Coin Bureau: Raoul Pal on Crypto Market, ETFs, Institutions & More!!

0:02Hey, everyone. If you like this podcast, go behind the paywall to get privilege access to the smartest minds in finance. Visit realvision.com slash RVpod and use the promo code podcast10 to get 10 % off our essential membership for the first year. Join the Real Vision community and learn how to become a better investor. And now to today's episode of Raul Pal Real Vision. Raul, great to see you again. How are you? Fabulous. Thank you for having me. Looking forward to this. Great to have you too. So first of all, I think it's only right that we just jump straight in and get your take on the current macro environment?

0:38How are things looking at the moment? Well, it's a complicated world because the actual economy is slowing down and it's going to be relatively slow for this quarter and next quarter. But the markets priced this in last year, which people can't get their heads around. They're like, we want our recession and we want our crash. It doesn't really work that way because we had it last year. In crypto markets, we were down 80 % last year. People have kind of forgotten that. So what the markets are doing is forward-looking. So they're looking forward at where the forward-looking indicators are showing that growth will return, but inflation will continue to fall.

1:13Unemployment will rise a bit. So that's a kind of more Goldie Knox scenario with economic growth coming back without inflation. So that's what markets have been pricing. That's why crypto has been so strong this year and stuff like the Nasdaq has been so strong this year. So I'm very optimistic generally. And I think we're in crypto spring and we'll transition to crypto summer, maybe Q1 of next year. And I've heard you've mentioned crypto spring on a few of your podcasts. For people that are listening that are very familiar with crypto winter, unfortunately, crypto spring might be a new term for them.

1:49How would you define crypto spring? Crypto spring obviously comes after winter and it's after all the terrible news comes out. And if you think of spring in terms of weather, one day it can snow, then it can rain, then it could be sunny, then it could be warm, then it could be cold again. It's kind of a weird time. But over spring, generally, the weather gets better. And that's what we see in crypto. So you get still bad news stories, but the market doesn't trade as badly around them. It tends to go up over time, but it's a bit frustrating because it trades sideways for long periods of time. And then suddenly it goes up in two days and then goes sideways and then corrects again, that kind of thing.

2:25And that's the environment we've been in. But if you actually step away. If I look at my screen now, Bitcoin's up 72%, ETH's up 45 % and Solana's up 140%. So actually, it's been a good year, just hasn't felt that way yet. We're in October already, ladies and gentlemen, we're already seeing some green on the board, finally. So let's take a look then at some of these catalysts, because as you mentioned, crypto spring, one day we'll look outside and see the sun is shining. One catalyst that I would really like to pick your brains on is crypto ETFs. So from spot Bitcoin ETFs to Ethereum future ETFs.

3:01Before we do that, though, I think some context for myself and for some of the people that are watching when it comes to institutions and what they bring into crypto. Aside from liquidity, in your opinion, what do institutions really bring into this asset class? Well, it depends how they're going to use it. So they can be investors in it, which is great, Because if you think of cryptos as an economy, it needs money coming into the economy. Right. Because it can't just be us retail lot because we've all got our money in the economy. It needs to get new money. So that's why it's part of this global liquidity cycle.

3:35So when people get liquidity, they start investing in riskier assets like crypto and it starts flowing in. So that adds liquidity to the market overall, which means that new projects get more traction and it filters through the whole ecosystem. system. So money, like in any economy, this digital economy needs capital coming in. So that's what the institutions bring. But the institutions are also building on top of this, you know, everybody from Fidelity to Franklin Templeton, to I think it's Apollo, somebody else announced today that I think it's UBS are building a mutual fund on Ethereum tokenizing it.

4:12So what you're they're going to bring is use cases. And the finance system is the largest use case of all because it's vast so that's another thing also the institutions tend to invest in vc so they're funding the new wave of projects so if we think about it about 62 billion went into vc investments in 2020 and 2021 and 2022 or 2020 2021 that money got put to work by thousands of entrepreneurs who are building new applications new opportunities and that's what the space needs as well, because we've got this great technology, but technology is not enough. It needs to get to user level. What applications can we use where we don't even see that we're using crypto?

