul Paul down the crypto rabbit hole. I think that's why so many people enjoy the content that he makes. In addition to being just extremely articulate and extremely just informed about the way that markets work, we are all collectively watching Raul Paul, like discover crypto and formulate his own opinions. People kind of identify with crypto by the era in which they go down the crypto rabbit hole.

Starting point is 00:01:10 And so we all get to watch Raul Paul go down the rabbit hole. late 2020, early 2021, and formulate his own opinions as what it's like to be in crypto in this specific part of crypto's history. Raul is, of course, a big macro-focused investor, which to me is a very, like, sobering perspective to take, right? It's like, let's ignore the regulatory fud. Let's ignore the market movements of, you know, 24 hours or seven-day charts or months. Big trends only. Big trends only. And it's such a nice way to get clean signal from a very noisy the industry. So that's always why I like to talk to Raoul. Yeah, totally agree. And I think bankless listeners, if you have time, go check out the last episode we did with him in November.

Starting point is 00:01:51 It's just a fantastic episode in and of itself, but it really shows kind of the things that have changed in his thinking, but also the things that have remained the same. I think one thing that's remained the same is he is data driven, right? Metcalf's law is how he makes his decision. Network effects. He has to see the data on chain. He doesn't think about it too much, but he looks at the trends. And we got into that discussion. He also said this time, ETH is money. That's a big departure because we asked him, because the bankless platform has been saying that for a while. We asked him last time if he thought ETH was money. He didn't. But what changed is he started seeing NFTs purchased in ETH. And I think that's changed a little bit. He also gave us some ETH 2021 price

Starting point is 00:02:29 predictions. He talked about how a billion people would be in crypto by 2024 if the current trajectory holds, he also gave us a peek into his portfolio. And last time it was 85% Bitcoin. Let's not reveal it, though, David. Last time it was 85% Bitcoin. It's something else now, though. 15% eat, and it is something else now. I will say he got rid of all of his gold. So you'll have to tune in to hear what his portfolio looks like this time around. All in all, man, I think Raoul gets it. He's not blinded by tribalism. He looks at this from a very analytical perspective, and he is a gift for simplifying things and distilling them to kind of base concepts that are very understandable and memeable. So huge respect. You guys are absolutely love this conversation.

Starting point is 00:03:17 Yeah. And let's just go ahead and get right into it. But before we do, we have to talk for a moment about some of these fantastic sponsors that make this show possible. Arbitrum is an Ethereum scaling solution that is going to completely change how we use DFI. If you've been using Ethereum for the last 12 months, you've probably noticed the high gas fees and slow confirmation times that has been plaguing defy. Too many people want to use Ethereum and it doesn't have enough capacity for all of us. That's where Arbitrum comes in. Arbitrum is a layer two to Ethereum, which means Arbitrum can support thousands of transactions per second at a fraction of the cost of what we are used to paying. With Arbitrum, you can get the performance of a centralized exchange while tapping into Ethereum's level of security and decentralization. This is why people are calling this Ethereum's broadband moment, where we get to add performance onto decentralization and security.

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Starting point is 00:06:00 been on the podcast before. He's the founder of Real Vision. He's one of our favorite voices in the space talking crypto, talking macro, talking investing in general. It's been about nine months since we last had him on the bankless podcast. That was November 2020. And oh my God, so much has happened since then. It feels like about nine years. So we want an update. We want to unpack his brain, particularly on the events over the last nine months and how he's thinking about markets today. Raoul, welcome back to bankless. It's great to have you. It's great to be here. Two tropical storms and a power cut couldn't stop us doing this. That's right. No one can stop us from doing this. We had to, for bankless listeners, we had to reschedule this twice. We actually thought we were going

Starting point is 00:06:42 to have to reschedule this time because as soon as Raul jumped on the on our call, power went off. Electricity and the Caymans went off. How are you guys doing? Is this typical for the Cayman's? No, it's actually a pretty stable place where everything works. So it's just for some reason, I mean, I've been here seven years, and we've had, I've had three storms in seven years, two of them within the last week. So either global warming is going exponential or it's just unlucky. Maybe just unlucky, but we feel lucky to have you back here. And we're glad we could actually have this conversation. You know, we thought we could do sort of a rundown of topics, Raoul, and just pick your brain on them.

Starting point is 00:07:20 So we want to talk ETH. We want to talk DFI. We want to talk NFTs in the Metaverse and everything that's going on. We want to contrast that with our conversation nine months ago. But I thought what we could do is go from sort of top to bottom, big to small, if you will. And let's start with sort of the macro. And take us back nine months ago, what's changed in the macro world over the last nine months? Give us the update there.

Starting point is 00:07:45 So what basically happened? So nine months ago, let's say we were talking about June, May June last year. that my macro thesis at the time was that we were going to see um we were going to see some sort of insolvency phase the overhang from this whole situation that didn't happen because of the unprecedented amount of monetary printing that went on and the ongoing fiscal stimuluses so then we look back and we realize that the worst recession in all recorded history only lasted two months. And that was all about, again, this stimulus. So if you are Janet Yellen and Jay Powell, you sit in a room together and go, that was pretty good, eh? It kind of worked. It worked for the

Starting point is 00:08:35 financial crisis. And now it worked for the entire world closing down. Maybe we don't have to have a business cycle. Maybe we don't have to have risk anymore. So the marginal propensity for them to used to fire that gun again is extremely high. Well, the market sells off. Well, let's just add some stimulus. You know, we're still not sure that equality is quite right. Well, add some stimulus. Every answer becomes we can add stimulus. So the market currently has been looking for strong growth. And Jay Powell was out today talking about potentially tapering because the growth numbers have been strong. But my work suggests that the economy is actually weakening. So China has a weak credit cycle and its GDP growth is falling sharply.

Starting point is 00:09:24 Japan has got itself in a huge mess now with the COVID-Delta variant. That's the third largest economy in the world. And Europe still stops, start. The US still not fully recovered. And it's normal. Normally it takes maybe two years to fully recover from a recession. And this was a big one. So after we call the end of a recession,

Starting point is 00:09:47 generally the central bank cuts twice again after it because growth isn't fully stabilized. So we're in this phase where growth, I think, is starting to weaken. We see it in things like, well, the most dramatic being the University of Michigan sentiment surveys for buying climates of houses and cars and big ticket items. People have just gone, this is the worst buying climate we've ever seen. It's the worst numbers we've ever seen in these surveys because of the price rises that came from the supply shocks beforehand. We see rollover in ISM and these other business cycle surveys.

Starting point is 00:10:24 So we're going into a period where the Fed are talking about tapering. The market really thinks inflation is the big enemy, and probably we're about to see a slowdown. Now, knowing that every single recession since 1962, the Fed cut rate twice after it, and we saw this little spike in bond yields first, and then bond yields went back to the all-time low, almost every time since 1990, for sure. So the probability is for me that the economy is weakening, the Fed cut again twice.

Starting point is 00:10:58 There's probably more fiscal stimulus to come, and the market is in at all. Now, in the context of what does that do for asset prices, well, I've talked to a lot about the significance of this printing, it doesn't come up in CPI, the inflation, that everybody talks about, it comes in the fall of the value of fiat currency, the denominator. And we see that because basically you can divide any asset by the Fed balance sheet and everything's about flat. And you can do the same with German property and the ECB balance sheet or UK property and the Bank of England balance sheet or Swedish property. It works pretty much consistently. We're lowering the value of fiat currency overall. So if the Fed are going to do that,

Starting point is 00:11:41 we should see a rise in the value of equities, the value of real estate, most assets, and especially cryptocurrency. So your take is we're going to continue to see asset price inflation. But what about CPI inflation? I mean, there's definitely been murmurs of that. Of course, we hear from some of the Fed and economists that it's just transient. It's not permanent. Others say, no, this is going to be more pernicious.

Starting point is 00:12:07 It may go down and up in cycles. but the trajectory over the next five to 10 years is going to be up from a CPI perspective. What's your take on CPI inflation? My big picture take on CPI inflation is almost impossible to make it go up. We have the baby boom generation who are now 70 and they're all retiring. So their consumption pattern falls significantly. And we've just seen over the last year the largest wave of retirees in all recorded history. And those people, once they retire, spend less money because actually their pot of final savings is not that big.

Starting point is 00:12:45 But the ones that are still in the labour force are competing with their kids, the millennials. So you've got the two largest cohorts in all recorded history competing for jobs. Then we've got globalisation. So if it's not bad enough competing against your parents, you're competing against Chinese and Indians. And if that's not good enough, you're all competing against the robots and AI. So that backdrop is, and in a massive credit bubble. So that backdrop is wildly, wildly disinflationary. The relentless rise of technology is hugely disinflationary.

Starting point is 00:13:28 So can you generate CPI inflation? I don't think you can. You can't generate even food because technology just destroys it because crop yields keep going up, price of food keeps falling. You can't do it in basic stuff like clothing and furniture, none of that stuff, because technology keeps changing. Your 3D print tables and chairs now, it requires no humans. You can do it just in time technology, need no inventory. And this is relentless. The only two real things that, three things that went up over periods of time. One was housing, which we're aware of. Another asset, of course. Yeah. But rents have gone up as well.

