The Pomp Podcast - #680 Investing in the Crypto Market w/ Raoul Pal

Episode Date: October 5, 2021

Raoul Pal is the CEO of Real Vision Group, the world's premier finance and business video channel featuring exclusive in-depth interviews, research, documentaries, analysis and investment ideas from impossible to access guests and the sharpest minds in global finance.  In this conversation, we discuss macro investing, economic stimulus, bond portfolios, bitcoin, ethereum, solana, NFTs social tokens, price predictions, and what institutional investors are doing. Cryptocurrencies offer boundless potential, but who will protect yours? Arculus is the crypto cold-storage wallet that combines the world’s strongest security protocols with an easy-to-manage app. Unlike other storage solutions that are less secure and more difficult to use, Arculus doesn’t compromise security or usability. You can store, swap, and send your crypto all with a simple tap of your Arculus Key™ card. And with no cables and no USB connections, you’re insulated from the thousands of hackers online trying to get at all the digital assets people store in the cloud. So that the only person with access to your crypto... is you. Order the safer, simpler, smarter crypto cold storage solution at getarculus.com today. ======================= Cosmos is building the Internet of Blockchains, marking a new era of interoperability, scalability, and usability. The free flow of assets and data between blockchains with bridges to Ethereum and Bitcoin will unleash the potential of DeFi, NFTs, and much more. Dive into Cosmos at cosmos.network/pomp  ======================= Matrixport is Asia’s fastest-growing digital asset platform founded by crypto veterans Jihan Wu and John Ge. With $10 billion in assets under management and custody. Matrixport offers one-stop crypto-financial solutions including fixed income, Defi in 1-click, structured products, Cactus Custody™, spot OTC and lending. You can earn a high double-digit yield with the Dual Currency Product or opt for the lucrative potential of our new product, Range Sniper. If you hold crypto and are actively looking to do more with your precious asset, then this app is one you don’t want to miss. Download the Matrixport App and enjoy a welcome offer of 30% APY on Fixed Income for new users. Visit invest.matrixport.com/en today. =======================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Raul Paul is the CEO of Real Vision Group, the world's premier finance and business video channel featuring exclusive in-depth interviews, research, documentaries, analysis, and investment ideas from impossible to access guests and the sharpest minds in global finance. In this conversation, we discuss macro investing, economic stimulus, bond portfolios, Bitcoin, Ethereum, Solana, NFTs, social tokens, price predictions, and what institutional investors are doing. I really enjoyed this conversation with Raul, and I hope you do as well. Before we get into this

episode, though, I want to quickly talk about our sponsors. First up is Arculus. Cryptocurrencies offer boundless potential, but who will protect yours? Arculus is the crypto cold storage wallet that combines the world's strongest security protocols with an easy-to-manage app. Unlike other storage solutions that are less secure and more difficult to use, Arculus doesn't compromise security or usability. You can store, swap, and send your crypto

all with a simple tap of your Arculus Key card. And with no cables and no USB connections, you're insulated from the thousands of hackers online trying to get at all the digital assets people store in the cloud. So that the only person with access to your crypto is you. Order the safer, simpler, smarter crypto storage solution at GetArculus.com today. Again, GetArculus.com today, or go into the link and click on the description there to learn more.

Next up is Cosmos. Cosmos is building the internet of blockchains, marking a new era of interoperability, scalability, and usability. The free flow of assets and data between blockchains with bridges to Ethereum and Bitcoin will unleash the potential of DeFi, NFTs, and much, much more. You can dive into Cosmos at cosmos.network.com. Again, cosmos.network.com. Building the internet of blockchains, marking a new era of interoperability, scalability, and usability. cosmos.network.com. Last but not least is Matrixport.

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actively look to do more with your precious assets and then this app that they've built at matrixport is for you matrixport.com go check them out or you can go download the matrixport app and enjoy a welcome offer of up to 30% APY on fixed income for new users. Again, matrixport.com or go in the App Store and search Matrixport to download their app. All right, let's get in this episode with Raul. I hope you guys enjoy this one. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions

and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Let's start with macro structure first. It feels like there was massive chaos last year. For anyone who was paying attention to the podcast, you and I recorded in person in March of 2020, uh and you pretty much nailed it you that was quite a famous podcast i think yes and a lot of people were like oh raul is just being a doomsday or you know he's just calling uh the market's

going to turn over this is going to be bad and then like within a week and a half everyone thought the market was going to zero right i mean it just got real bad real fast we obviously had the government step in we had the interest rate manipulation we had all the monetary and fiscal stimulus. And now we get all the way up until today. How do you evaluate where we are from a macro standpoint at the current moment? So I think it's interesting. I always follow narratives. And the narrative right now is very much on this inflation, ongoing growth, how the Fed is going to raise rates, they have to taper soon. But the work that I've been doing suggests that the likelihood is the economy, the global economy slows down pretty significantly

into next year. And again, we might see more stimulus and more fiscal stimulus coming as well. So I look at it very differently to what most people are seeing. But on the horizon, because of the fiscal cliff, we've got 3.5% of GDP coming off from the fiscal cliff. We've got all of the spending brought forward that everybody, including me, did up their houses over the previous year. We've also got the fact that oil prices have gone up. That hits household expenditure. Prices in general hit household expenditure. You see these weird old things like the University of Michigan surveys about cars, houses, and durable goods. Because the prices all went up, basically, they've gone to all-time lows in terms of affordability.

