The Wolf Of All Streets - Entering the exponential age with Raoul Pal

Episode Date: April 13, 2021

From a technical analyst to a macro investor, Raoul Pal has amassed a global audience for his expertise on everything markets. Coining the popular term “going irresponsibly long Bitcoin,” Raoul believes that Governments and their failed policies will drive up Bitcoin’s value and ecosystem to unimaginable levels. It is for this exact reason that the world is undergoing the largest technology transformation in human history in the shortest amount of time.    Follow Raoul Pal: https://twitter.com/RaoulGMI   In this episode, Melker and Pal discuss a range of topics including: Irresponsibly long Bitcoin Holding all your money in crypto Raoul Pal’s house special Metcalfe's law Bitcoin’s geopolitical role Sovereign wealth funds Opting out of fiat systems Leaving a mean-reverting world Global debasement Throwing away stimulus checks Entering the exponential age --- VOYAGER This episode is brought to you by Voyager, your new favorite crypto broker. Trade crypto fast and commission-free the easy way. Earn up to 9.5% interest on top coins with no lockups and no limits. Go to https://thewolfofallstreets.link/voyager and download the Voyager app and use code “SCOTT25” to get $25 in free Bitcoin when you create your account. --- Mina Protocol Mina is the world's lightest blockchain, powered by participants. Rather than apply brute computing force, Mina uses advanced cryptography and recursive zk-SNARKs to ensure a super-light and constant sized chain, that allows participants to quickly sync and verify the network. The team behind Mina is backed by VCs such as Coinbase Ventures, and Mina's adversarial testnet was the largest public testnet outside of ETH 2.0. To get involved ahead of Mina’s mainnet, visit https://thewolfofallstreets.link/mina --- Matcha 0x Matcha is the easiest way to trade in DeFi. Matcha enables traders to seamlessly swap tokens using 20+ aggregated liquidity sources that deliver better prices than going to a centralized exchange or Uniswap. Connect your wallet and start today at https://thewolfofallstreets.link/matcha --- Join the Wolf Den newsletter: ►►https://www.getrevue.co/profile/TheWolfDen/members --- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by Blockworks. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworks.co

What is up, everybody? I'm Scott Melker, and this is the Wolf of All Streets podcast. I am more than excited for today's conversation, which has been long overdue. Raoul Pal is an expert in everything finance, markets, crypto, and in captivating audience around the world. Years ago, Real Vision was just a seedling of an idea that Raoul had, which he manifested into one of the greatest disruptive financial media brands of our time, helping to inform curious minds around the world. If you aren't already impressed with his video appearances, podcasting, and interviews, he's also a prolific writer and publisher for the Global Macro Investor, another company he founded. As long as there are markets, I have no doubt that Raoul will be intelligently analyzing them for all of us. Raoul Palman, it's a pleasure to have you on the show. I didn't even pay you for

that intro, but that's the best intro I've ever had. Okay, well, you can send a check anytime you're ready. Or just send me some Bitcoin, of course. So once again, before we get into the questions, you're listening to the Wolf of Wall Street's podcast. For twice a week, I talk to your favorite personalities in the worlds of Bitcoin, finance, trading, art, music, sports, even politics. This podcast is powered by Blockworks, the fastest growing media company in the digital asset space. You can visit blockworks.co for access to the highest quality information in the space. I promise you won't be disappointed. And of course, if you listen to this podcast, which you are right now, and you follow me on Twitter, you should check out everything

else I got going on at thewolfofallstreets.io. Now to get in today's episode. So whenever I picture you, and you're not there right now, but I can't help but visualize you with that signature background, the huge bar behind your video. So I'm wondering what the house specials are that you offer there. My signature cocktail is the Hemingway Daiquiri, which is white rum, squeezed fresh grapefruit juice, a little bit of triple sec or Cointreau in it, shaken over ice. That's a great, great Caribbean drink. Man, that thing sounds amazing. And it makes me just jealous. Every time I see you there in the

Caribbean, I just literally want to pack up everything and move. But then my wife and kids probably wouldn't like that very much. So to get deeper into it, you famously coined the phrase irresponsibly long Bitcoin, which we all love and use when price was much, much lower than it is now. Has anything changed with regards to your view or conviction? No, I mean, my conviction is like happens to all of us just keeps growing. And it's not really just a function of price. It's a function of the amount of people that come into the space, the thoughts that's going on, the development going on. So yeah, I'm still both irresponsibly long financially. I've not sold a single thing.

And I'm irresponsibly long in terms of commitment to where this is all going. So obviously, there's the trickle down effect from Bitcoin into Ethereum into altcoins. And you have had no qualms with saying that you're interested in Ethereum as well. Is that also still the case? Yes. I mean, I've spent a long time trying to say to people, just because people got burnt in 2017 doesn't mean everything repeats. I mean, in the end, Ethereum survived all of that, as did several other projects. And it's a risk curve. We're just starting a whole space. And a risk curve in financial markets, you know, a bond investor might go to corporate credit and then go to junk bonds. Or an equity guy might go to, you know,

blue chips to tech stocks to emerging markets. It's normal. It's risk-adjusted returns. And when you go further out, in this case, it's the altcoin space, of course, they're riskier. So of course, you take less risk, unless you really know what you're doing and you want to commit to that. But generally speaking, you take much less risk. And the idea is you get compensated by the returns. But you may not get because it's risky. I mean, the word risk is a real word. It's not a one-way bet. And how deep down that rabbit hole

do you foresee yourself going beyond the top 10 market cap? Yeah, I mean, at this stage, I don't have the bandwidth. It's way too much to learn. And I don't have the ability to understand. I'm a macro guy. I'm not a stock picker. So therefore, I'm not a token picker either. Some people do exceptionally well doing that. You know, we're seeing that with people like Jeff Dorman at ARCA and, you know, the guys at Delphi and stuff like that. Those guys figure out the ins and outs of every single token. I'm just not that guy. So really, for me, it's the top down, where is the space going? Where are the opportunities? Can I broadly represent that view?