4:55So that's why institutions are really important. Also, it's important because things like ETFs allow investment advisors to allocate people's money. So it's not just like Goldman Sachs putting money in. It's actually all of our money, our savings and investments and that kind of thing. So it allows people to participate in this in ways that they couldn't participate before because it was harder for them via investment advisors or financial advisors to actually access tokens. But this one, it's an ETF, they turned it into an equity, essentially. And you previously worked in Goldman Sachs, you must have a very good ear to the ground when it comes to maybe institutional appetite, depending on where we are in market cycles.

5:41At what point do you think during each market cycle the institutions really sit up and listen? And is this something that we've seen previously in the past few years and actually at this moment in time, the demand is already there, the appetite is already there, or is this something that in the crypto space we're still building on? Yeah, I mean, I speak to a lot of the institutions, both directly with my work at Real Vision, but also with my asset management company, Exponential Age Asset Management. And we've found that it's the latter, that everybody has pretty much done the homework. The pioneers just keep working through the bear market.

6:17Again, Fidelity, Franklin Templeton, a whole bunch of these guys, Texas Teachers Retirement System. They've been involved all the way through. Most other people have done the work. So actually what they need is liquidity and price. So there's not much liquidity around now that we talked about before. So if nobody's got much money, then it's difficult to invest money. But as the stock market start getting closer to all time highs, people start making money. Let's say that eventually the Fed cut rates, well, then money starts coming into these kind of assets. So I think most people have done the work on it now, they understand it.

6:52And so I think we will see a lot of participation from institutions in this cycle, much more than last cycle. It was quite a lot last cycle, quite a lot. But it was a lot of family offices last cycle. this cycle, I think we'll see a lot of the pensions, endowments, stuff like that. The big players. So now it's time to pick your brains on ETFs and starting off Ethereum ETFs. And this could be a really critical journey. The next kind of few weeks could be a pretty big one for Ethereum futures ETFs. I want to get your take on the global investment manager VanEck because they have recently announced a plan to donate 10 % of their upcoming ETF profits for the next 10 years, I believe, to ETH core developers.

7:35Is that a good thing? Or would you say that actually we kind of need institutions to almost stay out of the runnings of Ethereum? What's your thoughts? I like it. I like the team at VanEck. I know them really well. You know, Jan VanEck is a friend of mine. Their heart is in the right place. They understand what this whole system is about. and really what they're saying is we understand that a futures ETF has less impact on the ecosystem than actual spot Ethereum ETF so therefore we just want to give something back to the spot market because don't forget if people are actually buying Ethereum and they were staking it and doing all of this stuff in spot you've got much more impact in the space because futures yes the arbitrageurs will try and keep the price in line.

8:24So it does create demand for actual Ethereum, but not necessarily as much demand because people can just trade the futures themselves. So I think the VanEck team are really trying to do the right thing. And listen, it's bigger than all of us. And we need to allow others to participate and help shape it. If people want their bags to go up, well, they want the institutions to build in this space too. So, you know, if you want Ethereum to be worth$5 trillion, well, then you're going to need the finance system to use Ethereum for settlements and smart contracts and everything else to get there. So, yeah, it's a good thing.

9:05And it also helps with the build during a bear market mantra that we run by as well with that little bit of extra backing. Okay, interesting. Thank you for that one. Also, the other thing about VanEck is they even have a hedge fund that just solely invests in crypto assets. So they're really in this space. I mean, they're properly in this space. They've got NFTs. They do everything. So they're really trying to put their best foot forward in the space and be good stewards of the space as well.

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10:16Well, just head on over to CoinBureau.com forward slash deals or use the link in the description. And what's your expectations for the approval of the kind of first round of spot Bitcoin ETFs as well? We recently saw the SEC kind of push back on delays until November for some of the institutions that have got the front runnings in. Is that something that you're not expecting to see until 2024? Or could we see it in the near term? So from what I understand, they're not getting rejected for no reason. They're actually getting rejected because I think it's either the CME or the CFTC needs to have some component part, and that part needs to be approved and finalized.