So people are stepping back. We're seeing it in the housing market. We're seeing it all over the place. So these higher prices are kind of a cure for higher prices, as is often the case. And I think that that's going to lead to much slower growth than we expect. And again, as I said, more stimulus. And so when we get slower growth and more stimulus, does that continue to drive the prices higher and higher? And it's almost like a negative feedback loop because as the prices go higher, growth slows and we'll become more and more dependent on that kind of that external stimulus? I'm not sure that prices go higher. That's a supply-driven issue that I think eventually disappears. Assets go higher. And that in itself has been a problem, something you and I

have discussed, because if you can't buy a house because you're 32 years old and your income doesn't go up, because nobody's income is really going up, then you're kind of getting screwed. And that's one of the whole premises behind why I got very, very interested in Bitcoin early on was seeing this play through. And I think it's just going to continue. I think there's so much debt in the system. There's so much leverage. I think the world is now 400% of GDP in debt that governments have now realized in the central banks that they can't let the collateral go bust, i.e. the asset side of the balance sheet is not allowed to fall in price. Because if not, you get a big margin call on the economy. So it seems to be that debasement of currency to drive assets higher

optically is the only answer they've got now. There's almost no way around it unless they can generate growth that is higher than previous trend for a longer period of time. And with this aging population, all of this indebtedness, globalization, technology, the chances of doing that are low. So one of the things that we spend a lot of time talking about is if you look at like a Chipotle. Let's use them as a proxy for kind of hourly wages. They raised wages three to four percent. They then pass that through to menu prices up three to four percent. But if you look at somebody like I think it was BlackRock, they increased the firm wide salaries eight percent, so almost double. And so you almost get this like bifurcation. You get kind of white collar workers

where they really understand inflation, et cetera, a much higher increase. But at least they both increased, right? So there is some negating of the levels of inflation. When you start to think about the everyday person, whether they are a white collar worker, or they work an hourly job, or maybe they're coming off of unemployment and just now kind of coming back into the workforce, what is likely to be kind of their experience if we continue to see asset prices go up? Wages don't necessarily go up nearly as much and the government steps in. Is this in the form of just more kind of unemployment boost and direct stimulus checks, and we eventually move towards like a UBI world? Or is there something else that you think this could take the form of?

I don't know. And I don't think anybody's figured it out. But the problem is, as you're saying, wages don't go up enough. The other thing that's missing from that wage construct is the fact that all the boomers are retiring in record numbers. So that's offsetting the amount of total demand in the economy, because a bunch of people go on no salary, apart from on their savings, they didn't really save that much. And then a few others get wage rises. But if you look at the debasement of the fiat currencies overall, that's going somewhere around 13%, 15% a year. So that's driving up asset prices at a minimum of 15% a year. So even if your wages go up four, you're the Chipotle worker, well, suddenly you still can't afford as much of the S&P and you

still can't afford a house and all of the same things. So you're still getting net poorer. So what is an asset? That's the important thing for people to understand here. An asset is basically deferred expenditure. So you stick savings into something that you hope goes up enough in price to offset inflation and other things. And then eventually, you get to spend it by selling that asset. Now, whether that's gold or whether it's a house, particularly if it's a second home that you're trying to rent out or do that kind of stuff. So those assets, which are your future wealth, are becoming harder to buy. So you can buy less of them. So you are net getting poorer. And I don't know how you're going to solve that equation.

I think the next bet is that fiscal stimulus will do it. But I don't think that's going to be the case because the Chipotle worker is going to be laid off by robots. And as simple as that, we're seeing in McDonald's, we're seeing in many places. So between artificial intelligence and robotics, you're going to be competing for salary with somebody who gets exponentially cheaper in price because computing power gets exponentially cheaper. So it's a really, really difficult situation. So I think they're going to continue with the same path for the time being. By the time the next recession comes, then I think that's a full rollout of UBI because there's no way around it. I don't see how you rescue this situation by doing the same thing

again and again. We know the outcome. We've seen it since 2008. And nothing's going to change with that. Last time we talked in 2020, at least, you had mentioned this idea of bonds. And now with inflation on the CPI basis being up over 5%, pretty much every bond that is held by pension plans, endowments, foundations, etc., is negative yielding on a real return basis. How does that play out kind of across the financial markets? And then obviously, for some of these organizations that whether it's for salary or for retirement purposes, people are really counting on? So it depends whether you think inflation in that CPI measure, not this debasement measure, the CPI measure stays over 5%. I don't. I think it's absolutely structurally impossible

because of demographics, debt, globalization, and technology. So I don't think that's possible. But we've also seen that in Europe and Japan, the institutional sector has been happily buying negative yielding bonds for, I don't know, the best part of a decade now. So that bonds continue, But that, again, is just locking in some sort of relative level of poverty. So you owning bonds and your pension plan owning bonds is really making you worse off over time. I mean, bonds can be a trade, and that's fine. And I think bonds probably rally for the next nine months. But overall, you're still not going to make enough money out of that to paper over the cracks in how much money is being kind of stolen from you via inflation at the time being and then debasement,