Now, I actually read that you started by training people in technical analysis, which I found really, really interesting because there's always the debate as to, you know, whether technical analysis is a useful tool. I obviously believe so for various reasons, but I'm curious, where did you learn technical analysis? How passionate were you about it? And still, is it still something that you view as a useful tool?

So I got my first job out of university was a graduate trainee at a company called Dow Jones Tellerate, which was the Bloomberg of the time. And I was supporting the technical analysis product. I didn't know what technical analysis was during my economics degree at university. I think it was a half hour lecture, which is like charts don't really work, you know, but some people use these. So I had no idea. But then they gave me this huge book, which was John Murphy's guide to technical analysis of the

futures markets, which it was, it's now called financial markets. And I had to read it. And then I had to learn how to show people around this product called Teletrack, which was the charting product. I had no idea. And the first people I ended up interacting with was all of the famous prop guys from Goldman who ended up forming the Tudor office in London when they all left in the early 90s. And I had to teach them a lot of it. And then from then on, I just taught myself and realized that I was a very visual person. So actually just help me. Because I could could say somebody can say to me, what do you think about German buns? I have no idea. Put the chart up. I've got an opinion, some sort of opinion, something more informed without knowing all of the fundamental analysis. It's very helpful. And then I learned over my career that all the macro guys, because we have to look at so much stuff across so many different parts of the ecosystem, that charts is where everybody starts. You know, you start looking

for the interesting charts and thinking, huh, now all charts are really, it's not voodoo, it's just human behavior. It's just human behavior. Because basically, if you go into a cinema, a crowded cinema and shout fire, eight times out of 10, people will do the same thing. So it's probabilistic outcomes based on human behavior. And you can also see where it's come from, where people panicky, where people overconfident, you know, it's not that complicated. But again, you know, people don't like it because people want to treat everything as a science and life is not a science. It's an art. I absolutely agree that I view technical analysis as an art or a pseudoscience, I guess, if you want to be.

But it's literally supply and demand, support, resistance, all of these lines exist solely because it's where people place their orders based on their lack of emotional control right well you know one of the great learnings for me was i remember back in 2000 microsoft was breaking its 50 week moving average and i'm like i didn't really care about moving averages but what i realized at the time everybody was dollar cost averaging into stuff. And basically what it meant is everybody looked back at their P&L and realized over the last year they'd lost money. That's what happens when you break the 52 week moving average is everybody's lost money

for a year. And that happened to be a psychological point where everyone's like, oh, fuck this. I'm out of this. And they sell their Microsoft shares. And then you're like, yeah, I get it. Humans are humans. We're all idiots. We do the same thing.

Yeah, it makes absolute sense. So I want to talk a bit about stimulus because obviously we just saw 1.9 trillion in stimulus. Now they're proposing in the United States a 3 trillion infrastructure and an announcement that in April we will get yet again more stimulus. So I'm curious how that's

sustainable and what your thoughts are on that plan. It's absolutely sustainable for the government to do it and the central bank to keep financing it by the way that they look at the world. So they will keep doing this. This will not stop because, you know, let's face it, I don't know what I would do being a central banker or a government official right now. You've got an economy that's totally broken. You know, the stock market, we'll come on to that in a bit, doesn't really represent what's going on on Main Street. So businesses are destroyed. You know, if you go to the US, infrastructure is like third world. It needs to be upgraded. You need to create new jobs.

If you look at the trend rate of GDP over the last 30 years, it's been falling because of demographics and debt. Somebody has to change that cycle, right? So are you going to just throw out the rule book, go for MMT? I get it. What else are you going to do? Austerity? Forget it. So you're going to do something. So that is going to happen. And everyone's going to go inflation. CPI is going to go up and it's not. And the central banks are going to declare victory. And meanwhile, suddenly you'll look around and the stock market's gone up another 100%. And the price of some of the commodities have.

And the price of artwork. And the price of anything with a fixed supply asset. And then you'll realize that what they're actually doing is debasing the currency. The dollar won't fall because everybody's doing it. It's the value of fiat currency overall. This is what people don't get their heads around. They keep saying the dollar's going to zero. No, no, no. The Europeans are doing the same. The Japanese are doing the same. The Brits are doing the same. The Aussies are doing. It's a massive devaluation of fiat currency overall. Which is interesting because at this very moment, we're seeing what some are calling a reversal or

at least a bounce in the dollar. And it's showing quite a bit of strength over the past few months, actually, if you look at it now, which, like you said, it seems counterintuitive to anyone goes, well, print, print, print, print, print. How does the value go up? I mean, what do you make of this dollar bounce that we're seeing at the moment? I've been fully expecting it. The US is the best performing market in the world. The technological rate of change in the US is probably faster than elsewhere right now. I mean, China's, you know, Asia's doing pretty well, but it's sucking in the world's capital. Also, everybody's short dollars from debts. I mean, there's 13 to 15 trillion dollars that people are short. So if you've got a cash flow squeeze going on anywhere in the world,

they're scrambling to buy dollars. You know, we've already seen that in Brazil, because the virus has come back to Brazil with a vengeance. The Brazilian real is now falling every day. You know, the dollar, it's very hard for the dollar to go down because of this dynamic. It's 88% of world trade. Everything is priced in dollars. Right. So it's really a measure of relative strength, not strength itself, right? As long as you're doing better than everyone else, it will continue to rise, even if you continue to print and you continue to inflate. Or the world goes to shit as well. And continue to print and you continue to inflate.