Starting point is 00:14:06 So that's not been easy. Healthcare. Well, no shit, Sherlock. If you've got 76 million baby boomers at 70 years old, they're competing for health care. So the costs go up. And that will continue. The other one was education. But that's collapsed, the rate of inflation, because the entire millennial cohort has now left university.

Starting point is 00:14:29 Pretty much. I think they're all out now. So I think it's Gen Zian University. So the cost, the marginal. consumption of education's gone down. So I find it very hard to see this. Now, are you going to be able to keep the price of copper and industrial materials higher? Copper may be because of the electricity boom that's coming. But overall technology lowers the price of copper. You can extract more copper. We saw that with fracking and oil. That's technology. That's how technology stops price

Starting point is 00:15:02 rises. That's probably the best example in the world is, you know, You cannot keep the price of oil higher because technology keeps dropping it lower. So, no, I don't believe in CPI. That is a good example. So this is kind of a mental model buster, I guess, for me. So my model of things, or my best guest going into this was like, hey, over the last 10 years, we sort of saw the asset price story, an asset price inflation story, right? Ever since 2008, kind of, you know, fed printing, money supply increasing. eventually it's going to asset prices.

Starting point is 00:15:37 You're kind of saying, and then in my mind, I sort of thought, well, the next 10 years might play out in some of that asset price inflation might sort of seep into CPI and become more pernicious. But you're saying like the next 10 years might actually turn out to be similar to the previous 10 years. We just get some increasing asset price inflation even more. The truth is wages in real terms in the United States have not gone on. gone up since 1974 in any meaningful way. So they've underperformed almost everything.

Starting point is 00:16:12 So what that means is your wages, your income has remained static while the cost of assets has gone up. So you're actually poorer. What is that? Why? What is an asset? An asset is delayed consumption. You put your money into the asset and in 20 years time you sell the asset and you spend the money. That's the point of owning assets. They're delayed consumption. What it means is your future self has now got a lot poorer because this stuff keeps going up faster than your wages. This is the real dramatic problem. That equation of can you get wages up to create demand push inflation? No. Can certain cohorts wages go up? Sure. But overall, you can't because everybody in Silicon Valley's job is to drive costs lower.

Starting point is 00:17:08 And it's a really dramatic situation. This creates a huge amount of anxiety, social anxiety. People don't know why they're getting screwed, but they're getting screwed. And it's not just the Fed raising asset prices. It's actually the fault is of the silent generation who had too many kids after World War II. If you want to blame somebody, and World War II was a feature of World War I because they didn't pay the, because they refused to allow the Germans to forgive their debts. So it's a long story of how we got here, but it's not going to change. We're all paying for the sins of our fathers, I guess probably while committing new sins without knowing it that future generations will read.

Starting point is 00:17:55 Well, that's right. You don't know the law of unintended consequences. I mean, nobody thought that this is what would have. happen is after the euphoria of World War II, 70 years later, you'd create a massive collapsing growth, which has happened in Europe, Japan, everywhere else that had post-World War II economies. They all did the same. The others are slightly older because they had a lower rate of immigration the United States did. And what happened was they all started, their economy started slowing down faster than the US. But it's baked in the cake. It's difficult to avoid, almost impossible. So that's the macro story. Now let's maybe burrow another layer deeper here, but still related. I know you've had a thesis, Raoul, that's basically like macro and crypto. Those two things will converge. That's going to become one and the same thing. It's just a fast convergence, but people might not see it coming. What have we seen over the last nine months in the macro story of crypto? Has there been more of that convergence? Are they now close to one in the same or what's changed? So I think they're the same. So if I go to my peer group and the people I really respect from macro hedge fund space, right? So that's the pointy end of macro. Those are the guys. Almost all of them have transitioned across in one way, shape or form, either entirely or partially. So like, really? Yeah, I mean, very famous. Is that like the last nine months or how long has it been? It's been happening slowly, but it's increasing. You know, it's going exponential as all these trends do. So, you know, people like,

Starting point is 00:19:30 Like Alan Howard, who's one of the world's most famous macro investors based out of the UK, he personally is entirely crypto now. Wow. You know, Dan Tapiero, you know, good friend of mine, he's entirely crypto now. I'm pretty much entirely crypto. Certainly my investments are. I still look at them whole macro world. But one after the other, they're all seeing the superior returns and a solution for the

Starting point is 00:19:56 set of macro problems. So macro guys generally tend to be pretty pragmatic. We've got a set of problems, solutions, what's going to make money, allocate capital accordingly. But everybody's going, well, this is the biggest opportunity you've ever seen because everybody starts on the Bitcoin journey and ends up having the holy shit moment that everything is about to change. And I'm sure we'll talk about a lot of that later. So I think macro and crypto have merged.

Starting point is 00:20:22 What you're seeing now is you're seeing a lot of noise from the late comers to macro. People who only know either the lake comes from macro or the ones that have been around very long and are anchored to gold and certain kind of mean reverting ideas. What you're seeing is a fear of change. So the noise that you're getting at the periphery, the Peter shifts of this world, for example, is not that Peter Schiff doesn't understand that crypto is the future. it's that he doesn't want it to be. Because it's technology. It's fast.

Starting point is 00:20:59 We call that bag bias. Is that what you're saying? It's actually worse than bag bias. It's a fear of change. We're going through the fastest change in all history. So for people to understand what I'm talking about, the internet grew at 63% a year from 1990 to 2000. The internet was 140 million users at 1997-ish.

Starting point is 00:21:22 Crypto is about the same now. But the crypto digital asset space is growing at 113% a year. This is the fastest adoption of any technology in all recorded history. People don't want to believe it. How can my very system of money change in front of my eyes? What does the central bank mean any longer? What does it mean for my savings? What does it mean for, you know, the thing that I've railed the gap about all the time is gold,

Starting point is 00:21:47 that'll save you from all of this. And now there's something else. everyone has to drop so much of their kind of outward facing belief system. And it's hard. So that is the, that will slowly change over time. But generally, the macro people who are broadminded have entirely changed. I want to get more and more granular as this conversation goes on into some of the nitty-gritty details about what's going on in the world of crypto.

Starting point is 00:22:16 But before we do that, I want to just emphasize the role of the. macro perspective when using that perspective to actually understand what's going on when we get to those nitty-gritty details like NFTs and Metaverse and whatever. And so let's just keep going on this. What is so powerful about the macro perspective and what are the properties about, you know, Bitcoin and Ethereum and Crypto make this obviously a macro conversation, right? Like you talk about internet adoption, you talk about like network effects and Metcalflaws. Like, why does the properties of crypto so neatly fit into a macro perspective?

Starting point is 00:22:48 The easiest way of explaining it is by my journey. How did I get here? And my journey was, I was macro, macro for 30 years. It was 1997 where the world changed. 97 and 98 was the Asian crisis. The Asian crisis was a sovereign debt crisis and a corporate debt crisis that wiped off the value of Asian stock markets by 90%. Currencies collapsed 80%. It was a total. wipeout of wealth in Asia. And it was driven by debt. The answer to 1997 and 98 was to cut interest rates. Long-term capital management, the giant hedge fund blew up at that time as well. The answer to that, because it could have taken down the financial system, was to cut rates. That led to, firstly, a massive rally in equities and pouring of money into the internet boom. So that It was a VC-led rally, plus all the stocks. That obviously ends up morphing into where we are today. Crypto could not have happened without the internet.

Starting point is 00:24:00 But what happened over that period is a massive debt bubble in property. So the debt bubble continued. It, in fact, accelerated. Then it blew up the entire world's banking system in 2008. Nobody know who'd owned what. So when Lehman went under, everyone's like, well, I don't know. How do I get my stuff back? and they're like, well, it's not your stuff, it's been re-hypothecated 37 times.

Starting point is 00:24:22 So you can fight it out in courts. And oh, by the way, it's held in the Cayman Islands, London, New York and Hong Kong, figure it out yourselves. That was the mess we got into. And people got wiped out. Then we cut interest rates to zero and invented quantitative easing, which is the Japanese had been kind of trialing beforehand. So now we're pushing money into the banking system and we have rates at zero. and so humans being humans go, well, great, we'll just borrow more money.

Starting point is 00:24:51 And they just keep borrowing money. So all of us in Macra have been watching this and talking about it for a long time, 20 years, long time. And we knew, you know, business cycles only come along once every five to eight years. And it all comes to a head in a recession. So 2008, you kind of knew was coming because of what had happened in 2000 and what had happened in 97, and the Piper was going to get paid. And the central bank figured a way out of it.

Starting point is 00:25:24 Then suddenly, this event happens last year. There was going to be a recession, but the accelerant was the pandemic. So it blows up everything. And the world could have blown up again, right? Everybody should have got insolvent because the world shut down for a year. But the government just said, no, here, take free money, and the central bank will just print it. So we now know what it's doing to the value of our savings

Starting point is 00:25:52 because these assets are going up. We're actually getting poorer in our future selves. And so the macro guys start thinking, well, how the hell are we going to get out of this cycle? It's either going to blow up spectacularly, but the odds are getting less or we're just going to get poorer slowly over time. So it's a matter of how fast you figure out what's going on.