which I think is the biggest structural problem. Let's talk about Bitcoin and cryptocurrencies and crypto assets. Let's start first with just what does your portfolio look like right now? I know you were kind of all Bitcoin, then you went Bitcoin and Ether. What does that look like today so we can just understand the perspective you're coming from? My current allocation is probably 70% ETH, 5% Bitcoin, and then a tail of others. So why that allocation? It's nothing against Bitcoin. It's not against anything else. It's because I'm a financial markets guy and we use risk curves. So at certain points in the cycle, in the middle of a bull market, you want to take as much risk as possible. So you want to go to the more speculative end of the market.

So firstly, I isolated the fact that I thought Ethereum was going to see further flows. It's early in its adoption cycle, and that will probably drive prices further than Bitcoin. And that seems to be playing out. With the others, there's so much going on, it's difficult to monitor. So I have kind of basically a relatively broad-based portfolio to capture some of that move when the tail goes up, i.e. the furthest risk out. And that happens in credit markets, equity markets, all over the place. In equity markets, in a bull market, you tend to get the big leaders first, which is where the safe

money is, the blue chips. Then eventually, people move to emerging markets, and then they move to frontier markets. And it's in order to get more bang for your buck in the middle of the cycle and generate some alpha. So it's not a comment per se on my relative view on the success of protocols or something like Bitcoin. It's nothing to do with that. It's about how do I make money out of this crypto investment whilst maintaining my level of interest in the overall crypto world. And so that's where I am now. Where would it be in a year's time? Maybe it's much more Bitcoin again. So it's just that it's an asset allocation strategy to try and enhance rewards. So this is really fascinating because I think that using the legacy market as a mirror,

if you will, to the crypto market is, I think, what people can kind of wrap their head around. And you're talking about these cycles of kind of bull and bear markets. And so if you were allocated to Bitcoin in 2017, beginning 2017, it went up 20x, 1,000 to 20,000. Other assets went up more than 20x. But then in the bear market, Bitcoin drew down the least, right? Most assets went down 90, 95, 99%. Bitcoin went down about 80, 85%. And so it feels like the blue chips, those kind of larger market cap assets, they have less volatility, both up and down, whereas the long tail has much more of that volatility. They're just smaller, less dollars to actually move them. It's kind of what you're talking about here.

When you think about us now in a bull market, it makes sense why you're allocated the way you are. Will you then look to kind of consolidate into the large caps in a bear market if you think that's where we're headed? Or how do you think about the transition? I'm trying to get my head around this. And I'm thinking that, yes, I will move down the risk curve back to the safer assets where I think there's less volatility. You can use some yield from stablecoins or staking or whatever to lower your volatility. And then you want to be looking to buy the speculative end of the market that's going to get destroyed, whether it's parts of the NFT space or parts of the kind of general token space that gets destroyed in the next bear market

to buy those when they're heavily discounted, but they still have network adoption effects or some perceived value or cash flow, that becomes really interesting because then you can start allocating in the middle of a bear market into the riskier assets to buy them as super cheap. And that's typical of credit markets and equity markets. People always do the same. And that's where you get the alpha from is getting this asset allocation right. And very few people do it because they're still a little bit blinkered to one project. And the idea is you can believe the whole space goes up. You can even have total belief in one project, but it's a long time to get there. So is your allocation weighted correctly for you to reduce the volatility a bit so you can

sleep at night in the bad times and get a bit of extra outperformance in the good times? I want to talk through various assets. I'll just throw out a corner of the industry or one of the main assets in the industry, you just riff on kind of your current thoughts of them. So let's start with Bitcoin as kind of the largest market cap asset. Where do you think we are with Bitcoin with adoption and kind of from a market structure standpoint? So Bitcoin from a market structure has been incredibly bullish. The pattern now, you know, the chart pattern looks very similar to a smaller version of the one from from march to june 2020 uh where it exploded we've had this lovely corrective phase we see

all the on-chain stuff you know william clemente show you know and willie were and all those guys showing that it's all going into good strong hands we had the china fud we've had a bunch of fud this usually and there's no guarantees usually october november december is ridiculously good particularly at this point in the halving cycle. So structurally, it looks amazing. So okay, who are the buyers here? So most people who got into crypto came in via Bitcoin. That's always the case. It's the big daddy asset. And then people move out the risk curve, and that's pretty normal. So who's the next big buyer of Bitcoin? It's pretty clear to me who they are. It is the ongoing institutions. I mean, that just keeps going. And I think we'll

an acceleration in that, particularly if the price breaks out because everybody's like sheep, they always want to follow each other. Secondly, it is the coming ETF. It's definitely going to, well, definitely, I don't know that, but I just have a very strong feeling it comes in the next, you know, over this October, November, December period. And that will drive a huge amount of money in the space because it allows RAAs to allocate and ordinary individuals in a way that they can easily understand. And finally, I think we're starting to see noise from the sovereign wealth funds. So I know some of them, and I've talked about this before with you, is some of them already allocated. But I think we're going to start to see more sovereign wealth