10:59And it's actually just that. So it's not like, oh, Gary's trying to slow the whole thing down. There's actually one of the component parts of all of these ETFs that require the kind of validation. I think it's from the CME or the CFTC. I'm not sure which one. Probably the CME. That bit needs to come into place. So they're just buying time to get that done. So I still think it happens this year. This year. Okay, awesome. And how are you expecting that to impact the markets? Is that going to be one of these catalysts that move us over from spring into summer? It depends what price is doing. because had we launched a spot ETF in November last year, nobody would have bought it because the market was going down or it was feeling terrible.

11:46But as the market is recovering and we're in spring, and normally the Q4 is a strong quarter, if you introduce spot Bitcoin and spot ETFs into a rising market, you will start to suck in the investment advisors, the individuals who who found it too complicated to hold their own wallets and do all of that kind of stuff. So it really depends what the market is doing, but I think on balance it's positive, but really it'll show up in 2024, 2025, when the cycle's fully underway. It just makes an easy way for people who are not used to the digital side of things to just use equities and get their exposure.

12:28So yeah, look, overall longer term, it's very positive, of just yet another on ramp. Short term depends what the price is doing. Prices strong will get a bit of a panic in from the investment advisors and stuff like that. And for your next expectation for next wave of users and people that are getting into crypto, are you expecting it to, for example, double from last market cycle? I think it was around 450 million people in last market cycle. So are you expecting that to go all the way up to 1 billion? You know, from the work that I've done, if I look at the rate of change of the adoption, the active addresses, it should hit a billion this cycle.

13:08So what is that? How do we get there? I don't know. But there's a lot of things that people don't even know about, like Ticketmaster has issued 30 million NFTs. People don't realize that. So that was 30 million people who weren't crypto people. But because their Ticketmaster wallet, where they get their tickets for games and shows, They just drop NFTs into them. So, you know, I don't know how we're going to onboard the billion, but it feels like it's coming. It could even be, dare I say it, CBDCs. If somebody launches one, it could be from India, where they're working on their CBDC. So there's a lot of different avenues that will create the billion people.

13:48And this is almost a secret sauce is it's like with the analogy of the internet, you don't realise how the internet works, you just use it. And I think it's going to be the same for blockchain technology and cryptocurrency adoption. It's just something that's integrated into our daily life. And we don't have to explain to our grandmothers what they exactly doing within the space. Yeah, I mean, look, we're both talking to each other in different continents, using different Wi-Fi, using different service providers on different computers, using different microphones. Everything works and we don't even know and don't care.

14:23Neither of us care what technology we're on because it just works. We just click on Zoom Talk. So that's how all of this will work in the end. So moving on to the kind of you mentioned Ticketmaster there, and I think it kind of it is a nice segue into the adoption of layer twos that we are seeing in the space. You did a recent interview with Altcoin Daily, excellent podcast interview. So I'll leave a link in the description for anyone that has not yet watched it. And you did mention some layer two projects that really have the potential to impact the market in next market wave. And there was also some questions about how how some layer two projects accue their value.

14:59And if we're looking at price action for next market cycle, I mean, Solana in 2021, that was 12 ,000 % up. It was kind of exponential. What are you looking out for, for next ball cycle when it comes to who has what it takes? Layer twos, look, layer twos are cheaper faster. So that works. So, you know, Polygon, Arbitrum, all of that stuff that probably works very well. And so I think we will see ongoing adoption of those. Only some of the value accrues to ETH because they batch transactions. So they take a whole bunch and then it goes on to the ETH chain. So you're using kind of one ETH slot for a lot of other slots.