Starting point is 00:26:11 So once you figure out what's going on, you look at crypto and it solves a lot of this. So when Bitcoin first comes along, it's clear, it's developed solely for this job. I mean, it's very clear in the white paper, and it's very clear when they're looking at the banks being bailed out again that somebody figures out, why don't we try a scarce digital asset and see if that works? And then about a year or two after that, people start figuring out, oh, blockchain, oh, that kind of is interesting for other stuff because we've got now a trusted ownership structure, which the world didn't have. then Europe blows up in 2012 as well. We almost lost the whole of the European Union and all of the banks. So we kind of know it's a big problem.

Starting point is 00:26:51 And then Ethereum comes along with smart contracts, and then the kind of light bulb moment for everybody goes off is like, actually we can rebuild the entire system from scratch. So as a macro guy, when you know you've got something fundamentally broken and there's only one set of outcomes, which is printing more money, we've got this low growth from this demographics and technology and all of these things that have been changing the world. So we've got low growth, massive debt, makes it harder to service the debt, increases the amount of printing, so therefore these assets go up. But the real macro opportunity

Starting point is 00:27:29 is to invest in the new world. We've just discovered the Americas from scratch. Why would you not buy that? because it actually answers all of the problems. It's got the scarcity, it's got the ownership, the transference. It's a new system. It doesn't have the fragilities of the old system. And then the macro story gets better because it's like, you know, if you remember, go back nine months, go back maybe 18 months. I was like, we need a yield curve.

Starting point is 00:27:56 Four months later, defy explodes. And it's kind of there's different yield curves everywhere and different risk curves. And God knows what. And then ETH and Staking comes along. And we've now got a risk-free yield. I mean, we've got everything we need. So this becomes a macro bet now. So how do you analyze a macro bet?

Starting point is 00:28:14 Because for me, I can't understand all of the protocols. Look at every single token. Think about everything. So you need a framework, a macro framework. We need to simplify it. And so I spent a lot of time around kind of November last year, October last year, looking at the pushback people will give you in social media when you talked about Ethereum.

Starting point is 00:28:37 And the Bitcoin guys were all too familiar would hate you, right? So I remember when you came on in November and one of the big, I could tell one of the big areas of interest for you at the time row was like tribalism. Correct. Because I think you were seeing all of the tribalism on crypto and being like, why can't everyone just get along? But that tribalism forced me to understand. When I get these kind of pushbacks, right? So we talked about it before, the kind of gold crowd. Why do they push back?

Starting point is 00:29:04 I don't get pissed off with them for pushing. back, I try and understand why. What is the motivator? And then once you understand what it is, it's a much easier thing to deal with and also to reason with people. And this Bitcoin pushback about Ethereum, I was like, what is going on here? And, you know, we know all the stories of why, but they all had reasons why Ethereum was not the same as Bitcoin. And it's obviously clearly not as an asset, right? It's a very different thing. But why would you not look at it the same way? All equities you kind of look at the same way and all fixed income you do. So why would you not?

Starting point is 00:29:42 So then I just dusted off Metcalf's law and realized that it fitted perfectly. It was absolutely perfect. And in fact, it matched exactly where Bitcoin was when it had the same number of wallet addresses. And it was like, oh my God, it's the same price as well. And then I realized the whole damn space was this. So then it was just a matter of adoption. I didn't have to be the guy in the weeds, understanding everything. I just need to understand how fast the adoption was.

Starting point is 00:30:11 And when we're talking about adoption, there's two ways we need to think about it. One is investors in it. So we can see Doge, for example, classic example of a one-side network effect. So price goes up because a bunch of investors, but if they go, it would all disappear. But Ethereum clearly had more developers working on it than any other ecosystem, and that was growing, the rate of change of that, and the number of applications. So now you've got this kind of perfect storm of network effects. And that helps me understand stuff like Doge as well. I mean, people are like, this is a scam, blah, blah, blah.

Starting point is 00:30:46 I'm like, no, it's not. If you've got $40 billion of value in it from investors alone, then all somebody needs to do is figure out the other side. And you've got a massive network. And the first person to do that was actually Mark Cuban. Mark said, fine, you can use Doja at Dallas Mavs. And then Elon had seen it as well, and clearly he's working on something to do with it, whether it's streaming car payments or whatever it's going to be.

Starting point is 00:31:16 It's very clear that it's going to be used. And that's fine, because you've become less cynical about what these things are, and you can judge everything by, is it a real network effect or not? And that's made the space much more investable, much more macro, much more understandable, and much less tribal. Absolutely. And there's this division in the crypto industry where people, like to either perceive these things as monetary units or financial assets or technology.

Starting point is 00:31:44 And on bankless, we like to think these things as both, whereas Bitcoiners like to perceive these things as more, it's a means to an end to produce a financial unit. And there's other like platforms that are really all about the technology. But over the last nine months, and since we last talked with you about what you were thinking about, it was largely all about the macro, the whole money printing, the trustlessness of the assets. But recently, I've been noticing you talk more and more about like the network effects of the adoption of Ethereum. So when you see the rate of adoption of Ethereum, do you perceive that as like a technological adoption or an adoption of the nature of the assets on Ethereum? Or is it really

Starting point is 00:32:22 just one and the same? Well, what's so interesting about Ethereum? It's everything. You know, I actually bought my first NFT today. And look, everything's priced in E. Congrats. Was it a crypto point? You got to tell us more about that, Ralph. Yeah, it's nothing exciting. I just thought I'd have to do it. We'll come on to that when we talk about NFTs in a bit. But it was priced at 0.75 Heath. So, ETH is money.

Starting point is 00:32:47 And I'd seen that because we commissioned for Real Visionner kind of headquarters in Cryptovoxels, which we're just, you know, we're going to release soon, just for the fun of it. And the architects, we paid an ETH and the land we paid in ETH. So it's like, okay, well, ETH is clearly money. But ETH is technology. We know that too. ETH is also a platform of which people are building a lot of different applications.

Starting point is 00:33:13 So whether we talk about community tokens, NFTs, DFI, a whole bunch of stuff, DOWs, they're all going to be on ETH. Now, will ETH be the only chain? No, clearly. People use Salana for stuff. People will use, and there'll be a multi-chain world of which there'll be a few giants and a long tail of stuff. And that's pretty normal. But Heath has got really interesting because of this. And then, you know, I came out with a piece in global macro investor last month called The Greatest

Starting point is 00:33:46 Trade. And, you know, here's my macro head on again, is, okay, we've got this adoption that is kind of exponential, right? It's growing at least twice the rate of Bitcoin. And it's by far dwarfing the rest of the space. then the EIP 1559 comes along and that reduces the supply. That's clearly bullish for the price. And then you look at the on-chain analytics and everyone is bloody staking it because now it's a pretty clear run between now and E2.0.

Starting point is 00:34:22 So why would you not if you're a long-term holder? So everybody's staking it. So that's taken ton of stuff off the exchange. There's tons that have gone into just holding. tons that are locked up in defy, tons that are locked up in NFTs, and you're left with, I don't know, as of today, 11% of the entire supply of Ethereum available and it's going down every day. And the demand is going exponential. The only outcome is an exponential rise in price. There's no other outcome. Raoul, Paul, you are an Heath Bull, my friend. This is, you know, something that I think we've been

Starting point is 00:35:00 talking about on bankless for a while, right? But I think a lot of people haven't seen it until it, like, because there's execution risk, right? I mean, I'm talking about EIP 1559 for three years, but it's like, everyone's like, yeah, well, is it there? When's it coming? What's the timeline for this? Now things are happening and people are starting to see it. Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure. Instead of a cumbersome order book system where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum, which is what Ryan and I call a money robot. No human counterparties or centralized intermediaries, just autonomous code on Ethereum. Input the token you want to sell and receive

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Starting point is 00:37:35 I want to talk more about ETH as the greatest trade in a second, because I want to hear kind of your full bullcase. But before we do, just doubling back to, I think, a key point of interest for bankless listeners, because every investor in this space has a bias, a mental model for how to evaluate crypto and these assets. I would say the bankless mental model is technology, you know, monetary phenomenon from the bottom up. We're building a new monetary system. It's going to be bankless, essentially. If I were just sum it up, it's a parallel financial system.

Starting point is 00:38:10 So that's our mental model for how to evaluate the space. And I think it's useful. But, you know, no investor has everything right. And where I see some value in bankless listeners looking at your mental model is you're not a monetary maximalist. You're not necessarily technology maximalist. You don't say this layer one versus that layer one. Well, I would paint you as, Raoul, is you're a Metcalf's law maximalist, right?

Starting point is 00:38:34 It's all about the network effect and what you're actually seeing in this on-chain data. And what's really cool about this macro asset and cryptos, you could see it all on chain. So I just want to talk briefly about what sort of network effects you look at. I've seen some of your Twitter threads, and it's been great, but like, is it address adoption? Is it number of holders? What is it? Again, it doesn't really matter. There's a lot of macro guys that will be annoyingly kind of hand wavy. If it's being adopted at speed, it's going to work.