activity in the space. Ethereum and the Ether asset? So Ethereum, again, the charts look absolutely astonishing. The on-chain activity, the adoption is by far the largest of anything in this space. So it's huge what's going on. The move towards ETH 2.0 means that, you know, at a simple level, everybody's going to stake everything they've got to get it there. And so that takes all the coins off the market. There's about 11% of all ETH in circulation. So it's almost unbuyable. So you bring a whale into the market, the price just explodes. So I've never really seen a setup as good as this in that respect. So I think it's a very high quality bet for the time being, because of all of this stuff that's either

off-exchange, being staked, and there's no free supply, and demand keeps going exponential. So like ETH overall, what's interesting is the institutional adoption. So I spoke at Cowan's big event, and it wasn't about Bitcoin. It was solely about Ethereum, which took me by surprise. That's the first one I've done. It's kind of been referenced in other ones. But here I am now speaking to investment banks when they're asking me to come and talk about Ethereum and just skipping Bitcoin, saying, well, we assume you know Bitcoin, but here's another opportunity. So I think there's a lot more adoption to come in that space. And I think there's going to be ETF there too. And again, with this really restricted supply that's going on because of

ETH 2.0, I think it drives prices a lot. When you think about the institutions that are thinking about or talking about Ethereum and Ether, is it because they've already allocated to Bitcoin? Or do you see some of them coming in and they're basically actually skipping over bitcoin you know um i think there are some that are skipping over bitcoin because they get their head around it in a different way because they think of it as a way of playing the entire technology of the space um so then they don't you know it's hard for many of these institutions to stomach the narrative the bitcoin narrative of a store of value that central banks are destroying the world and a lot of this stuff because that kind of goes against a bit of their business model

but Ethereum doesn't feel like it's attacking them as much because it's like, here's a space and we're building decentralized finance on it and everybody can participate. It doesn't feel that they have to change their internal narrative. Some are finding it just a bit easier to get their heads around what it is without going against or exposing the Wizard of Oz, which is the central banks and what they're doing to currencies overall. Let's talk about what I'll call Ethereum competitors. Maybe some of them aren't necessarily competitive. They're more complementary, but like the smart contract platform. So this is Polkadot. This is Solana. And there's kind of a whole group of those that are out there. How do you look at those assets?

So all I do is look at adoption effects, because I'm not smart enough to figure out what changed better than what and why they want to build on it, et cetera, et cetera. But interestingly, Secondly, as I've mentioned before, Ethereum is exactly following, I mean, exactly following Bitcoin in 2017 in both price and price structure. Bitcoin is following Bitcoin 2013, which is fascinating, in price structure, but not in price itself. You know, and then what, so I thought, you know what, I bet you Solana is following Ethereum in 2017.

If anybody was in that market at that time, Ethereum was the rocket ship that took everybody by surprise. And guess what? It's exact chart fit. And the prices are the same. So Solana is exactly following Ethereum. Ethereum is exactly following Bitcoin. It's like the magic is all in this network adoption.

And it kind of all makes sense. The other two that are in that kind of fast growth, fast adoption phase where you see exponential price rises more than anything else is obviously Terra, probably Avalanche, and probably Polkadot. And I think they will all do well in this cycle. And like Ethereum, they'll all go down a lot later. And then from that, we'll see how it builds out. But it's bizarrely consistent. I never thought this would be the case because you see all the people online, it's like my project, my project. But when you net balance it all out and just apply like adoption effects and do these things look similar, they're almost identical, which is

amazing. One of the things that I've always been surprised by is the folks in Silicon Valley who kind of missed a lot of this. There's plenty of people who didn't miss it, but the people who did, you would think that they would understand it because what we do know from, let's say, mobile apps or some sort of like social network products, et cetera, is those network effects look very similar. And so if you can start to understand kind of a K coefficient in the growth and really understand kind of the slopes of those lines or kind of how quickly they're accelerating, you can, with pretty good accuracy, predict here's how many users the company is going to have on this date and this date and this date. And it feels like that's a little bit of

what's happening here, right? And there's always the question of, is it sustainable? Will people continue to adopt it and make sure that it's an acceleration of the trend? But it does feel like there is some predictability to some of these assets as long as that network effect takes hold and it kind of takes off. Yeah. And none of us would have thought this, but it kind of explains why Plan B's model works. Because I think some way it's showing the same thing in a different way with network adoption and how it drives price. And it seems, yeah, so consistent that it is pretty forecastable. Now, we don't know how the cycle is going to play out now. What's going to happen in the bear market? When does that come? Does it come in the same structure? I do think

it probably decouples to a certain extent because I think the adoption is going to be really quite big. So that lowers as a network gets more adopted, the volatility lowers. So I think we're going to see that this time around and it will decouple. I also think the cycle goes on longer just because of two key factors. One is ETH 2.0 will probably be, I think, the end of the cycle because everybody will, once it unlocks, people will sell some of their ETH that they put in for the staking. I think that's a pretty common thing to do.