Or the world goes to shit as well. And then people go to dollars because it's safety. So it's called the dollar smile. When things go well, people go to dollars. When things go badly, they go to dollars. When the world is kind of muddling through with the US going at 1.5%, the money tends to flow out of dollars and goes out the risk curve and goes out to emerging markets and other places. So if you're a government or a central bank, and you're debasing your currency, what it appears to them is there's no real consequence, right? Because the dollar hasn't got trashed. Rates don't go up. CPI hasn't gone up. So where's the payback? Now, the payback is for you and I, because we can buy less housing with our income, or less of a share of the S&P, or a company, or whatever it is,

less of a share of the fixed assets. And this exacerbates the 1% versus the 99, because the 1% can afford to buy assets, and they go go up and they compensate for the debasement of currency. But your income doesn't go up. So people who just live off income can't invest, they get proportionally less investing. So to give it&P, 60% more gold than a 32-year-old millennial now with the same inflation-adjusted income. So it's the investment assets that have gone up, which is why the rich get richer and not the income. I mean, I've always said that millennials really got the short end of the stick.

They get a bad rap, obviously, because it's the generation I've moved back in with my parents. But the truth is, I mean, they never really had a chance from that perspective. No, because if you think about them as 30-year-olds, so they're starting to come into peak earnings now, or proper significant earnings. Equity market, all-time record high valuations. Fixed income market, all-time record low yields. Credit markets, all-time record low yields. Property prices, all-time record highs. The exact inverse of their parents who were the boomers. The exact inverse. The boomers

basically didn't have to do anything to make money. They just had to put it anywhere. And then the third part of this is they ended up in debt. As soon as they were 30 years old, they all had like 50 grand's worth of debt or 80 grand's or 100 grand's worth of debt from university. Their parents never had that. So they had everything going against them until crypto came along, which is one of the great opportunities. And there's a bunch of other stuff going on in the background as well, I think is going to change this whole dynamic. All right. Can you talk about

those other things? I mean, everybody, obviously, we talk about crypto ad nauseum on this show, on Twitter and everywhere else we can find an unfortunate human who will listen to us. But what are those other things? So I spent a long time thinking about what is going on and seeing the markets go up so fast in the middle of still the largest recession of our lifetimes and basically of the last hundred years. And I realized that if you divided the S&P or any of these by the Fed balance sheet, they'd gone nowhere. So they were just offsetting the debasement. So I'd started looking through all markets, thinking, OK, what's offsetting and what's not? And what's interesting is the S&P was basically just about offsetting it. Gold was doing OK, but not great. Real estate was

about the same. They were all kind of trading in a range with each other, which showed you this denominator effect that I'm talking about was happening. Except two things, the NASDAQ and crypto. Forget crypto, the NASDAQ. Why? And the classic Twitter refrain is old man shouting facing network effects, Metcalfe's law. These are not like bringing out a new product, you know, a better mouse or whatever, right? These are things, new things that create adoption effects. Adoption effects, network effects, Metcalfe's law

don't price in P ratio terms. That's why nobody owned Amazon all the way up, particularly cynical people, macro people, gold bugs. It's like, I can't own this. It's a P of 600. And why Tesla at its valuation was still rising. Correct. And nobody got it and they still don't get it. But those FAANG stocks have outperformed and we all got it wrong, to be honest. We all got it wrong. Because we didn't understand.

But the more we got into crypto, the more we started to understand network effects and realizing that it applies. Okay, so what is coming down the pike is something so extraordinary that I've just changed my entire macro framework based on it. Is thinking about this, thinking about, okay it ever, the vaccine that has come in basically in two months, groundbreaking, 20 years of work, but they basically cleared it through. Now that may clear malaria and a whole bunch of others.

People are working on cancer stuff using the same technology. Biotech is going to have money thrown at it. That's one. The other one is I was walking, I was writing a piece about carbon offsets in Europe, which is a fantastic trade. And writing that piece, I realized that the EU is basically going to reduce all its carbon emissions 65% in the next nine years. And it's going to drive a massive green revolution and it's happening

everywhere it's not just the eu and before it used to be oh it's 20 years ahead it's now happening every car outside my window here in the cayman islands in 10 years time it's going to be obsolete it's true so think of the number of cars that have to be sold, electric cars. Think of the technology that goes with electric cars, things like edge computing, localized networks. What does 5G fit into this? 5G is being rolled out around the world. So everybody has access to super data. Now, anywhere that doesn't have 5G is getting Starlink and the other ones that Elon Musk Starlink, right? So basically, you're about to connect the entire planet with free data

in the next five years, everybody. You're then going to give them the whole crypto world of digital banking, digital money, stores of value, all of that. You're going to then be able to distribute computing power across massive networks, distributed computing like we do with cloud. That increases the computing power for science. And I mean, it goes on and on and on. We've got autonomous driving, autonomous cars. I mean, that's coming in the next five years. I think somebody between Tesla or Google is going to get that across the line. Sure, it'll be for Amazon delivery vehicles first or whatever. So we've got a ton of these technologies, and I've only listed some of them, that are all coming out in the next five years. None of these are ideas now.

They're all products. They're all happening. The Internet of Things, all of this is happening. all none of these are ideas now they're all products they're all happening the internet of things all of this is happening so we're going to go probably through the largest change in human history of technology in the shortest period of time and everything has network effects none of these are new products these are new ways of how we create productivity we've also got the metaverse, the digital world. I think the metaverse itself can double the size of global GDP,

because it's like discovering the Americas again. It's a whole new world where you can earn money, own real estate, do investing, create businesses, live, essentially. Okay, so you've doubled the size of the world. People don't get their heads around the size of what is happening. And, you know, and crypto is part of that picture. And it's all happening right now. So I've now thought that the advantage the millennials have as they understand this, they're not cynical macro people who think the world is mean reverting. They kind of understand adoption effects.

And if they can, they can invest around it. This is why I wrote that tweet about Cathie Wood. People don't understand. She's got every one of these things. She's got every one of these themes and the old men railing at the internet are going, it's a bubble, they're illiquid stocks. I don't care.

Cryptos are liquid. What you've got here is she's chosen pretty much every right thing that is going to be truly transformational, not in 20 years, not in 10 years, but now for the next five years. So the probability of her hitting some, sure, some of these won't work, but her hitting a home run here is enormous. And nobody can see it because everybody's too cynical because they believe in a mean reverting world. And we don't live in a mean reverting world any longer. We live in the exponential age. Yeah, I mean, and to some degree, those tech stocks were what have, you know, carried everything along, dragged along the rest of the stock market on the way up during this entire correction. And they are arguably as good of inflation hedges as Bitcoin.