Starting point is 00:39:07 And everyone's like, well, what exactly can I model that in a spreadsheet? No, forget about it. It's irrelevant. If you look at the rate of adoption that's going on of the entire crypto space, and this is my true north. This is all I need to know. There's one single thing I need to know and nothing else. So we know that it's growing at 113% a year in terms of number of users.

Starting point is 00:39:31 And we will assume that over time that trend rate of growth falls a bit. So if it falls from this year and goes down to 83%, so that's a significant fall in the growth rate. And we saw the internet do similar, but at peak growth was 63%, we're 113. It gets by the end of 20 to a billion people. And that gets us to about three or four billion people by 2027, 28. Okay, so a blind chimp can choose a cryptocurrency and get rich. If you look at the size of the assets, the entire crypto space as of today hit two trillion again, I think. Global equities are about 200 trillion.

Starting point is 00:40:23 Global bonds are like 200 trillion. Global real estate is about 100 trillion. Two trillion, 200 trillion. I figure that's probably 100x. And we all know, almost all of us, realize that all bonds, all securities, all assets are going on chain anyway. So it's probably even bigger than that. But the point being is that you'll never ever in your entire life ever again, and ever beforehand, we're given 100x in an asset that's already up 2 million percent when you look at Bitcoin.

Starting point is 00:41:01 You've never been given this. And you can basically choose anything, and it will go up. So once you do that, you're not scared of making the wrong bet. And it stops you being tribal. Because within that, you know some of them are going to be amazing. You take the pressure off. You take some basic bets, you know, Bitcoin, Ethereum, a couple of, of others here and there, and then you can just have a basket of stuff. And over time, decide,

Starting point is 00:41:27 okay, I quite like that, or that's getting faster adoption. So then you start to look at, like, Solana is clearly getting adoption. It's clearly happening, and it's clearly happening in the price. Okay, so do you want to own a bit more of that? Maybe. You know, is Polkaot getting to where it should be? Don't know yet. But it's worth keeping an eye on. You know, there's a lot of stuff. And then, so that's how I tend to deal with it, is forget trying to model it and look for fair values and this. It's like, as I said, you can be a three-year-old kid and be given a box of names of cryptocurrencies and take 10 out and you will literally make 30 times your money over the next 20 years and next 10 years. So, Raul, if that's the case, which definitely is, there's a lot of stuff that appreciates in crypto for no apparent reason. but why have you singled out ether in Ethereum as the world's greatest trade?

Starting point is 00:42:23 Like what about the adoption of Ethereum stands out to you? So this is the typical way I'll approach macro and a lot of macro guys do. You've got this big thesis now, which is 100x the space in the shortest period of time. So then our job is, okay, how do I add alpha? Where do I find the better bets? Now, there will be probably 50 tokens or assets that are. outperform Ethereum, but they're riskier. I don't know what they are. I have no, I have no ability to choose them. But when I look at Ethereum, it has all of the elements of the lowest risk, highest

Starting point is 00:43:02 quality trade. And it's, you know, it's a rewarding ecosystem with rewarding people in it, because, you know, there's a social element to this. There's a cultural element to this movement as well. And it's rewarding. So it's a good space to hang out where you feel comfortable with the asset, you understand how many smart people are working on it. So when you say to me, oh, there's a risk in 1559 getting done, my answer was the risk is like minuscule. And so I didn't care about it. Like, ETH 2.0, it's minuscule. Why? Because there's a lot of very smart people, smarter than I'll ever be working on it. So the probability is extremely high. And that's what makes ETH so rewarding. So let's talk about some of the catalysts coming up for Ethan.

Starting point is 00:43:53 Right. So we talked about EIP 1559. We talked about staking. Is the merge as well part of the calculus, right? Because we're going to see this three part happening. We're going to see like a massive reduction in supply. Is this the bulkcase? Is it mainly from a supply side or is there a demand side?

Starting point is 00:44:10 Knowing how markets work, this is going to catch a lot of people by surprise. It is all in the run up. where the money will be made. My guess is the moment ETH 2.0 happens, half of the ETH gets unlocked, and it all comes onto the market and the price will collapse. It's typical. Yeah, and that's a short-term thing. It might be an overhang for a year. I mean, who the hell knows, right? But that's pretty obvious that this is the best single time. That's why I call it the greatest trade between now and ETH 2.0, everybody wants it to happen. They're going to lock up as much ETH as possible and get the yield.

Starting point is 00:44:54 It's as simple as that. But when it comes out, chance ETH collapses. If you remember when Coinbase went public, everyone's like, this is so good for the space, everyone's going to know about it. What did it do? Mark the exact high in Bitcoin. And I've mentioned that on Twitter beforehand. I'm like, this is what it's going to do, and it will.

Starting point is 00:45:10 And this will probably mark the high in Eith. Well, I have a counter argument for that, if you are interested in hearing it. Yeah, absolutely. So the people that are staking ETH right now, they're committing to that insolvency period, right? Like, it's the whole point. As soon as the merge happens,

Starting point is 00:45:24 that insolvency period is up and they can withdraw. That's what you're talking about. The nature of proof of stake is that it actually rewards people who are the most bullish, right? And so the people that are committing towards that lockup period are the people that are inherently long on the Ethereum economy. And so while Ether definitely appreciated significantly since some of these, you know, amounts of ether got locked up.

Starting point is 00:45:48 And so by definition, there will be people who want to, you know, realize those gains. But they are also going to be the population of people that are most inherently tied to the health of Ethereum itself. And they're most interested in the long-term success of Ethereum. So if there's any population of people that's not going to dump right after the unlock period happens, it's the people who are ready to take a year of insolvency. And that doesn't matter. It's the marginal change that matters.

Starting point is 00:46:14 right now the marginal change is more and more people locking up, the rate of change of people locking up is still extremely high. What will happen is the rate of change of people staking will fall. It's as simple as that. The bull case is that, of course, there's a load of people who are just going to stake and just leave it there. And that's good because that's the long-term health of the system. You know, nobody's in this for the quick buck,

Starting point is 00:46:40 but there's a shit ton of people, yourselves included, who will end up selling some eth because they want to buy. a house or get married or do all the stuff that cost fiat money. Buy some NFTs though, you know, maybe that, maybe just that. Maybe, but at some time you're going to spend some fiat money on something. And it could be NFTs. Rao, what's your preferred narrative for Ethereum? So, and then do you have a different narrative for ETH the asset, right?

Starting point is 00:47:04 There's all of these different narratives. No, no. I think it's all being, everyone's, it's people trying to overthink everything. You know, ETH currently is a platform. You know, that's how I think about it. You know, it's a platform from which to utilize their blockchain to transfer value, to store value, and to create applications on top. So, you know, is elements of it money, as we talked about? Yes.

Starting point is 00:47:35 Are elements of store value? Yes. Are elements pure technology? Yes. I mean, it's everything. So, you know, it kind of is still the vision that Battalick had of the kind of internet computer. I mean, it is that, but that sounds a bit restrictive.

Starting point is 00:47:51 It's kind of the, I call it the internet of value, and you could call it the platform of value. And it's not exclusive because others can do similar things, but nothing has the scale, the scope that Ethereum currently has. One thing that we've been seeing more and more recently, and especially in the last quarter or so is Ethereum has become so large that it's started to be subdivided into different communities.

Starting point is 00:48:16 We have like the defy-focused community. We have the NFT community. But then we also have this like Dow phenomenon, which is actually instantiating actual borders around communities. Like do you own the Dow token or not? Are you in the Dow Discord or not? How do you see the relationship between communities and Ethereum inside of an industry that is so incredibly tribal, right?

Starting point is 00:48:35 There's a lot of energy behind these communities. And does this kind of, conversation of communities on Ethereum, like fit into a broader macro conversation? Yeah, I mean, I've noticed it myself because it's impossible now to keep up. So you have to specialize. And, you know, I decided that I'm not interested in defy, really, because I came from the financial system. I don't care about yield.

Starting point is 00:48:58 It's kind of boring to me. Defi is very cool, right? I mean, I love it. I love the whole concept. But for me, I'm a financial markets. It's less exciting than complete disruption of business models that NFT. and social tokens are, or even, you know, if the asset is. So I just kind of drifted away from that.

Starting point is 00:49:17 You know, I still own a bunch of defy tokens, but I don't get involved in it. And I think so that I think it's normal and it's good and it's healthy, that people will coalesce around what they think is where they can move the dial or the biggest opportunity lies. We're basically all just taking bets, asset allocation bets of our time and our energy and our money. coalescing around that, building communities and getting stuff done. Perfect. To see the Ethereum community fragment like this actually makes it stronger because you're creating pools of excellence and large pools of excellence around.

Starting point is 00:49:55 And I think that's great. They're not fighting with each other. They're just saying, hey, listen, you guys do that, we'll do this. Maybe we can meet up somewhere in the middle. That's brilliant. That's how to create a massive ecosystem. I mean, that, I think, again, just plays into the hand of the kind of Metcalf's law network effects. If you're now seeing all these nodes grouped together and create these super nodes around core elements of this, I think it's great.

