Crypto Banter: Why Raoul Pal Has Never Been More Bullish On Crypto!

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0:57Hey, everyone. If you like this podcast, go behind the paywall to get privileged 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 Rao Pal Real Vision. The formalities are gone and I want to get into being brilliantly bullish with Raoul Paul. So we'll call this episode Brilliantly Bullish. Raoul, how you doing, man? Brilliantly bullish. I've coined a term now for you. Raoul is brilliantly bullish.

1:37This only means that the market can collapse from here on. As soon as you term something like that, everything goes wrong. No, I'm bullish. I'm bullish. I've been bullish for a while and it hasn't changed. I must say before, I'm bullish on your house in the small Cayman. I mean, I love the background in this house. Just quickly walk us through what we're looking at here because it looks like quite a cool house. Yeah, this is the main lounge here, pool table, bar, kitchen area over there, dining table and stuff. And out this way is the Caribbean Sea. It's right on the beach. I'm a very, very lucky boy but that's what working 14 hour days for 20 years gets for you and you go to you go from your other house in the big caiman to your house in the small caiman when you need to write and you need some peace and you need some some quiet because you know being on one perfect tropical island is not good enough you need to be on two man i'm doing it all wrong man this one is there's only 140 people live here so it's like it's total nature it's just nature it's amazing all right i'm coming to visit i know scott melker came to visit you he said that you're very very very, very tall.

2:44Six foot four. What he said was I was very, very nice. He said you're tall. Incredibly good looking and tall. Yeah, I'm six foot four. Wow, that's huge. Rael, I want to get into why you're bullish. I mean, let's maybe, I'm going to hand it over to you. You said when we spoke earlier and I said to you, Rael, how are you feeling in general? You said, feeling bullish. I asked you, are you bored? And you said, I just wish we could get August and September out of the way. Walk me through the thesis. Why are you so bullish? So the thesis, my thesis has not changed for a while, which was that the recession everybody is expecting is probably playing out, but it was priced in last year.

3:22But the markets don't go down 75 % in crypto without it pricing in the economic cycle. The equity markets fell 30%, 35%. You know, long end of tech fell 70%. So we had it priced in last year. So then the market starts pricing in.

3:44So liquidity started picking up in June of last year. And that's when I started adding to my ETH bets into that big sell-off in ETH where ETH made its low. Then the confirmation of my forward-looking indicators was that October was another liquidity event where liquidity was rising, but the markets was having its last spasm. So again, I kind of added into that bet, added technology names as well, and was adding all the way through. So for me looking forwards, we're now getting the bits that I've been waiting for. You see, I live in the future. I'm used forward-looking indicators. So they're looking at things in advance, the economic data in advance, kind of a glimpse into the future.

4:29But now that data is catching up, which is inflation is going down. Unemployment is slowly rising. The economy is slowing down. And that means the Fed soon stopped raising rates. It means that eventually they cut rates and eventually maybe they use quantitative easing. We're also going into an election year. An election year tends to have stimulus because they want to get elected, so they bribe everybody with money. So we've got this kind of nexus of stimulus that's likely to come between the back end of this year, 2024, 2025. I've been working on something called the everything code as well, which I think I've spoken to the banter audience about as well.

5:14And that's basically the idea that what the central banks are doing with quantitative easing is printing money to pay the interest on the debt from the previous kind of debt cycle so every three and a half years same as the bitcoin halving cycle is this economic cycle driven by government debts and how they roll them every kind of three and a half years because they're all three to five year debts we're about to come into the period where they have to monetize the pandemic payments and they were massive and they can't do it with interest rates where they are now. So what they're hoping is that they can get inflation to undershoot.

5:56They are not stupid, the central banks. They obviously know the forward-looking indicators are falling on everything, but they want an inflation undershoot because they need to be able to cut rates low enough that they can refi the debt and then put it onto the balance sheet. So that means in layman's terms, starting from the back end of this year, the last quarter, let's call it kind of november december period there's going to be more cowbell and cowbell is my kind of tagline for stimulus that's whether it's the printing of money starts or that starts then or cutting of rates because they need to be able to service the debt there's 13 trillion dollars of debts that come up for renewal plus the new debt that they're issuing so it's an enormous amount for the markets to digest and the only way of doing it is this and so that makes me They can't really refi.

6:48I mean, it would be crazy for them to start refinancing at rates that are the highest that they've ever been and maybe even getting higher. So exactly, because it just means that they have to issue more debt just to pay the interest. Now, what they have been doing, they have been issuing some of this debt, but they've been doing it like three-month bills because they don't want to commit themselves to having to pay bloody 5 % interest for five years. what they want to do is keep it the short term let the economy collapse or let inflation collapse cut rates then they'll roll all the debt out five years you know between three four and five years so that's the game in town they're all doing it all the central banks i mean i was wondering i was actually seeing that a lot of the auctions that are three months and six months duration bills i was actually wondering why the durations were so short i thought it was just not it was normal but i think what you're saying makes a whole lot more sense that they just they're buying time for rates to come down.

7:45Let's speak a little bit about rates coming down. So we had the, let's just quickly look, we had the PCE numbers that came out. PCE numbers were an increase on the previous PCE numbers. So we are getting a little spike up in inflation. Do you think that that's anything to worry about? Or do you think that that's just, you can't have inflation on a down only trend? Yeah. So inflation is a measure against what happened the previous year. So if there was some outsized moves this time the previous year, you tend to get these squiggles as it is. The trend in inflation is lower because commodities have generally been lower over time.