And yes, they are. Well, Bitcoin's outperformed them, but still, they're very good. They've outperformed the balance sheet and all of that. So the easiest way to check, to head check, is this a network adoption style story or not? It's just simply do a log chart. So as we do in crypto, right? We're so used to it, but we don't think of it in stock market terms because we're used to mean reverting. But if you just put a chart of Amazon on the log chart of Facebook, they're perfect. They're just perfect network adoption models. They're exactly the same as Bitcoin, exactly the same as Ethereum. They're all the same thing, which is they're just network models. It's brilliant. What's up, guys? If you've been following me literally for more than five minutes and you don't live under a rock, then you've

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of traders who are already a part of the movement. It's funny you talk about the cars outside your window. I have a six-year-old daughter and I'm a huge Tesla fan. And she asked me the other day, she's like, well, when am I going to learn to drive, dad? And I said, never. You're not going to drive. Your driver's license is 10 years away. Everybody will be in, just like you said. I said, never. You're not going to drive. Your driver's license is 10 years away. Everybody will be in, just like you said. I mean, every car will be driving itself. She'll probably never drive a car. Right?

I mean, the notion seems absurd, but I think that that'll be the case even for 10-year-olds. And she may never work in the physical world. She may work in a virtual. She may never attend the physical world. She may work in a virtual, she may never attend a physical university. I mean, this is the magnitude of what is happening here. These are not kind of science fiction stories. I mean, there was an amazing story of, you know, during lockdown, one of these school teachers or university lecturers, I'm not sure what it was, decided to hold his lectures

in one of the metaverses and got the kids to go to attend there. And he found that it was very natural for them to do it. So, and then they were interacting with each other because they could see each other's avatars and there's Joey there and there's, you know, Tina over there. They'll chat to each other. And I'm like, okay, yeah. I mean, everything has changed. Yeah, which is why, even though NFTs, I could be argued to be in a bubble as far as price and the art side and some of the use cases,

when you really dig into what the future is, I don't see how the NFT space does not continue to grow and absolutely explode. And not because of the art, but because you consider it as the currency of these metaverses that you talk about, because you, you know, you eliminate the middleman and there's no toll collector in the middle of these direct transactions with NFTs.

Just an authenticated scarce asset. That's all it is. Right. It's like having a painting authenticated by Christie's. Oh, yes. That's an original Michelangelo. Right. Those words are worth 400 million dollars. Yeah. Right. It's an original Banksy. OK, that's worth 50 million bucks. That's all it is. And then we can transfer it with the trusted ownership great and you know what it might have some rights with it as well which is really interesting we haven't even started where this is all going with nfts and you know i'm i've also been thinking about the bubble narrative right this is a narrative about 2000 look at 2000 that was a terrible bubble was it yes what if you look at the chart now it's meaningless it's meaningless what it was was just an s-curve adoption s-curve phase of the early stage of

what we're seeing now which was amazon and that fell 90 then now look at it should you have sold it was it a bubble or was it just part of the network effects? And I, you know, I'm starting to see the world differently and it sounds like crazy bullish and utopian, but I think we've all been wrong. Well, I think what people see as bubbles often are just a purge of the things that didn't work. I mean, if you're going to have innovation, you need to have thousands of people throwing darts and taking shots on things that seem absolutely insane. And it's totally fine if only five of them succeed. Of course it is.

What are bubbles and what people misunderstand is things like commodities. Because commodities, the more they go up in price, the more they create more supply and the more they lower their own demand and then they collapse. Right. So they're mean reverting. In fact, many things are mean reverting in fact many things are mean reverting where you're not seeing network effects you're not seeing mass adoption so when there was the short squeeze in volkswagen back in 2008 it was just a short squeeze it was a bubble and then it collapsed but it's not to do with that that was not to do with anything to do with the business model or the adoption of it. It was just a technical situation, as was silver.

And that happens periodically in various things. And they're mean reverting those kinds of assets. I mean, if there was a, if General Electric didn't change its business model at all, and it went up 300% from here, it's probably likely to mean revert. Unless they changed their business model, which they may well do. But, you know, it's just, we need to get our heads around the different types of businesses. That makes total sense.

So I want to go back to something you talked about with, obviously, the dollar sort of being the denominator for how we view all of these other things. We've always seen an inverse correlation between the dollar to some degree between metals. Yeah, it's the kind of dollar, but the fiat dollar, as opposed to the relative dollar, right? Right, right.

Because you're looking at Amazon in dollars versus Amazon in Fed balance sheet. They're two different things. Right. Absolutely. Makes sense. My question was, obviously, you generally see an inverse correlation, dollar weakness. You see stocks go up, you see metals go up, you see all this. Well, that was somewhat true with Bitcoin historically. But again, now that we've seen the dollar bouncing this time, we've seen Bitcoin raging next to it. What do you make of the fact that we're finally seeing, you know, really both of them rising at the same time? Again, we talked about the dollar is a very different beast and nobody really knows what drives it. It has what's known as a Bayesian distribution, which means that there's multi-factor kind of variables that affect it at various

times. It could be current account deficits. It could be flows. It could be M&A. It could be interest rate differentials. So it's really hard to forecast currencies. In fact, the best forecasting of currencies is done by technical analysis because nobody knows how to model them.

They're really complicated things. So there is times when crypto is correlated and times where it's not. Now, sure, if we have a massive risk off, let's say the dollar DXY goes to 105 in the next month. Well, the chances are crypto is going to sell off because everyone's going to freak out. That's much. Is that a correlation? No. That's a passing correlation built on risk. There is a risk correlation between all assets. Because in the end, if you're going to liquidate some stuff, you're going to liquidate some stuff, whatever it is.