That happens around probably around tax season as well. So people realize gains. And then in addition, I think the ETF will have come out at that point and a lot of the pent-up demand will be in. And then we'd have to deal with a bunch of people who don't yet realize how to deal with the 70, 80 vol asset. you know, it's, you know, and you've spent a long time doing this. We all have is to teach people

how to hold, how in a network adoption effect model, you will get volatility, but it's more than compensated by price if your time horizon is long enough. And we're going to have to teach all of these RIAs this because they're all going to panic out. So, you know, there's a lot of work for us all to do to get people to understand how to deal with high vol assets and what it means as well, you know, what it could mean if they do hold on. How do you think about centralization versus decentralization, specifically around, I always laugh, the Bitcoiners yell at the Ethereum community, you're not decentralized, you're moving more centralized. Then the Ethereum community yells at the Binance Smart Chain community and says, hey, you're not

decentralized, you're too centralized. And you kind of just go down the line. And whatever the truth ends up being, how do you think about the importance of decentralization from an investment perspective? It's risk curve. That's why Bitcoin sits at the top of the risk pile, right? At the bottom of the risk pile, i.e. the foundation asset, because it is the most decentralized. It's not rocket science. And ETH is a little bit different. OK, that's fine. But once you go further out, they become less decentralized. So they're riskier assets. Doesn't mean they don't play a role, they can't play the role necessarily of being that kind of reserve asset that I've talked about in the past and the pristine collateral, because they do have a

risk element, which is harder to price, which Bitcoin doesn't have. So again, it's just risk curves for me. And it's more than consistent with if you want to get a faster chain, you're going to have a more centralized chain, and therefore, it should be riskier. Get the right point in the risk curve, it'll go up. It also means that generally tend to be lower fees. So you tend to get fast network adoption. So these things can go up a lot. Now, what plays out in five years' time or 10 years' time? Who the hell knows which ones survive, which ones fall by the wayside, which ones get replaced? None of us can know that. But just keeping to that generalized framework, what's being adopted? What are you trying to do at this point in the cycle? How much risk are you trying

to take and therefore allocate your assets accordingly. Let's talk about NFTs. Obviously, those have taken the world by storm. It seems like we've gone through a couple of different iterations of them. So there was the NBA Top Shot, then there was CryptoPunks, and there was Bored Ape Yacht Club. Now it feels like there's a gazillion different animals and photos, etc., that are being shared on my Twitter feed every day. And I've frankly just lost count. How do you look at maybe what's happened to date with NFTs? And then we can talk about what's going happen in the future, but what's your evaluation of it? So all of us have been talking about for a few years now that everything's going to be tokenized. And we're all waiting,

was it going to be real estate that went first? Was it going to be the securities industry? We didn't really know. And it ended up being the art market. I mean, I would have thought it, but that's what happened. And so here we go, attaching non-fungible value to a specific digital asset, and now it's tradable. And guess what? Suddenly, they appreciate a lot in value because that's an attractive attribute in this kind of modern age. So that was the first part of it. The NBA Top Shots was just basically the same ethos. Well, if it works for art, then it should work for other collectibles.

If it's a digital collectible, like a Top Shot, then it should have value and it should be transferable and it becomes a collectible. Worked perfectly. The next phase was this kind of weird phase which was, well, we want to identify with others like ourselves online by being part of a community, which is identified by an NFT. And as an NFT holder, much like a membership of Soho House or whatever it is, it gives me some sort of status symbol online.

So that was where that started. And then that's fast developing into communities that are saying, well, we've now gathered a group of people. We're combined because of this one asset. We're seeing Gary Vee doing this from scratch, which is, okay, the idea is now let's get the community and build like a media business from the ground up, based from this community around these assets. And if we do it, these assets are going to be worth a lot, and we can create a business from the ground up. So in lies the rise of DAOs and all of this kind of decentralized business stuff. So it's happening at a pace that I can't get my head around. I put a tweet out yesterday to reach out to get some more help on this, because I had a long chat with a famous hedge fund manager

on Sunday, and he's all over the art market. And he's kind of got that. He thinks the whole modern art market is going to collapse in price on a relative basis. And that who the hell are you going to sell Damien Hirst to? Because that was a meme of the time of the late 90s and early 2000s. And it's not applicable to the average millennial or Gen Z now. So who do you sell that art to in due course? And this is a complete flippening of the art market from physical to digital now it doesn't mean that all digital physical art is worth less but that kind of more speculative um meme driven modern art side of stuff can flip so i think that's an interesting process and and you know there's so many things to get our heads around as you said there's

there's so many of these bloody um nfts now of different animals what does it mean um but i take it seriously. People like Bill Tai have got involved with Unchained Monkey. And I'm like, well, Bill was the guy who invested in CryptoKitties and Zoom. And Bill's no stupid guy. And he sees more in it. What am I missing? And I don't know what I'm missing yet. I just know I'm missing a lot because I can see it happening at a pace that I've not seen before. And it feels like the early days of Bitcoin, where word of mouth spread super fast. And it was happening on different channels than most people could see, but it happened really quickly. And I think that's what's going on. Talk to us about social tokens. I know you've tweeted about that a bunch. You've