Starting point is 00:50:21 So nine months ago when we last talked, I think Ether wasn't necessarily in a bear market, but Bitcoin definitely had kind of center stage, right? And one of the criticisms at the time of Ethereum, or the bare case for Ethereum was, hey, it hasn't figured out its monetary policy. We haven't seen EIP 1559. at the time we last spoke, ETH2 didn't have staking contracts live. Now it has all of these things, and I feel like people are getting the picture. But now the bare case for Ethereum has moved probably to something else. I want to get your opinion on this, on the bare case for Ether and Ethereum long term. And that's that a smaller, more nimble, more technologically advanced, let's say,

Starting point is 00:51:01 ETHKiller will take center stage, and that Ethereum doesn't necessarily have a competitive moat against, say, a Salana, you know, a Terra, some other layer one at blockchain. A lot of these are vaporware, but some of them, as you point out, actually have some good tech and are interesting. They make tradeoffs with respect to centralization versus decentralization. But again, the bare case for Ethereum argument would be like, well, do users really care about those tradeoffs? What's your take on alternate layer ones competing against Ethereum and stealing its market? Do you think there's going to be a power law winner in this space?

Starting point is 00:51:39 Or do you think this is going to be all shared? What's your take? My take is the space is going up 100x. And let's say Ethereum is 90% of that space right now. And it ends up being 60% of that space. 60% of a $200 trillion market is a lot more than this. So of course it will not have its dominance over time. Like Bitcoin doesn't keep its dominance over time.

Starting point is 00:52:06 it'll get splinter in different use cases. Other people come in. There'll be great developments, and all of these spaces will be, you know, a hundred times the size they are now. So I think people still think of this as a zero-sum game, and it comes from the early days of adoption, because that's what networks are, these kind of behavioral incentive adoption models that the cryptocurrencies are, which is why they're so powerful. At first, it's like if you don't get adoption. You can see it being fought out in like the hex community and some of these kind of more kind of risky, not real projects. They're fighting to keep them alive. Right. So they fight against other people to get adoption. A theorem doesn't need to do that any longer. Actually,

Starting point is 00:52:50 not as Bitcoin. And one of the reasons that you're alluding to why so many people have started moving across to Ethereum as an investment was actually the Bitcoin community. They kind of screwed it up. Oh, go into that more. Because they were too toxic. There are some really smart people in that space and some people I really respect. Some people who say, listen, my view is I think over time the monetary elements is what I'm interested in. And I think Bitcoin best reflects that. And I think there's an opportunity for it to be a larger part of the global financial system. So I'm going to focus on that. I totally get it. Is there a probability that Bitcoin is money in the end. There is a probability. So I get that path and that's their macro bet. But there's another

Starting point is 00:53:36 group that was like, how dare you look at anything else? It's a shit coin, it's a scam. It's, we hate you, all of this stuff, right? Which is the same stuff we were just talking about with these others is they spent too long on a fight that was the past. And they should have said, fine, you guys do that, we're doing this, we'll probably develop some smart contracts in due course. we got the lightning layer. This is all great. Look at the space. It's all going up 100x.

Starting point is 00:54:01 We're all going to get rich. And we can change the world while we're doing it and probably solve a lot of inequality. But they did the opposite. And that was that I think was a huge tactical error because people in the institutional space don't like to see that. And whether people like it or not, institutional adoption is part of the story. On bankless, rel, we try and emphasize the role of what we call the layer zero, which, you know, Bitcoin, Ethereum, these are layer one. blockchains, but ultimately it's the communities that compose these layer ones that really kind of define the asset, right?

Starting point is 00:54:36 Like they kind of define what the thing actually is. And Ryan and I have felt similar resistance from like the deep Bitcoin Maximus who like, as soon as we talk about anything that's not Bitcoin, we feel their teeth, right? Do you have a perception as to what the Ethereum community is like and how the Ethereum community defines the ether, the asset, and the role of people's portfolios? an opinion on this, or is it just that you were tainted by the Bitcoin Maximilist with regards to Bitcoin? I don't see it as much in Ethereum. Yeah, there's a few people who throw out a few comments on Twitter, some sort of eth maximalist view. You know, and they don't mind baiting a few

Starting point is 00:55:13 people with laser eyes and stuff like that. So you can see that. But generally speaking, I found that people in the Ethereum ecosystem are too busy building businesses to fight with each other or to fight with anybody else. You don't even see kind of Eith versus Solana. It's like, oh, that's an interesting project over there. They seem to be growing quite fast. I better go on with what I'm doing here. It's a very, very, very, very different mentality.

Starting point is 00:55:42 And it's because my guess is the Ethereum ecosystem is not a finished thing. Well, Bitcoin is finished, really. And that thought it also becomes a bit boring. And I know this is terrible to say, But I understand the boomer coin thing because it's a bit like gold, right? Gold's perfect. Gold doesn't have to do anything else. It's perfect.

Starting point is 00:56:04 It's gold. And Bitcoin's perfect. It's Bitcoin. I mean, it's absolutely phenomenal. Now, so it's a bit boring to talk about. So then the sovereign adoption, that is interesting. You know, there's the institutional adoption, I think, is very interesting. The lightning layers of payments there.

Starting point is 00:56:22 That's interesting. You know, there is some interesting stuff. It's just not as intuitively interesting. as the amount of innovation that's coming out of this space. Yeah, I agree with that, Raoul. And like David and I have joked before, like, we love Bitcoin. We talk about it often, but we would not actually want to have a Bitcoin podcast because I'm afraid we'd run out of things to say.

Starting point is 00:56:40 Whereas with Ethereum, DeFi, NFTs, we just can't keep up, quite honestly. It's impossible to keep up with the inflow of content here. We have six shows a week and we still can't do it. We still can't do it. So I have a question for you, though, on this. our thesis has been Bitcoin's great. It's really cool. Hold it in your portfolio, right? Ether is even cooler and it's going to appreciate faster. Hold that in your portfolio as well. What's your take on that? Do you think, like, what's the landscape that Bitcoin will inhabit? Do you think ether will grow

Starting point is 00:57:13 faster? Do you think ether will flip in Bitcoin at some point in time? I think there's a serious probability that they will because a platform versus an asset, you know, It tends just by the nature of what the Ethereum ecosystem is, it tends to attract more capital and have a higher market cap. So, yeah, it's definitely possible. And, you know, the adoption rates continue at the rate that it's going. It will happen pretty quick. So people should own a bit of Bitcoin. There is an argument that you should never own Bitcoin.

Starting point is 00:57:54 because if you play it through and look at Bitcoin dominance or Bitcoin versus everything else, Bitcoin outperforms in bare markets and Ethereum and then going out the risk curve, outperforms even more. So, yeah, we're seeing the risk curve here now, which is some of the other, the newer, faster adoptions, let's say Salana, stuff like that, growing faster than Ethereum, because they're at lower point in the cycle, you know, the less number of users, price goes up exponentially faster, NFT, stuff like that,

Starting point is 00:58:26 when you're going further out the risk curve. So then let's say, so that's the bull market. You shouldn't own Bitcoin because it's going to underperform. And in a bare market, you should own stable coins. So in which case,

Starting point is 00:58:40 why should you ever own Bitcoin? This is what David tells me all the time. And I've been thinking through this. Again, I am not saying this because I'm anti-Bitcoin in any way, shape, or form. I'm thinking through asset allocation and how you think about it properly. Well, so let me ask you this. So last time we talked, I was going to save this question maybe for the end, but let's

Starting point is 00:59:03 talk about it now as we're talking about portfolio allocation. So last time I think we got to the lightning round, we asked you, what's your allocation? And if I recall correctly, you said at the time, this is November last year, 25% gold and then three quarters crypto. And of that three quarter allocation, it was like 80 to 80%. 85% Bitcoin and then 15% ether at the time. Has that changed? And how has that changed in your personal portfolio?

Starting point is 00:59:30 Ridiculously. Soon after that, my ether allocation started going up. I sold my goal almost immediately around then, maybe just before then. So it was 100% crypto and I have been for a long time now. I'm now, depending where we are today, 50,000. 25% ETH, 25% Bitcoin, and then a tail of an equally weighted basket of a mix of D5 protocols, layer ones, interoperability stuff, and then some specific bets in kind of social tokens, metaverse, and other longer term macro bets that I want to express that view in.

Starting point is 01:00:21 You know, I'm probably, I'm just following the chart very closely of the Bitcoin ETH cross and I think it's about to explode higher again. So I may end up selling all of my Bitcoin, which is a weird thing. And again, I'm not into Bitcoin, but I'll sell that by Eith. You may end up selling all your Bitcoin. Yeah. I've been fighting on their cell for two months. Why not to?

Starting point is 01:00:41 A 100% crypto portfolio with the potential of having 0% of Bitcoin. That is, that sounds like you're in an inferior. Am I a total D-Jed now? Is that what you're telling me? Yeah. Yeah. You fit right into us. I think you fit right in here, that's for sure.