But the overall correlation, that's the great thing, is Bitcoin is not correlated. Oh, my God. Thank you. I had this conversation with Mark Yusko. We were both sort of like screaming from the top of the hills. And just every time we mentioned it, somebody jumps in and shows you this very short term correlation. They say, look at March 12th. Right. And don't understand that. Of course, there's going to be moments, but largely it's a it's a random walk.

And you can even I mean, if you're a Markowitz fan or whatever, you can even dig in and say, listen, like mathematically, these are near a zero. You know, they've never gotten to one. They're not correlated assets by any stretch, especially if you stretch the timeframe. It just infuriates me, the correlation argument. What they're all correlated to is something called the VAR shock. So that's the value at risk. When volatility climbs in your portfolio, you have to take less risk because if not, your risk of blowing up goes up. So what happens is people reduce risk. We've just seen that with the guy. Oh my God. Yeah. The huge block trading from Goldman. He had a bar shock. Yeah. had a VAR shock himself, right? So he has to liquidate everything. And that created a VAR shock with other people as well. And so people just liquidate anything

to pay the bills. And that happens periodically. That is not to do with the fact that the stock market went down. Think of it as a separate thing is if risk blows up, then everything has a wobble for a period of time. And that's okay. And usually what happens is the things that are stronger, that have better stories behind them, better fundamentals come out of that VAR shop much quicker. Yeah. It makes perfect sense. And Bitcoin is exceptionally liquid. I mean, if you need to get out of Bitcoin, you can get out of Bitcoin. In March, you couldn't sell a bond if your life depended on it at that moment. No, people don't understand the magnitude of March.

The entire world stopped. Never happened before. Never. The entire world stopped. As you said, the most liquid markets on Earth, the currency markets and the bond markets, basically were untradeable. Because everybody was at home. There was no risk management.

Nobody was in the office. There was nothing. There was no trade going on. Nothing the world had stopped. So that is the most extreme situation of all time. So if we're trying to correlate Bitcoin to that, this is madness. RAOUL PAL, And honestly, it's almost mind blowing to think that that was only a year So if we're trying to correlate Bitcoin to that, this is madness, right? And honestly, it's almost mind-blowing to think that that was only a year ago when you describe it as one of the biggest global economic events in history, if not the biggest to see where we are

now. But again, it feels weird to say and see where we are now when we know that really, those of us in financial markets, we see markets going up, blah, blah, blah. But when you speak to a friend who's got a service business, a restaurant, a bar, hairdressing salon, they're totally screwed. I mean, people don't understand. And I think the Fed is right in their focus on unemployment. People are like, yeah, but the market's at all time highs. Why are you stimulating? They don't understand that people in retail are never going to get a job again. Ever. I saw this when I was a young kid. The UK, 1979, 1980, 81, 82, we lost the shipbuilding industry, the car industry, the steel industry, and the coal industry all at the same time.

Every single one of those industries was destroyed. None of those people ever got jobs. Well, none of them. Call it 40% got jobs again. 60% were structurally unemployed until they retired. Okay, so then what happens now? If that's the case, you can't just use stimulus, obviously, to keep them afloat, especially knowing that the price of goods is going to rise. So you presented sort of- The price of goods is not going up. Excuse me, the power of the dollar will be devalued and you will not be able to buy as much of the same price goods with your money. But either way, their buying power will decrease. Well, I don't know, because the buying power of, again, it depends what it is. I mean, food inflation, it's all passing. This is not correlated to Fed balance sheets or anything else. The deflationary impact

of technology on food, finished goods is enormous. It's on assets that the real issue is. But these people, yeah, the answer is is i don't know and this is why universal basic income comes up because basically what we've actually done is technology's replaced the jobs and covid accelerated it and it's inherently a deflationary of course i mean prices should come down and yeah and so if you are in government and you're going to say, OK, if we're going to have to support all these people because technology destroyed them all in one go, as opposed to over time, can we get the technology companies to pay more tax so we can implement universal basic income? It's a pretty compelling argument because most of them pay no tax. And, you know, it's not fair because it's hard for individuals to pay no tax. But it's easy for a company to pay no tax, especially giant companies.

So it's pretty easy to get through politically. Right. Yeah. Nobody's going to be mad if they see the corporations taxed more heavily. Except the rich investors have managed to own Amazon shares. Right. But nobody else cares if Amazon actually pays 25% taxes. Absolutely. So you've reported recently, obviously, that you're seeing interest from sovereign wealth funds in crypto. I know that there was a fund in Singapore. Do you think that we're just at the tip of the iceberg with adoption from sovereign wealth?

Do you think that we're going to see a lot more of those announcements in the coming future? Yes. And because Bitcoin, as soon as they understand that Bitcoin is a very, very long duration asset, it perfectly suits protecting the wealth of nations. That's all the sovereign wealth funds are, right? Usually, it's an oil or commodity producing country that gets windfalls in boom times and has hard times and they offset it by drawing down on this pool right it's a savings pool now that savings pool needs to grow over time a lot of it's denominated in us dollars because everything's in dollars so they they try and diversify. But to have assets that offset global inflation or global debasement of currency, et cetera, it's a perfect asset,

particularly because it's so skewed to the upside that they can have a 3% allocation. They can lose half of it and it makes no difference. But if you get it right, it really does make a difference to the portfolio. So I think it's very well suited. The problem is, as I've argued all along, is they can't really come in until it goes up more in market cap. Right. Just not big enough. Just not big enough yet.

Because these guys are, you know, Norway, I don't know, it's a trillion dollars. You know, these guys are huge, huge. And they, you know, they're not like BlackRock, which is a few trillion dollars, but they've got millions of different funds. These guys are basically one gigantic asset allocation. So a ticket for them, they even allocate hedge fund ticket sizes of like a billion dollars or half a billion dollars. So let alone doing something like this. So they need to put 10, 20, 30 billion dollars at work just to have a minor allocation. It's huge.