talked about it in other podcasts and interviews. What is a social token and why are you so excited about it? So we talk about communities and we have communities online. You have a community, I have a community. So what do we do with communities? Right now, this podcast has to now go on a third-party platform and of which they can put advertising against it. You'll get some of the share. You basically don't own your audience and you've got an email list. So that helps, but other people don't. So what tokenizing communities do, it basically says, okay, we're all like-minded, interested people. We believe in this community and we want to participate in it. And that gives you a direct relationship, both financial and otherwise, with people in your

network or community. So what are these communities? Well, communities are just ways that humans socially congregate around ideas. So that's the same as religions, states, and a whole number of things. You could be a member of a, well, even let's use Soho House. You think that that's a community that you want to be part of because you want to mix with the people in it, and it gives you certain benefits. Great. But to help navigate and coalesce the power of community, these are known as complex adaptive societies. And all of them share similar attributes. There tends to be some sort of leader or group of leaders, and that can be distributed or it can be a single person. There tends to be a community set of rules, how we adhere,

a kind of a mission and then what we were missing was a system of money or value exchange because then you're basically setting up sovereign states of individual communities and those become incredibly valuable if the network grows it's the same network effect thing so if you were a pop star and you have 30 million fans well before you could you had to access your fans via facebook and Google and via Ticketmaster and a whole bunch of different things. But once we start rolling out social tokens, that changes that whole dynamic because now they have a financial interest in the network, which is what you do and the value that you create for your community, whether it's new songs or giving them an ability to get tickets

sooner or be able to build businesses on top, selling merchandise and getting paid in tokens and all of the things that create a rich network. All of this is coming because this invention of internet money, essentially, and the exchange of value has now meant that communities can be supercharged, and you're not giving it away to third parties. You're, in fact, sharing the rewards with the network. And that's incredibly powerful as a business model, and it's without question viral. And it's going to be everywhere. It's going to be, we're already seeing it in sports teams, but that's going to deepen out and explode. We're going to see it in musicians and rock stars. We're seeing it, you know, it came out of people like RAC

who are very early in doing this. But we're also going to see it in mega brands. You know, mega brands are already starting to get into the NFT market. You know, there's been some great moves by Dolce & Gabbana and a few others where they're starting to experiment with this and the metaverse. but there's going to be tokenizations amongst those fan bases. I mean, Nike could basically tokenize and there's no reason Peloton won't tokenize and all of these businesses. And it's

going to create a layer of value above that of equity. It's a whole different layer because you're valuing the network properly, which is not usually done in the equity. So it's a fascinating thing. I've got two of my brothers here with me and they got a couple of questions as well. What do you guys got? Hey, Raul, thanks for doing this. I appreciate you coming on. So my question would be just kind of around the total market cap of all crypto assets and cryptocurrencies. So we're at around 2 trillion today. If we were to kind of fast forward 5, 10, 15 years from now, where do you think this number can go and kind of how do you get there? So I think it goes, very interesting. I've just got a chart of adoption of the internet

and crypto maps it beautifully, except the internet was growing at 63% a year when it it had 150 million users, which crypto has now. So it was growing 63% a year. Crypto is growing at 113%. So this is double the adoption rate of the fastest adoption of technology in all recorded history. So we've never seen anything like this. Extrapolate the maths, you get out to a billion people by 2024. So this is going to happen really, really fast. By the end of the decade, you're probably at 3.5, 4 billion people, so most of the world. So what does that mean for asset prices, well, almost all the major asset classes, whether it's equities, bonds, real estate, they're all kind of in the $150 to $300 trillion range. Now, we kind of know that most of those

assets are going to go on the blockchain anyway, but let's ignore that. To put this where I think it's going, it's currently $2 trillion. I think a roughly fair value to fit in with the other asset class is, is $200 trillion. So it's 100x. We've never had an asset do 100x of that kind of magnitude in all recorded history. I mean, we've never seen it before. None of us have lived through this. So this is, I think, going to be the largest generation of wealth that the world has seen in the shortest period of time. John, what questions you got? Yeah, thanks for doing this. Nice to meet you. I'm curious about your thoughts around Solana and kind of how you allocate to different altcoins? Do you buy them all at once? Do you

kind of dollar cost average and see where the market goes? What are your thoughts around that? Generally, you FOMO into these things because they're ripping and then you buy them too high and they correct for another few weeks and you're like an idiot. They're really hard because you don't know what's going to explode. You have to be really in the space to see where the adoption's happening. So what I did first is I bought a basket of maybe 15 different tokens across everything from DeFi to these new layer ones. And then I kind of assessed, I kind of chucked a couple out that I was like, I don't really know much about this. I'm not seeing much kind of network behavior online where people are talking about it as much. And then try to add into places

where I thought there could be better outcomes such as Solana. But, you know, I can't take full risk in it. I understand that people can because they're in the space. I'm just not deep enough in all these protocols to do that. So I just have to accept that the tail's going to go up. If I can get good quality within the tail, I don't need to do the most speculative assets. I don't really want to do that, but other people can, and that's fine. But I think this middle rump is where you can make some really great returns. And that's kind of proven out to be the case so far. Good to know. Roel, when you think about the metaverse, you started to kind of go down that path a little