15:44So it has an impact on ETH. It's good. More people are building on ETH. So that's great. I think that continues. Solana, I think, is going to be the big story of this cycle of the main chains because they're launching Fire Dancer or Jumpiz, which is a different validator, which actually, I mean, believe it or not, is going to run at 600 ,000 to 1.2 million TPS. So this is the fastest thing by a long way. Considering Solana and Polygon are the two fastest chains at 65 ,000 TPS and Sui should be about 120 ,000, but yet to get there. This is a different order of magnitude. This is 10x, the fastest ever thing we've ever seen.

16:29And it's not a layer two, it's just Solana. So this is a game changer. It means the whole finance system can be built on it. It was designed by Jump Trading, who are high frequency traders who understand the latency and sheer capacity requirements for things like exchanges to run. So I think Solana is a very big story. We're seeing a lot of activity there. Then I think, I don't know what the new Solana will be, but we're seeing a lot of interest both in gaming. Oh, I've got my reactions coming up for some reason. Both in gaming and also in zero knowledge stuff. And there's also DeFi. So I don't know.

17:13It becomes really hard to know which is the big area. But those are the three I hear a lot. But I tend not to go that far out the risk curve just because it's difficult to choose the right thing. But you figure if the space is going up, then Bitcoin and ETH will do well and Solana will do well. Solana has got this extra kicker, which is, I think, potentially a game changer. So I think that's probably the the layer one that does the big layer one that does the best in the cycle. Then we've got the kind of Aptos and Suey's and those kind of things. Let's see how they do, what traction they get. The layer twos will be interesting.

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18:31Go to square.com forward slash go forward slash real vision to learn more about how your business can grow with Square. That's S-Q-U-A-R-E dot com slash G-O slash R-E-A-L-B-I-S-I-O-N. Nice. And you mentioned Ticketmaster earlier on. Is that Polygon? Flow, I think. Flow and Polygon, maybe. Not sure. Interesting. Polygon has done quite a lot of that kind of stuff. Yeah. And we're also seeing these mainstream company names and entities that are coming on board. I mean, we saw Solana and Visa also have these agreements for payments. So very interesting time for the kind of payment space. And it seems to be getting faster.

19:16Now, moving on to speaking about you have acknowledged sometimes that we are in a recession already. Would that be fair to say? That's what I think. I think, you know, ask anybody who's not laid off people from their business, who's not seen a decline in sales, who's not seen a decline in activity. I mean, literally everybody has. Now, it's not just crypto, it's across the board. So I think we have been in recession. And maybe that comes up in the numbers in this quarter and next quarter, because all my forward looking indicators which precede that always showed that we were in recession. So I think the numbers will show recession, but the markets will be trading recovery.

19:59And I listened to a podcast where you compared almost to the kind of the 1990s recession, which was fairly kind of in brackets, mild, mild event. And I think what was interesting there is we know in kind of when we look at the markets, history doesn't repeat, but it certainly does rhyme. And what followed on from the 1990s recession, then we had the kind of the dotcom bubble in the late 1990s. And I'm curious to see if you would expect a demand for a similar replica to the dotcom bubble, maybe when it comes to AI stocks or tech stocks or even crypto. It really depends how long this cycle can go on for.

20:36The 90 cycle was long. It was 1990 till 2001. It was 11 years. Right now, all of the cycles are about four years. So it's hard to build up the imbalances because if we didn't have a down cycle, Okay, crypto would have been in a huge bubble. So it really depends whether these cycles repeat themselves. And I think it's based on the refinancing of the government debts, which are all around three to five years. And so you get this four year cycle all the time. So yes, we will definitely see something that goes into a bubble and whether it's AI or whatever it may be, who the hell knows. And then as liquidity comes out, it'll get deflated.

21:16But again, the key point that people have got to understand is these are not mean reverting. We know this from crypto. The actual trend is up and all you're doing is going up and down within the bigger trend, which is why you always have to use log charts for this stuff to truly understand what's going on. Because people think, oh, crypto collapse is down 80%. You know, it's back to where it was. It's not. It's back to the highs of the previous cycle. You know, it's like you have to keep it in your head where actually, you know, all the lows are higher and the highs are higher over time. Zoom out, guys.