Starting point is 01:00:56 Sounds similar to some portfolio as I know, right, David? Absolutely. Yeah, no, it feels like mine. Well, so you said some things, like you're debating with yourself on whether to do that or not. Why wouldn't you do that? I don't know. And part of it. That's the, that's the, it's the part of the backlash from doing it.

Starting point is 01:01:16 And also, I spend a lot of my time speaking to, for no reason than to help the, community is I speak to a lot of institutions, sovereign wealth funds, everything about adoption and Bitcoin is the thing. You know, I get my sister and law into it and, you know, I get as many people as I can. So it feels disingenuous if I don't own it. You know, I passionately believe in it. So it's a weird thing that as an asset allocation, it's suboptimal. But for the greater good, it's probably the right thing to do. So somewhere between not selling all of it, keeping some of it so I can still say, obviously, I've still got Bitcoin, but it'll only be 5%. Something like that, I think.

Starting point is 01:01:58 We just had Ryan Selkis from Masaryon, and he in the time frame made a similar transformation to more Eith. And part of the reason I think he mentioned he didn't sell more Bitcoin is for tax reasons, right? It's just large capital gains. I can't even use that, live in a tax-free Caribbean island. Oh, my God. How nice is that? Wow. Everything is better in cadence. Roe, we would be remiss to not talk about the NFT mania. going on on Ethereum lately, especially in the last week. It heated up really, really quite a lot, but it's really been going on for a number of months now. And one of the narratives that's emerging

Starting point is 01:02:30 out of the Ethereum community is that ether is culture money. Is this something that you consider when you allocate your portfolio, the relationship between culture, crypto culture that's going on inside of the crypto world and kind of how it's largely kind of centered around the NFT phenomenon, which is largely based on Ethereum? Yeah, I'm not thinking it as an Ethereum thing. I'm thinking of tokenization allows for the tokenization of culture, which is the release of value from culture. And I spend a lot of time in this space on a lot of things. I've got a project that I'm setting up within this space. And it's not to do with NFTs per se. I think NFTs are the first manifestation of culture. You know, I think the Dow movement is culturally interesting.

Starting point is 01:03:16 I think the social tokens is going to be culturally enormous. I know. I know. notice that there is currently coalescing around cultures, do you in a punk or do you an ape or whatever it is? Some of that will last. Some of it won't last. I mean, a ton of the tail of that stuff will not, is just vaporware. But that's fine. Everyone kind of knows they're having fun and doing it. But culture as an investment is the big thing that's coming. I can't express how big that is. But don't forget, for everybody, music is the soundtrack to your life or sports or all of these things. If you even think back what was I doing in in 2011, you kind of think back to what music it was on or what big events, what spot, they're all cultural. Culture is what is one of the

Starting point is 01:04:03 things that drives humans or gives them, it's one of the great reward systems humans have is culture. And we've never been able to profit from it. In fact, just the brands did themselves that sold into culture. But this way, we get to participate in culture in a more meaningful way. I think it's just, to revolution. I know you just said that you don't think that there is a inherently an Ethereum phenomenon, but when you have a 100% crypto portfolio, do you think by having a 100% crypto portfolio, you are having exposure to the next evolution of culture? Do you think the next evolution of culture is specifically a crypto phenomenon? Yes, without question. And obviously, that ties into the metaverse, because it's going all there as well. And we'll be able to kind of live in our subcultures.

Starting point is 01:04:48 you know, we've gone from nation states and we're splintering into sovereign states. You know, Facebook is going to end up being a sovereign state essentially by all yardsticks, right? It's got a leader, kind of a mission, a set of rules, and it's going to have a system of money. And it's going to have to define borders because they're building their own metaverse. That's a sovereign state. You know, arguably, Some of these DAOs are like sovereign states. I mean, what's the difference in a corporation and a sovereign state? Not a lot.

Starting point is 01:05:23 The difference in a corporation and sovereign state is they don't have their own money, but these do. So it's, I mean, it's kind of mind-blowing, right? People aren't ready for the change that's coming. People can't really figure out what this all means. But the way we've understood the world over the last three or four hundred years is about to change because of the internet. And then because of what tokens do to,

Starting point is 01:05:48 coalesce people around a particular cause or culture or belief or whatever. Well, this phrase, culture as an investment, is super interesting. And I don't know, as I've heard anyone articulate it, just kind of in that phrase and that simply. But I'm curious what institutions think about this. So, you know, your friends that run large macro hedge funds are big investors in the space, how do you explain why a JPEG is worth $5 million to them? So I've written a lot about this.

Starting point is 01:06:16 And if I've spent time at the forefront of anything in this space, it's all of this stuff that I've tried to be a thought leader in it. It's very simply, if I go out of my office here, I've got a bunch of famous musician prints on the wall. And they're all signed by the photographer. Now, the JPEG argument would suggest they're worthless, but they're not, because they're a little. limited number of prints signed by the author. Now, if I'd bought the one that had the negatives as well, it'd be worth even more. So people don't understand properly. Anybody makes the arguments, just JPEG doesn't understand authenticity and the human valuation of how we value authenticity, proven authenticity and scarcity. The same is true when people see digital art like Beeple,

Starting point is 01:07:13 which I think is phenomenal in a different medium, and they go, well, this is. is nonsense. Well, they said the same thing about Dali, Jackson Pollock. They said the same thing about Banksy. You know, when Banksy came, started graffiti art. Everyone's like, this is worthless. Well, guess what? It's not. Same with Damien Hurst. Same with Andy Warhol, printing from the factory, limited, it's the same thing. So I've explained to people, people get that pretty quick. Don't forget, a lot of people in the macro hedge fund space, they've been around a while, they've made a bit of money, most of them collect something, whether it's cars, watches, houses, artwork, and the richer they are, the more art that they collect, because there's nowhere else. There's a limit to the number

Starting point is 01:07:59 of cars you can have. Do you know what I sometimes wonder what it is, Raoul, if it's like people understand why culture is valuable inherently, and they understand collectibles, and they understand authenticity. Everybody understands this already. If you're human growing up, like, you know, every age, you understand these things. What they don't understand is how that translates. into the digital. Like they just, they can't seem to cross that part of the chasm. But when they do start to get it, and sometimes it just can happen with like maybe sending a Bitcoin transaction or maybe seeing the first NFT that you actually want to buy, well then once you do that, once you cross that bridge, you don't come back because then you start to fundamentally understand digital scarcity.

Starting point is 01:08:43 And then you just extrapolate that into, oh, now Bitcoin makes sense. Now Ether makes sense. Now, all of these NFTs makes sense. Then it all starts to make sense once they understand that transition of scarcity into the digital. What's your take on that? I think that's dead right. And look, people will get it very quick. Again, like, you know, I'm a big music fanatic. And on my wall in my bathroom is framed program from Live Aid because I was at Live Aid.

Starting point is 01:09:13 Right? That has value. And it'll have more value in time because it's scarce. And it's a cultural moment in time that all of humanity came together. Everybody does shit like that. And the younger you are, the more you understand how this works, whether it's from being on TikTok or being on Instagram. So I think it's intuitive to most people.

Starting point is 01:09:34 I think what is not intuitive, what is holding people back is the wallet experience is so bad. I mean, I bought my first NFT today. I've not been involved in NFTs, not that I didn't like NFTs. or weren't interested, I'm super interested. I just, it's not something I'm particularly fussed about collecting. I'm not focused on other stuff right now. So, you know, that having a punk doesn't feel like the statement I want to make, whatever it is.

Starting point is 01:10:04 But, you know, just messing around between open sea and my Metamask wallet and getting it, it's like, I'm never going to get. There's gas fees associated with that. So like, well, gas fees are easy to understand, right? It's a transfer fee. We've all got that. you buy a ticket for an event. But to have to set up a special wallet with a stupid phraseology that you have to remember to buy something, you're just like, fuck it, I'm used to a credit card.

Starting point is 01:10:30 This has to change for this space to get to where we all think it's going. Because, again, one of the things I argue is if I'm going to send you a hundred bucks, we will not know and should not know or care over what blockchain it travels. it may start in XRP, go across the lightning layer, and then finishing something else. It's irrelevant. You know, it's not going to be one or the other. You're not going to choose on your phone. Oh, I'm going to do it this way. It'll be whatever the cheapest routing is.

Starting point is 01:10:59 Same as we do with mobile phones, right? We call each other, send each other messages easily. But people need to be able to have the experience where it all comes on this. That's where it's all going. It's not there yet. A fascinating conversation with Ian Rogers, who's the chief experience officer of Ledger. Ian's a super smart guy. He built beats by Dre.

Starting point is 01:11:21 He built some of the first music apps. He was then the head of digital at LVMH, the French kind of fashion and giant. Who understand culture. You know, people like him, they have to design our future because we won't get there without them. Yeah, absolutely. It does feel like you're stepping back from a UX experience because there's this tradeoff. Of course, we're dealing with bearer assets. I remember our last episode with you.

Starting point is 01:11:46 said bear assets are just a pain in the ass for institutions for everybody. But I got to ask at this point because I know the audience is wondering, so what did you buy? What NFT did you buy? And are you going to like replace your profile picture? Is this going to be like your new identity? Tell us. Bizarly enough, and this is not driven out of ego, I bought the one of myself that you see behind in my office in Grand Cayman, in the Real Vision office, which is done by the two quants. They've got this thing called the Real Vision bots you might have seen around on Twitter. And they created this piece of artwork. And I've got the print on my wall.