bit. I know that you're really excited about this. Where do you think, one, that kind of starts to really permeate society? And then also, two, how do you think about it from an investor seat in terms of how to get exposure to it for your own portfolio? I think if it's the ongoing process, the fact that you and I, when we did this, the last interview in 2020, not the last one, that big interview in 2020, we had to do it in person. Right now, you're Zoom, right? We're now living digitally. And me seeing you, I mean, I have drinks with friends on Zoom. It's normal now. It doesn't bother me, right? So we've now moved a massive step into the digital world where just meeting our friends or meeting people we know can happen over video link and we don't

really care, much like it happened with mobile phones and phones before that and television and all of these things. So this is an ongoing move into the digital world. And then it accelerates because you start to see the rise of cryptocurrency. And that enables these ecosystems to develop into these rich worlds where you can create value, exchange value, own things. So this creates the other layer. Then the layers on top of that come 5G, distributed computing power, and a bunch of other things that are going to scale that faster. So once you've got the computing power, because right now most of our computers are not gaming computers, so we can't render in the speed we need to render. So we get left with crypto voxels and Decentraland being clunky and all of the cool

kids are on Epic Games and they've got 4K, but we don't have the computing power to do it. All of that is going to change. So all this is, the metaverse, it gets thought of in so many ways. For me, it's like our digital fluidity where we can live and move around in this digital space, interact with our physical space, whether it's through augmented reality, virtual reality, just normal kind of digital world. And we can kind of create lives within it. So we're creating income streams. We're seeing that with Axie Infinity right now. Or we can be educated in the metaverse that kind of levels the playing field. I mean, you can be a kid in Ethiopia and you can therefore now get educated in the same playing field as somebody in the United States because we have access and you can be in the same classroom and you get to talk to them.

So just things everywhere are going to change because of this. And you know it's going to happen because everybody from Microsoft to Facebook to Apple have basically said this is the bet. It's augmented reality, virtual reality, the metaverse. you know i spoke to the head of metaverse who knew there was one at aws and they're building out the computing power and the cloud storage abilities for all of these massive compute needs right so it's happening now the battle is going to be as ever the same battle decentralized versus centralized and as ever it'll be a mixture of both and we get to choose um but that's all coming and that's a hugely exciting thing and people haven't really figured this out yet but again

it's going to be an enormous generator of wealth as the world moves into the digital world. I got two more questions for you. First one is around regulation. We've seen everyone from politicians in the United States and internationally. We've seen the CFTC, the SEC, the OCC, a whole bunch of alphabet soup of organizations I didn't even know existed that are all weighing in with their opinions on various parts of the industry. What's your read on the regulatory situation and kind of the rule set, both in the US and internationally? Firstly, the reason you hear from all those agencies is there's a fight going on to who's regulated, right? Is it a commodity? Is it a currency? Is it a security, right? So that's

clear that they've got a shit fight going on. And Jerome is, sorry, not Jerome, Gensler's flexing his muscles and being the loudest about it. Meanwhile, you get these snarky comments from the others, like it's not all down to him. So that has to be decided. So basically, what we have to do is decide how to do this. So Gensler's making his play. He's saying, well, everything's a security. Fine. If you want to define it that way, that's okay too. Security doesn't make it illegal or a terrible thing. I mean, Apple's a security, and so is the US Treasury. So that's okay. But what you're going to have to do is change what securities laws, what that means. Because if you are going to stop the pace of development and

innovation, you're going to shoot yourself in the foot and it will be arbitraged away by going to different jurisdictions. So the US is hampered by this ridiculous 1934 securities law and the Howey test. So people use that as the big thing. See, it's a security. It's like, but that doesn't mean it's criminal activity. It means how you issue something and who's allowed to buy it is somewhat restricted. Now, is that the right thing to do? Is this what the world should be doing? Should we be restricting young people with less savings from this new, exciting technology or not? My view is we should not, much like we shouldn't stop them investing in startups. We should give them warnings. We should give them understanding, some education about what

they're doing. But people need to be allowed to do this because they're allowed to go to Vegas. they're allowed to throw all of their pay and all of their life savings and nobody gives a shit zero regulations they can lend it to their uncle who steals it no regulations but heaven forbid if you buy something that's listed as a security you know the ridiculous laws around um accredited investors it's just morally wrong and it doesn't stand up so i think this is the battle that's going to get fought i think the battle is gensler is laying out the hard case everything's security we're going to start prosecuting people, and then we'll figure it out. And I think the industry is going to coalesce along with voters, we're going to coalesce around, yeah, but if you turn it into