I've made the same argument for the larger corporations. You love, obviously, crypto Twitter gets deep in the argument of when Google, when Facebook, when Apple, all of these. I mean, it's always been my argument that it's really just not big enough yet. It's getting there now. I was really making that argument when we were 10, 20,000. So maybe now you can get 1% in, but I mean, what is the market cap level when this becomes really, really interesting to the huge money? I think 10 trillion, you know, I think something like that makes sense. Or bigger. I think also it is interesting.

I think Michael Saylor has been talking about this, but I don't think he's explained it super well. He's talked about the cost of capital being 15% and therefore all of these corporate treasuries invest in bonds. What he's actually talking about is if you take the printing of the balance sheets by the G4 central banks and you annualize it. It's growing about 15% a year, which is that denominator falling by 15% a year.

So you do buy bonds. So now let's say you are Microsoft. Okay, you've got this gigantic corporate treasury, several hundred billion dollars in it. And you've got a bunch of credit and a bunch of you know normal stuff now all of that is underperforming the fed balance sheet now does it really matter because wages are also underperforming everything else it underperforms because people like microsoft do two things also by companies and by real estate both of those are priced in fed balance sheet terms they They keep going up because they're fixed assets. So they haven't got their heads around this yet. I think people

haven't really explained it to them that sure, your cash flow and the corporate credit you own will carry on for your needs for salaries or whatever else it is, general organic growth. If you want to buy things, they're more expensive. I thought it very interesting. Obviously, speaking of Michael Saylor, first, I don't think that anybody else is going to do quite what MicroStrategy did. I think we'll see more of the approach where a company invests 1% to 5%, not goes all in on that level, but I love it. He just hosted, now it's been months, some say 2,000 corporations teaching them how to put Bitcoin on their balance sheet. And we haven't really seen

any announcements. I was expecting that we would sort of see a flood, but do you think that that's something that's still coming and it just, they haven't reported yet or? Again, this space makes me laugh because this space has all come from retail investors who really don't know how the institutional world works. The due diligence, I mean, is, yeah. Just, you know, I've been helping tons of people trying to get across the line. And the amount of meetings and the risk meetings and the meetings with the prime brokering or the custodians and then the reports that need to be written. It's endless. It's endless. It's endless.

So, you know, and particularly if you're a public company, you've got further things that you need to do. If you're a pension fund, you've got- Well, pensions, I'll do it for three years. I mean, it's diligent. So yes, of course, it's all coming. And it just takes time. And most of them won't announce it until it's in their filings.

So that's the end of each quarter. So we'll get a bunch we'll hear about next time. We'll go, oh my God, so-and-so's bought Bitcoin. Then we'll do it in another quarter. It's just, it's ongoing, right? Yeah, and it's going to continue. We're just going to keep seeing it. So speaking of, you know, pensions and endowments

being this huge wall of money, obviously, what is it going to take to get them in? Is the answer an ETF? Is it $10 trillion market cap? You know, do you think that that's something that we can see in the near future? I think it's, you know, I've talked a lot about the pension crisis, you know, they're underfunded. And they took a lot of risk with people's money and put it all into equities. Now, it's still not enough for people to retire. So we've got a huge problem. Can Bitcoin help plug that gap?

Yes. But they've structurally got a real issue because you've got this millennial cohort that needs to buy a lot of stuff. And that's fine. And that's piling through in the passive investment vehicles and stuff like that. And then you've got this 76 million Americans

who are trying to retire and can't. It's a bit of a messy situation. I do expect pension funds to come into the space because they need to. The long duration asset works well for the millennial. It could save the boomers, but there's a lot of risk to do it so i don't know 10 trillion market cap i mean they can't not right but there again right don't forget everyone everyone you know again the spaces makes me laugh because everyone's like oh

my god but but gold's a 10 trillion market cap yeah find me a pension fund that invests in gold it's like about three percent of them nobody cares so it's not really an asset people think about so it's really funny this gold versus bitcoin thing because actually and dan tapiero talks about this a lot nobody's in gold anyway um you know it's basically family offices and retail and and central banks that own gold but not pension funds some endowments do but not really so when do central banks that own gold, but not pension funds. Some endowments do, but not really. So when do central banks own Bitcoin? I think it's going to come from a small nation,

you know, somebody like Costa Rica or somebody like that. Somebody who's had currency problems in the past, and they've got a progressive young leader who says, let's just own some of this. So it's coming. Does it come on this cycle or the next cycle? My guess is actually this cycle. There'll be somebody small and everyone will laugh at them and say it's ridiculous, as is the way, right? Yeah. I wonder if, I mean, it's not like there's any mystery around Iran and North Korea's interest in Bitcoin. I would imagine that

there are nations, as you spoke with Sovereign Wealth, who are heavily invested in Bitcoin one way or another already. Just maybe not the ones we would hear about. Yeah. Now, why are North Korea and Iran interested? Very simply, Iran has cheap energy. And it's a commodity for them to manufacture and sell that has a global market that doesn't require supply linkages, which the Americans choke. So why would they not do it? You know, it's, you know, they have a strategic advantage in doing it. But people are like, Oh, God, this is, you know is geopolitics at play. No, it's just countries who have an advantage in a commodity making that commodity. And if they get- Who are sanctioned from other commodities.

It's ridiculous. It's not some geopolitical play to own Bitcoin. It's a play to make some money because we choked them. Venezuela is the same. And that's interesting. Why do we see so many of these narratives around Bitcoin? It's for criminals. I mean, ransomware is the next great attack. Bitcoin ransomware attacks. And it's only for drug dealers. And it's only for North Korea and Iran. I've learned this. And you'll see it with the response that Cathie would tweet or any of the stuff that I've been talking about people fear change we live in a world of the politics of nostalgia where we look back on the

1950s the baby boomers do and thinking life was so simple that world was never a good world either but we have that politics of nostalgia because we fear change and we're in a accelerating period of change right now it's hard for people to understand like you said you can't understand the life that your daughter's going to be living in 30 years time you have literally no comprehension of what that might be um so you know that's hard for all of us to get our heads around because we think it's wrong i never forget when i first went to like oldest friend i've known since i was six i went around to his house and his son was like 14 and he was it was a saturday and he was in a gaming chair gaming i'm like the fuck's going on here he's like well

he's been out playing football with his mates and stuff but he's now socializing I'm like what are you talking about because we used to go to the shopping mall and meet our friends and figure out what's going on that evening who's having a party they do it all online he's got his friend in the US he was based in the UK he's got his friend in the US a friend in Spain a bunch of his neighbors all hanging out in Minecraft, whichever game he was playing, Fortnite, chatting. And I'm like, okay, the world has so much changed. And that's okay.