Starting point is 01:12:24 And there's only five of them ever made. And I don't think it's going up in value. But I thought, you know what? I've got the prints because they sent me the print. And I thought, you know, I should just own the NFT only because I wanted to buy the NFT, see how it worked with my meta mask, do all of that stuff. So it wasn't a future value puns. And I didn't buy it because it had me in it.

Starting point is 01:12:43 I just bought it because I just wanted to figure out how it worked. Sir, it's not going up in value. Yeah. It's a one of one? A one of one? There's only one of it. I think there's five, actually. And they've all been sold, I think, now.

Starting point is 01:12:54 Okay. Yeah. Not going up in value until this podcast, maybe that's the case. We'll see. That's right. It's called irresponsibly long, which I, you know, I'm always happy with that, coining that term. That's a fan, yeah, no, it's burned, that one's burned into my brain for sure.

Starting point is 01:13:09 Yeah, I can't believe how many of these things I've burned into people's brains. Pristine collateral. That was me. irresponsibly long. There's a whole bunch of these that, I don't know, somewhere down the line, culture as an investment, that'll be the new one. Trademark, Raoul, pal. Just you heard it here first.

Starting point is 01:13:23 That's a good one. That's a good one. I told Gary Vee this in an interview and it stopped him in his tracks. He's like, fuck, I've never heard that before. That's exactly right. Yeah, it's totally right. Maybe we can get another one out of you because this one usually gives people a ton of trouble. We all talk about the metaverse as if we know what it is.

Starting point is 01:13:41 But when anyone defines the metaverse, everyone gives a different definition. So, Ravel in your mind, what the hell is the metaverse? The metaverse is where we live a larger percentage of our life in the digital world than we do in the physical world. That includes augmented reality, virtual reality, 3D and 2D. We are in the metaverse now, essentially, right? We're chatting as if we're sitting in the same room having a coffee, right? We're so used to it now that it doesn't feel like a barrier at. all. That's the metaverse. The metaverse is when I can instantaneously pay you money

Starting point is 01:14:22 and we don't care what rails it goes across. That's the metaverse. The metaverse is the fact that Apple have now put things in your phone that ping five million times a second, I believe it is, that map out everywhere you are and will create an augmented reality map of the world in granular detail, that map of the world will help you navigate everything. That is the metaverse. The metaverse is not just the Ready Player 1 gaming world. It's the digitization of everything where we spend most of our lives being digital. And right now we wouldn't say, oh, we're living our lives digitally, but we are. Because the majority of what we're doing right now, even though we're living in physical spaces, we're actually concentrating and putting

Starting point is 01:15:09 the focus of our attention in the digital world. And that's how we're doing. And that's how we're doing, how I think about it. It's that entire nexus where everything comes together and becomes digitally fluid. So, Roel, what's the relationship between crypto and the metaverse? Would you say that crypto is perhaps like the epicenter of the metaverse because we can actually instantiate our digital assets? Or is that just the perspective of a crypto maxi like myself? Well, we've got to be honest with ourselves that gaming existed without crypto. But what crypto changed was proven only in a digital world. So that was a fundamental building block that I think was necessary, much like we had the

Starting point is 01:15:54 internet, but we didn't have this transfer of value mechanism. So I think that they're one in the same. We also use the term Web 3.0. It's all basically the same thing. It's that seamless digital integration where we don't need to use the physical realm. And I think crypto is the only way that we can. have ownership within that world. We can transfer other ways, but we can't have that trusted ownership, which I think is

Starting point is 01:16:22 the most important part of it all. Because in which case, it's nothing, right? It's not world. Well, I was going to ask, do you think that there's like a social political sort of aspect of this, right? So, you know, so much sci-fi is dystopian. You look at something like Ready Player 1, and it's a large corporation that owns everything. They can bend the rules in their favor.

Starting point is 01:16:42 And as we're talking about going into the Metaverse, everything's becoming digital. Whether we want it to or not, we can try to resist change, but it's inevitable. Humanity is on this trajectory. And so we see Facebook entering in saying they're going to become a Metaverse company. You talked about Apple. Well, these are big tech companies. And what's striking is in the digital world, apart from blockchain, apart from crypto, you can't really own anything.

Starting point is 01:17:06 An individual has no self-sovereignty over property without crypto or without blockchain. So, like, maybe sci-fi is dystopian because, like, they don't really talk about crypto or blockchain, and large companies or large nation states own all of these things. Do you think there's some social political undertone of making sure that the future of the metaverse that individuals have property rights and some of these basic guarantees? Is that important to your thesis at all? I think we've all been too led by sci-fi and think that there is one metaverse. I think the metaverse is a much more subtle, total existence that's not based around one thing.

Starting point is 01:17:49 That's like saying we only use Facebook as our platform. We will choose which parts of the metaverse to interact with, much as we choose which parts to be online. But I do think it's extremely powerful that you can be a kid in Ethiopia, you can have an avatar, and you could go to online Harvard and compete. and you can't have racism, sexism, or the fact that you're not in the same country and don't have the same advantages. These things are game-changing for society globally.

Starting point is 01:18:22 But it also means globally we have to compete with a lot of people. And you're going to onboard a lot of people into the global workforce. But I think it's all good. I think it's going to create GDP in its own right that is above this kind of GDP of the world of the physical. world as we know it. And I talk about, you know, like social tokens being a layer of value above equity. I think the metaverse is a layer of GDP that exists outside of physical GDP. And I've talked of it akin to discovering the Americas. You discover a new part of the world that you didn't

Starting point is 01:18:59 think existed and suddenly your entire view of the world has to change because now you can create more. And, you know, people have this very pie view of the world and you take a piece of pie out It doesn't work that way. The pie can grow, and I think this is the pie about to explode. Does that change this issue that we've got with below-trend GDP growth driven by demographics and the lowering of population, right? Because GDP growth used to be population growth plus productivity. Productivity is going up, population growth is going down in almost every country.

Starting point is 01:19:37 but maybe GDP per capita is about to explode because of the opportunities of discovering this new world. The other way I get people to get their heads around it is when I grew up, Russians were poor. And then something magic happened around 19, about really, really happened about 2002, is Russians became rich, phenomenally, ridiculously, repulsively rich. It was the fastest of security. accumulation of wealth in all recorded human history. Because basically, they just handed over all of the mines and the oil fields and the chemical plants to a bunch of Russians.

Starting point is 01:20:18 And it went from state ownership to private hands. And that was new GDP. It's brand new. It just came out of nowhere because you dug oil out of the ground and we're going to create a whole new metaverse. And it's infinite in size. Absolutely. This is infinite white space was the name of a podcast we did with a guest.

Starting point is 01:20:37 Not too long ago. I think that's a great way to describe it. Raoul, as we start to think about closing, we're wondering if you have time for a lightning round where we just ask some rapid fire questions. You get some time for that? I usually do bad at this, but let's do it. Oh, no, you do awesome at this, which is why we had to include it. Let's talk about this. There's been some regulatory fud recently. Maybe. That's how some some would describe it. Others would describe it as, look, there's some real regulatory threats and headwinds that are facing this industry? What's your take on some of the regulatory stuff that's going on in the U.S.? Is this fud? Is it real? Does crypto come out stronger, or is this going to be bad for crypto?

Starting point is 01:21:14 My one word answer is noise. It's just noise. We know there's going to be regulation, and we know that they have to adapt to this new thing into the system, and they know that they have to get their fair share of taxes, and there's no chance that they can get rid of it because of the scale of which it's growing, it's almost impossible. So regulation is going to be part of our lives for the next 30 years in crypto. It will keep changing. Some will be bad regulation. Some will be good regulation. But over time, it's not going away. And it's fine. It'll in fact, a drive adoption. Because right now, I don't know if I can set up a business with a certain type of token and end up going to prison because it's a security. It's ridiculous. It is. Ryle, do you have any opinions,

Starting point is 01:22:02 as to how crypto is going to touch people first? Like what is going to be the thing that really onboards a billion people? Social tokens. Social tokens. Without question. Because we're all members of these communities. Some of these communities are massive. Global pop stars, global sports franchises,

Starting point is 01:22:20 some of these absolutely enormous communities of which people want to participate in. Once you solve the wallet thing, people will just very, very naturally become community owners. So does this mean everyone with the community launches some sort of social token and or NFT? Yes, without question. Because even small groups of people can coalesce around that. And you will have a number of these things. And therefore, you're participating in a community of which if you add value to the community, the value of that token goes up. It becomes a great behavioral incentive.

Starting point is 01:22:53 And it becomes part of your asset base. It's really clever. It drives really vibrant communities. and it's very powerful, I think. I know you spent a lot of time in the macro, but do you have any other projects on your radar, you know, crypto-related or maybe even otherwise? Yes, I'm doing something I can't talk about yet

Starting point is 01:23:11 in this community token space. I'm working on that. I'm also working on something else to drive the ability to people to asset allocate over extended periods of time because there's still not enough vehicles. There's kind of the ETF we're all waiting for. There's a bunch of VC funds.