the securities industry that we grew up with, we're not going to accept it. And so there's going to be a fight. And that fight will lead to a grand compromise. And that grand compromise was exactly what happened to the internet regulation and phone regulations beforehand. It will come, but it won't be easy. So my guess is if we do have another bear market phase that comes in somewhere in 2022, I think it starts later, 2022, 2023, it's all going to be about the fight of regulation and that mixed signal that's going to keep people away from the space. and it's going to push innovation to countries where it's clearer, such as South Korea or Singapore and other countries where they've made the regulation much clearer. So, there's a lot to play for here. It's going to get ugly, but classic negotiation skills always start with a hard line because it gives you the upper hand. Because what you're trying to do is there's the

middle line, you're trying to get it incrementally over the middle line further in your direction. And Gensler wants that because he regulates securities. So of course he does. Now, and our job is to get it somewhere across the other side. And the answer is going to be somewhere in the middle. Let's see who wins. I think that's probably a very fair view of it. And I agree that all of the different organizations are trying to figure out who gets what in this, which is a crazy thing because there's a lot of technology, a lot of jobs, a lot of economic impact that is kind of hanging in the balance. And think about what happens if what I think is going to happen is this 2 trillion is maybe 10 trillion by, let's say, March of next year. What are you going to

do then? What are you going to do with the NFTs? What are you going to do with these social tokens? What are you going to do with DeFi? You cannot go back, find a bunch of people, say you were naughty. Who's the voice of God here? Who knows what DeFi protocol is going to survive and which one isn't? What, some guy in the SEC goes, this is a good project and that's a bad No, the market makes that decision. That is the job of the market. You just have to warn people what risks they're taking. So yeah, there has to be a change. And people have to be allowed to take risk. Now, you're seeing the younger generation taking more risks than was traditional for us. And the reason being is options, Robinhood, and they're like, fuck it, I've got one chance,

and they're taking more risk. That's good. There's nothing wrong with risk-taking just as long as people understand. Options are great because you can only lose what you put in. Now, if you put in your life savings, that's a pretty stupid thing. But you see it on Wall Street bets that they kind of acknowledge that and they laugh about their losses. But what you're doing is mass educating all of these people about risk-taking. And I think they're going to be larger risk-takers than our generation, the Gen Xers were, or particularly the baby boomers that were much less risk takers. So it's fascinating what's playing out. The other piece of it, too, I think is they're going further and further out on the risk curve

because they have to, right? There's only so many assets they can buy that actually have a real rate of return. And so naturally, what do you do is if I can't buy bonds, well, there goes 40% of the traditional portfolio. So what do I do with that money? Do I put it in stocks? Well, some stocks are doing well, some aren't. And you just kind of continue to move out. And then there are digital natives. And so naturally, it makes sense that they end up in Bitcoin, you know, in cryptocurrencies. And they have an informational advantage. So good on them, right? Because I'm the idiot who's trying to figure it out. But these guys have been born in that world. Of course. They don't have to figure anything out. It's just normal.

All right. I want to wrap up with the question we ask everyone. We need a Bitcoin price prediction by end of year, and I need an Ethereum price prediction by end of year. What do you got for us? I was doing some work on this on the weekend for Global Macro Investor. I'm kind of thinking, I'm kind of a little bit overly bullish right now. And I think the cycle, well, no, because that's not fair because I was looking at the cycle itself. I think Bitcoin somewhere north of 200 and ETH closer to 15K, but I think we finished the cycle with Bitcoin close to 400 and ETH closer to 40,000. All right. So you think by end of year,

we've got Bitcoin 200K or so. We've got ETH at 15K. You think end of cycle, which in your opinion, it sounds like kind of February, March of next year. Something like that. Yeah. Bitcoin's 400,000 and ETH is 40,000. Yeah. There's a lot of people watching who hope you're right. I bloody hope so too. It's not like I haven't backed my own bet. So my money's where my mouth is. I hear you. All right. Tell us a little bit about Real Vision and where can we send people if they want to check out Real Vision, all the great content you guys are doing there? Yeah, look, the easiest thing is if you're interested in crypto, we've got an entire channel we built for it called Real Vision Crypto. It's free. All you need is

pop your email address and it's wall-to-wall content every Friday. I've got my own show, which is called Raoul's Adventures in Crypto. And there I'm interviewing the most interesting people I can find to get my knowledge up. So you can follow me on that journey. So realvisioncrypto.com or realvision.com forward slash crypto. It's free. I urge you to sign up.

It's there for you. It's a resource that we built for everybody because this is the most exciting dynamic space I've ever seen. So that's the best way. And you can always find me on Twitter at Raoul, R-A-O-U-L, G-M-I. you uh you got some of the best uh the best threads i love when i think that you're just

sitting there you're like no what i got something to say you just go on one of these uh you just rip off a thread and i'm like man that is just a stream of thoughts that people needed to hear that's pretty damn good yeah i'm just trying to think this all through you know because none of us know the answers so to think it through put it out there get it tested it's good i love it the uh as you can imagine, the comments love $400,000 Bitcoin and 40K ETH. You're gaining fans by the second. So awesome. Listen, thank you so much for taking the time to do this. I highly suggest anybody who's watching this, go check out Real Vision Crypto or follow Roll on Twitter. And we will have to do this again, my friend. Always. And we'll get you on our side of the fence soon

as well. All right. Sounds good. Talk soon. All right. Take care, everyone.