I don't have to say that's wrong. It's terrible. It's how it changes. Hey, you kids get off my lawn. You know, the old man who kicked the ball under his lawn. Yeah, I mean, they're all hanging out on discord servers and making genuine friendships you know there's nothing to i i just it is incredibly interesting i mean scott look at look you and i are chatting now very naturally over zoom right this was relatively new for us 18 months ago yes we all use video calls but we we barely use them. Now, I don't think of it

differently than sitting having a coffee with you chatting. It's like, it's pretty natural now. That's how fast we can change. But if you tell people, well, we're only going to speak to each other on video calls, and people are going to know what about human interaction? This is human interaction. It is. Yeah. Yeah. I mean, it's really interesting if you're in the crypto space and have been in it for a while. I think everyone finds that some of the people they would probably count as their best friends, they've probably never met in person. Yeah, exactly right. central bank digital currencies? We obviously saw recently that MIT and the Boston Fed will be coming out with prototypes soon. We know obviously what's happening in China. What do you think that the effects of central bank digital currencies will be on money structurally, but also more

specifically on Bitcoin? Again, we don't know. What we do know is they're going to get something out. I think the argument that I've been hearing that I think is pretty reasonable is that they should not be doing it themselves. They should let the private sector, they might want to own the wallet or the on-ramp or off-ramp so you can have a government wallet or whatever it is that they need to get their taxes and get their KYC and AML, right? We're not going to get around that.

Should the private sector do it because it innovates faster? Most likely. I don't know if that's the way it goes, but that would make sense to me. I think the innovation is going to come in behavioral economics that I've mentioned many times to people. I think having digital money allows behavioral incentive systems. We're used to them on the internet you know you do certain actions you get a like button you get you know all this behavioral stuff that's built in we can do with money so when you asked me the question before what do we do about all of these people in retail that couldn't get a job well you can give them a different set of outcomes to others so you know let's say, you do quantitative easing, you can actually give them direct capital from that.

You can lower their tax brackets. You can do different things that's easier to do than it is. You know, you saw trying to get stimulus to certain people was a nightmare in the U S but you should be able to go to granular level. Those people in that town, you know, because they've had a hurricane. And we can then stimulate them without having to do a postal kind of sending out of check, you know, the madness of all of this. We can stimulate different things, create different incentive systems.

So I think the world is going to change. I think, you know, one of the things of my exponential era basket of things that we talked about, I think behavioral economics is one of them. People won't like it either because what it is, is controlling humans by incentive systems, but it's actually a better way of organizing government in some respects as well. So it comes with, as always, unintended consequences on the negative side and the positive side. I never really thought about that way. In theory, you could print less or have a smaller stimulus package that was much better targeted and wasn't this sort of just sweeping, send out the helicopters and all of a sudden people who make 500 grand a year somehow getting stimulus credit cards in the mail, which was

actually happening. Yeah, I actually heard reports talking about the show of the stimulus last time. They did the checks, then they did the direct deposit. And at some point, I don't know if you heard about this, but they moved to basically cash credit cards, like prepaid debit cards. And people started receiving them in the mail, but they looked like generic junk mail, like all the fake credit cards you get. And people just started throwing them away and shredding them. And they were actually their stimulus. I mean, yeah, I know people that happen to digital has to be coming that people don't like, but it's pretty normal. It's going to be digital identities, both private and public identities that are digital. So then if your career, your job is part of your digital identity, and let's say you're in the music industry and you've not been able to work for 14 months now, right?

You can say, OK, music industry people, you pay, you get this benefit and no taxes for the next three years you know that that's actually a good way of running an economy but what gets in the way is people go digital identity they're spying on us i'm like i don't know how to help you can either have nobody spying on you and nobody looking after you or you can have somebody looking after you and allowing yourself to be discovered there is no halfway house well to, the joke of that is always it's like the person who's yelling about their privacy and identity as they're like searching Google on their iPhone. Yes. I mean, the reality is they know everything about you. They know where you are. You're giving them this information voluntarily regardless. Google owns more information on more people on earth than any other single entity ever. And the US government knows that. This is not a separate organization. It is no different than Alibaba's connection with Chinese state. There is no difference with what

Amazon data has or Apple has or anybody else. The state, because they all pay their taxes to the state and they operate out of the country by the graciousness of the state, because they all pay their taxes to the state and they operate out of the country by the graciousness of the state, if they want the data, they'll have the data. So yeah, there is no world that exists where you're not connected to the state. Unless somehow you're completely off grid, but who wants to live like that? But that kind of touches on the fact that your fear should be more of the corporations than it should be of the government. So actually a digital dollar or whatever,

the privacy you're giving up there is a privacy you've already probably sacrificed 10 times over. Well, no, I mean, people say, yeah, but cash is private. When's the last time you used dollar bill, right? It's like to tip the bloke that parks your car. It's exactly it it's it's a

mess because you've never got any dollars you've never got any cash so we don't use cash we're not a cash society so there is no privacy because you use your credit card and you use your bank account so everybody knows what's going on so that's not a world that exists i don't know anybody lives in a cash-based society. In the developed world, it doesn't exist. Yeah. Do you think that the proliferation of a digital dollar and central bank digital currencies will help adoption of crypto? Of course. The whole digital world is being built. Again, what I think is fascinating is to just walk away from the narratives. The very reason they're building digital currencies is because Bitcoin was invented.