Starting point is 01:23:29 there's a bunch of things missing from the space that people are used to from the traditional financial space. So I'm actually working some stuff with that. And there's a whole lot of, yeah, there's a lot of things I can't talk about that I'm working on that the space just doesn't have yet. And that's great. And there's so much opportunity to do stuff,

Starting point is 01:23:48 whether it's with real vision, with what we're doing or other stuff that I'm doing on the side. And, you know, I think if I speak to any of you guys, everyone's going to say, God, I've got so much going on. Why? Because it's exciting. There's a lot of opportunity. and, you know, one of you could be in defar and somebody else is in NFTs and somebody else is doing payment systems.

Starting point is 01:24:06 It's fantastic, right? It's what's so exciting. Well, historically, this industry has moved in cycles. Every four years, there seems to be a boom-bust cycle. Bitcoiners believe that this is aligned with the happening. Do you think that that pattern of cycles, the cyclical nature of boom and bust nature of crypto, is that going to continue? Or is this going to change now that we've kind of elevated ourselves into the mainstream? I think cycles morph and change over time.

Starting point is 01:24:34 But humans, by definition, tend to be cyclical in what we do. GDP is cyclical, credit is cyclical, equities are cyclical, commodities is cyclical. So there's something inherent within how humans get excessively pessimistic and excessively optimistic that it's cyclical. Is it driven by the harvening? Probably will that continue in due course? Maybe not. but there'll still be a cyclicality. And it'll keep moving around.

Starting point is 01:25:02 If you look at the GDP cycle, it used to be kind of every three years, you know, Pete Trough, Pete Trough, Pete Trough. Then we got to modern central banking, and it started being like a four-year cycle. And then we've seen, you know, the last one was, was, you know, a significant period of time, 2009 till 2020, 11 years.

Starting point is 01:25:23 How about end of 2021, take us there? So do you have any price predictions? Let's do Bitcoin and Ether. My price prediction has been ETH north of 20,000. Wow. And that's pretty simple. All I did is just map over the ETH chart

Starting point is 01:25:38 to the Bitcoin 2017 chart. They work perfectly. And it gives you 20,000. So, you know, there's no great science to that, but it feels about right. I've also mapped the Bitcoin price versus Bitcoin 2013. They look pretty similar.

Starting point is 01:25:53 And there's a bunch of other ways I do it with Bitcoin with log charts and regression analysis, stuff like that. Generally speaking, I think it's somewhere between 250 to 400,000 with an outside chance of a million if we get an extended cycle. We're talking the end of 2021, or are we talking longer term than that? End of 2021, March, 2022, something like that.

Starting point is 01:26:19 Wow. Don't forget, they usually go up 5 to 10X in the last three months of the year. You know, so, you know, we haven't even got to the all-time high, but let's say Bitcoin goes up, you know, 5X from the 60,000 high, was 350. That'd be very normal rally for year end, considering we're about to have an ETF. And if I'm right, we might see the central bank pivoting to more printing. They may not print more money this year, but they'll start talking about it. Those two things alone are enough to drive Bitcoin to 350, 5x from here.

Starting point is 01:26:55 You do think we're about to have a Bitcoin ETF then? Yeah. Without question. Without question. It's probably coming in October or November. Fantastic. Raoul, I want to end with this question.

Starting point is 01:27:06 It's always a pleasure to have you on bankless. We've got to do this more. So many bankless listeners said, hey, I love bankless. I love Raoul. Now you guys are doing a podcast together. It's like blowing my mind. So I think we have some kindred spirits

Starting point is 01:27:18 in both of our communities. And you guys have grown a fantastic community. But I was impressed with something It stuck with me at the end of our last episode when we asked you about, hey, the next 10 years. And you were talking about how you think, like, there's global inequality. There's all sorts of political macro forces. Wage increases have an increase. It's going to be a rocky decade, is what you said.

Starting point is 01:27:43 I want to ask you maybe something hopeful about that. Tell me, like, what is the most hopeful way we can come out on the other side of this rocky decade? My view has become somewhat different. Those factors are not going away, but we've got something else that I call the exponential age that's coming to the middle of this. Over the next 10 years, we're already all of us dealing with this crypto exponentiality, right? We're starting to get a hedge around what exponentiality means. When I say crypto goes up 5x in the last three months of the year, you kind of laugh,

Starting point is 01:28:17 but you think, yeah, yeah, that's possible. That's understanding what X. I do. I definitely do. That's what exponential means, right? We're starting to get a hedge around this. But we've got all at the same time, the largest confluence of technologies that are all into maturity, i.e. the exponential stage.

Starting point is 01:28:36 That's AI, robotics, genetic sciences, EVs, green energy. We have distributed computing power, Internet of Things, wearable technology. There's eight autonomous vehicles. There's a whole bunch of these things that are game changing. Literally, we can't get a hedge around what this all means. And it's all going to happen at the same time. Now, there is a decent probability that that changes the trend rate of growth finally. And then there is another probability that if you stick any money into any of these things,

Starting point is 01:29:20 you can make some real returns, some. really gigantic returns. And we talked about it in the crypto space. So a lot of people, I used to argue that the average millennial at 32 years old was pretty screwed because their parents got an opportunity of all-time cheap valuations of equities, all-time cheap valuation of property, all-time cheap valuation of bonds and credit. They couldn't help but make money by just saving some money.

Starting point is 01:29:48 They screwed it up by borrowing money, but that's what they did. And they borrowed money because their wages didn't go up. And I've proven that out over time. It's amazing. If you adjust household debt for wages and look at the total savings, the total amount, it's basically to say consistent. They've just topped up their loss of purchasing power over time. But the millennials were faced with all-time record property prices, all-time record equity prices,

Starting point is 01:30:14 all-time record credit prices, fixed income prices. So what was their marginal expected return was so low that they didn't bother saving? then 2020 came along and it changed everything because you financialized the whole lot of them in one go and crypto is a lot of this opportunity and a lot of them are investing in stuff like ARC, which is these long shot future things. And I think that's dead right. I think there's a huge opportunity for people, both in building businesses, investing in stuff and just the chance for society to adapt at a rapid pace.

Starting point is 01:30:47 But it's going to leave a lot of people behind because people fear change. and if you're not used to it, you're going to get terrified. I mean, look at the narratives that are going on right now. Vaccine, anti-vaccine. What is that about technology? Elon Musk, self-driving cars, Tesla, the hatred and the love. What is that about technology? Kathy Wood.

Starting point is 01:31:07 I mean, why people are creating an anti-Cathy Wood ETF? That's beyond me. Why? Technology. What is going on with global warming? Why do people fear that? Technology. Why do people fear Bitcoin technology? Why do Bitcoin people fear Ethereum technology?

Starting point is 01:31:26 It's this unprecedented rise in technology that is making us all feel like, Christ, I can't keep up. And I don't want things to change as fast. And that's driving societal problems on a scale, and that's not going away unless society participates in change and benefits. But we're still fighting about a vaccine, saying, you know, there's a benefit, basically free for everybody and half the people don't want it

Starting point is 01:31:53 because it's technology. Oh, my God, you're messing with my DNA. I mean, but that will change every time. People get accepting of stuff that they weren't accepting of before. So. What a fantastic way to end this podcast. Raoul, it's been an absolute pleasure. Thank you so much for coming on. Not at all. And, you know, over at Real Vision, we've got a bunch of stuff worth looking on a lot of these themes. So, you know, if you go to real vision crypto.com, it's free. It's all there. You know, I've built a whole free channel to try and get across a lot of the stuff that I'm talking about in crypto to make it broad, to make it understandable, where there is no infighting of one thing versus another. It's like, if you want to find out about this, well, here's the

Starting point is 01:32:39 guy who founded it and here's a really smart guy interviewing him. You know, the more that we all do this, you guys are good at it too, is the better it is. So, you know, I think it's important that people go to the quality source of information. So Real Vision crypto is a good place to go. You know, and I know the Real Vision guys love what you're doing as well. Yeah, plus one on that, guys. I think the message at the end of this is, as bankless, we often say you have to position yourself for change. Position yourself for the crypto renaissance.

Starting point is 01:33:05 We're just entering into the crypto renaissance. I think the message from Raoul is similar. Position yourself for this exponential age. That means positioning yourself for exponential change. So some action items for you here today. Go listen to our previous episode with Raul Paul. We will include a note in the show notes where you can go click on that. That's the first one. The second is I'm going to do a plus one on everything Raul just said. Real Vision crypto is phenomenal. They've got a community now with 100K plus members. You find out about cryptocurrency, digital assets. Really great at video in particular. And it's also completely free. You can get a membership. So go check that out at Realvision.com. slash revolution. We will include a note in the show notes there too. Guys, as always, none of this has been financial advice. You won't hear financial advice on bankless. You might hear some life advice, though. Bitcoin is risky. ETH is risky. Defy is risky. You could definitely lose

Starting point is 01:34:02 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.

Bankless - 80 - Ethereum is the Greatest Trade | Raoul Pal

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