21:52Look at the broader context. You reference an 11 year price cycle there from 1990s to 2001. We're talking about kind of four year cycles in crypto, as you've mentioned. When we look at these market cycles, how sustainable are the four year market cycles? How much longer do you think that the crypto industry has it in it to see these big old price gains where people go, right, I'm stacking up my bag. And then in 2025, this is it. I'm going to go retire on an island somewhere. Are you saying, you know, this is something that will just continue for the foreseeable future? Do you have a hard cap on how much longer we could see market cycles like this?

22:30This is to do with the business cycle. It's actually not to do with the halving cycle. and it's happening to technology stocks. It's happening to everything. It's happening to commodities. So everything is in this very cyclical world. So it's something we have to get used to. But I think the cyclicality over time becomes less. So each drawdown in crypto, the overall market falls less. And you can use Bitcoin as the best example. Each time it just falls a little bit less. So maybe next time around, it falls 60 % and not 75%. And previous time was 87 the previous time to that was 97 you know eth fell in 2018 97 this time it fell 85 maybe next time it's 75 um you know so so volatility does get dampened as more participants come into the space and the more activity and eventually once you get kind of financial market activity where let's say equities are tokenized and stuff like that well then there's ongoing demand for for activity on chain as well so it's not just based around liquidity it's just about general activity uh using blockchain technology so uh look i don't we're not out of the woods yet my guess is we have to keep going through this miserable cycle of i'm rich i'm poor every few years until maybe 2030.

23:55Until 2030. So I'm going to kind of press you on that a little bit more. What kind of outlooks do you have for price points? They can be kind of in different ranges, but you've said that up until 2030. What are some expectations that you do have that you're able to share with us? I think we've all learned not to give price expectations anymore because just because people trying to take them as gospel as opposed to, hey, this is my best guess, knowing what I know today. But generally speaking, if ETH does what Bitcoin did last cycle, then it's three to four times the high of the previous cycle.

24:38So therefore, that kind of yardstick gives us 15 ,000 plus. That doesn't sound unreasonable. That's a 10x from here. That's possible. That would be within the realms of normality. And then something like Bitcoin, maybe it does slightly less because it's a more mature ecosystem. And something like Solana would do significantly more. So that's how I think about it. I think the overall space can go from a trillion today to maybe 10 trillion at the peak of the next cycle. So that's a 10x for the whole space, possibly. Could be a 5x, but it's something of that magnitude, if we're right in a hypothesis that more and more people will use blockchain technology for underlying use cases.

25:24If that's the case, yeah. And you've been in this industry for quite a few years now, I think it's fair to say, and you have been keeping your eyes and ears open to what has been going on. It must feel quite rewarding that at this moment in time, we're talking about kind of large institutions getting in. We're talking about the kind of spot Bitcoin ETS entering the market. You've mentioned Ticketmaster. There is kind of these big adoption plays. Do you think the media right now are really reflecting the good news that we are seeing in the space? Or do you think we are really we've come a long way and it's kind of more bullish for you?

25:56The media narrative has always hated this. And I don't know why that is they're always skeptical journalists by nature generally skeptical people and so they were skeptical of the internet they were skeptical you know they're skeptical of ev cars they've been skeptical and they're skeptical of everything um so i think that continues for a while and but we keep looking back and go look how far we've come and you know it's another few trillion in price and value and stuff like that. And then it becomes unarguable. I mean, there's no journalist who says, well, I think the internet's a fad. Or the mobile phones are fad.

26:38But they did. And there's articles all over the place of them saying that back in the day. So, you know, it's just it's just how it goes. If you're, this is a very interesting technology, because we were able to front run the institutions. It's the first time that individuals have had the power to participate in a cutting edge technology before the VCs and the big institutions. So it's a bit weird for all of us to be fighting the news flow. Normally, we don't get the opportunity to invest when the news flow has changed and, you know, Microsoft's IPO comes out and then we can invest in that. So it's just very different.