And they're not doing it to compete with Bitcoin. They've gone, I get it now. The world is going digital. Works better. World's going digital. And I don't think really they have a problem that there is an asset that exists that is a digital asset that's not controlled by anybody. I mean, there are other assets that exist in the world, such as gold or real estate or whatever it is, artwork.

That's OK. And they can be trillion dollar, multi-trillion dollar markets. And that's OK. But they've seen that a digital world is the future. Bitcoin showed the way. Then Silicon Valley kind of built around everything digitally. And they've gone, I get it. And I think it's just on ramps and off ramps. It's just better for Bitcoin. It's better for this whole space. I think it's better for all of us. And, you know, here's an interesting thing is i was chatting to some guys out of singapore who are arbitragers and option market makers and traders in crypto and i'm like listen what you know we're so us-centric right now i'm like what's going on with these stable coins in asia why is all this volume because the angry people shouting on the internet are saying, capital flight, money laundering, crooks.

So I said, so what's going on? He goes, oh, it's pretty simple. He goes, there's Malaysian exporters dealing with China. Currently, there's capital restrictions on both. Doesn't mean they can't, but they have to file some certificate. They have to get approval. And then what happens is they have to cross the Malaysian ringgit RMB cross rate, which is not liquid and has big spreads. And then there's correspondent banks and middlemen in the middle. So it's a really expensive, slow process. So they just do stable coins,

Malaysian ringgit, tether, super liquid, tether, RMB, super liquid. He says, so they're settling trade transactions in in three minutes he's like that's what's going on and i'm like oh yeah it's just better it's just better just better it just functions for them and that's why we see it was like vietnam suits capital flight of course there's some capital flight but v But Vietnamese companies who trade in the region have problems with capital restrictions. This just makes it easy to buy and sell goods. It's perfect. Yeah, I personally almost exclusively transact in stablecoins. Really?

Even from the United States. Yeah, that's how I pay. I mean, it's a nightmare for my accountant. But that's how I pay employees. That's how I do almost everything. And I used to do it with Bitcoin. And I used to do it with Bitcoin. And I used to do it with Bitcoin. Yeah, you don't want to do that. I haven't taken that plunge, I guess, because I've just piled everything. I literally have no money apart from stuff that's in Bitcoin and some of this other stuff. But a friend of mine just sold some of his Bitcoin.

It's like just top slice. He's been in for a long time. And he said, I've just realized, Raoul, because I just sold some of his Bitcoin. So that's a top slice. And he's been in for a long time. And he said, I've just realized, because I just kept it in stable coins and I'm getting 6% interest. That's part of it. And he's like, unless I'm buying a house or a car or I need it,

he goes, I'm not sure that I need to use a bank account. I think even I haven't gone through that realization. I know many people have. need to use a bank account anymore. I think even I haven't gone through that realization fully. I know many people have. I definitely have a bank account, but I certainly don't park cash in it anymore like I did when I was a kid. Now, like you said, I primarily use Voyager. I've talked about it a lot of times.

I'm getting 10% on USDC sitting there. I mean, I just keep it there until I need it. And then I go to my bank account and spend that dirty fiat, as they like to say, and, you know, for the things I need, but I primarily transact in stable coins. Fascinating. Yeah, I think that that's the future.

I know that we've kind of run out of time here. I have one more question, which is, is there anything that can blow this all up for crypto? Is it regulation? Is there a threat? Is there some black swan event, which is funny to talk about a year after we've just black swat event. I've explained something to people that there's a bunch of known knowns, right? These are the known unknowns, which is regulation, you know, the 51% attack, the quantum computing,

blah, blah, blah, blah, blah. Quantum computing, right. The actual risk to me is something much more nuanced, which is central bank digital currencies come. I'm going to give you a scenario. Central bank digital currencies come. The IMF, the BIS have already said we need to lower the dollar's weight in the world. So we maybe want to create a world currency basket, right, that we can all transact in, much easier for all of us, which was basically the Facebook Libra idea, but done by the central banks. What happens if they did that?

And the IMF have been talking about, we need a new Bretton Woods, some huge fiscal spending package. So let's say they allow everybody as part of this basket, these 10 or 20 nations, call it G20. You say, right, 30% of GDP go. Everybody does it. Stock market goes up. Bitcoin goes up. Gold goes up. But they've done. And then they say, OK, now to remain in this basket, you can only inflate your money supply by 2%. And if you cheat, you're out. So therefore, you then have stability of money, or relative stability of money. It makes Bitcoin at the margin significantly less attractive. Of course. Now, there's philosophical reasons and the non-centralized reasons and all the other reasons why Bitcoin is still attractive.

But it makes gold less attractive, Bitcoin less attractive. This is basically the exchange rate mechanism we had in Europe for a while. It didn't work. And I'm not saying it's going to work forever. But if they implemented that for 10 or 20 years, it would make Bitcoin less needed. Yeah. I mean, you're hedging against something that doesn't exist. Yeah. Or there's a lower risk of it happening. Therefore, you need less Bitcoin. So that would be my risk is if central banks understood why Bitcoin was powerful and changed accordingly. Can they do it?

I've no idea. You know, what probability would I give this? I've no idea. 10%. But it's interesting to think about, though. Well, thank you so much. I know we're out of time here. Where can everybody follow you?

Check out what you're doing after this conversation. Yeah, easy. I'm always on Twitter at Raoul, R-A-U-L-G-M-I. You know, I try my best to respond to as many people as possible. And also check me out on Real Vision as well. So if you're interested in the crypto side, it's free. And it's an unbelievable amount of incredible content. It's amazing. It's a game changer. So realvisioncrypto.com. It's unbelievable. And then all of the Real Vision macro stuff is there as well. There's a free YouTube channel. And then there's whole membership tiers. But realvisioncrypto.com, go there, sign up. It's free. And it's amazing. Well, next time we do this, I want to dig far deeper into that. It kind of just the time went by really fast. But thank

you again so much. And hopefully we will do this again in the future. Scott loved it. Really enjoyed it.