8:28That was the first thing to move. But then you start getting the more stickier components, rents, wages, all of that is coming down. And that stuff keeps going. So the front end of falling interest rates is still to be baked into the cake. And that will be headline inflation should get below 2%, maybe even zero by the end of this year. Which is like, if I can see that in my data, surely the Fed can too, which adds to that argument that the fed know that they're trying to undershoot on inflation on purpose so I think then I mean it's super encouraging that we saw rentals coming down rentals was was one of the stickiest components of inflation shelter it like those lag between eight uh between eight and 15 months so this stuff is going to keep falling because of how the calculations are well into 2024 and into 2025.

9:29Again, my calculations put core inflation at zero or negative next summer. Maybe I'm a bit early, but by this time next year, core inflation is going to be at zero. It's kind of baked in the mathematical cake. So that's how I see it. Just over time, these numbers will keep coming lower. Now, if we look at the true inflation numbers, they've been bouncing around. They hit like 2.2 % or 2.1%. Now they're at 2.75, 2.72, something like that. That's this comparison to what happened the previous year, what commodity markets did. But again, over time, the stickier components will just keep falling. And that mechanism of these slow things like rents and wages, they take a long time to deflate, which is why central banks tend to cut well after recession.

10:23They tend to be cutting for like 18 months after a recession because they're fighting this inflation thing, deflation thing at that point. So you're saying the Fed's reading historical data, you're looking forward. Fed is saying we're at 3%, but you're saying we're actually at 0 % because you guys are using historical data. I'm looking into the future. I'm seeing what the lag effect is going to do. inflation's a thing of the past. The next thing that the Fed is juggling is unemployment. We're starting to see the unemployment market, the employment market easing a little bit, which is a good sign.

10:56Rentals coming down. So all in all, you're saying that the Fed's job with interest rates is done, or it sounds like you're saying that the Fed's job with interest rates is done. When I look at what the market's predicting, market is predicting no more rate hacks this But there is a 40 % chance of one more rate hike in the November FOMC meeting. Do you think that that's a concern? Or do you think that we're done now with interest rate hikes? I think we're done. I think by November, inflation is going to be 2 % or less. Wow. I think they have no chance of continuing. So no, I think the data that's been coming out, as you've been pointing out, is very much telling the Fed that they're not going to do any more.

11:42And if that continues, which I think it strongly think it does, then that's game over. And in fact, we're going to be looking at rate cuts. Now, the thing that will accelerate rate cuts is the banks. If those regional banks start running into any banana skins and slipping up, then the game gets really interesting because then they have to stop QT, they have to start rescuing banks, and then the real game is on. Hey, everyone, we're gonna take a quick pause and hear a word from our partners. We'll be right back.

12:17Okay, so the US economy you're saying is actually very, very, very healthy. And given the fact that there's an election year next year, you think that they're going to make it I don't think it's healthy. I think we're likely in a recession. And we're likely that likely to show up in the data from this quarter next quarter. So we won't see it, but I think we've been in a recession for a while. And I think when it eventually gets called, it may have even started at the beginning of the year and you get this kind of weird data prints, then revisions. So I think the recession is happening. I mean, find me somebody who hasn't been laying off staff.

12:54I don't know anybody who hasn't laid off staff. Yeah, everyone's laying off staff, downsizing. I mean, except Banter and Real Vision, we're hiring and growing. but everybody else that's right but you know people have seen um um slower sales it gets hidden by the fact that some of these massive tech giants have done so well but really it's been a pretty terrible market you look at trucking and freight and cardboard boxes and all of the stuff that shows what goes on in the economy looks terrible and we had this last hurrah over the summer where everybody we knew was in bloody italy or greece and or every european was in spain right everybody i just thought it was my friends but i'm glad you're telling me it was your friends because everyone i looked was in italy everybody was italy greece or spain um and it was that and we saw here in the cayman islands in december and you probably saw it in cape town in in December, January as well, is like, we were full.

13:56And I'm like, weird, because everyone's discretionary spending had gone down because of inflation. But people, because we all live in this digital world now. And so these real life experiences like holidays now are a premium. We will spend more money on doing that. That's the last thing we'll sacrifice now. So I think that final summer hurrah of spending goes. And now everyone's got to pay the bloody bill. Now, if you remember in America, all the surplus savings after the pandemic are now at zero. Yes. So we've got no surplus saving credit card borrowings are going up, but credit card rates are all time record highs.

14:33Like that's if that's not a shit show. I don't know what it is. Yeah. Okay. But I mean, I think what you're saying is if we look forward the way I mean, the Fed probably can't tighten anymore if they do tighten beyond this point and you start increasing credit card rates for these same Americans who don't have savings. I mean, that's that's a recipe for disaster and i think you can't afford a disaster in an election year so it's kind of like they're gonna they're gonna do something so my forecast has always been that this was going to be a relatively mild recession and i think that will still prove out to be the case but our job is to figure out what is liquidity going forwards are we going to get more liquidity in the markets and the answer is most likely yes okay let's talk about that let's talk about that for a second because when i look at the other side of the world China, Japan.

15:20So, I mean, you know, we've been talking about China and talking about Japan. China's not looking very good. They may be in the beginning of another real estate collapse. Evergrande defaulting, Evergrande filing for Chapter 15 bankruptcy in the United States. I read something earlier today that, let me try and find it here. Evergrande's wealth unit, we are unable to repay investors this month. I heard this on Bloomberg. I'll quickly just Just pay two seconds of it. I don't know if you guys can hear that. Some 30 % of the country's GDP as for Country Garden. Just last year, it was China's largest residential developer.

15:59Now it is battling a liquidity crisis. On Wednesday, it warned it could default on its vast debts as it reported a loss of$7 billion for the first half of the year. In a filing to the Hong Kong Stock Exchange, this is what Country Garden said. let's bring it up for you said this quote the company felt deeply remorseful for the unsatisfactory performance unquote a country garden is saddled nearly 200 billion dollars in liabilities it is facing so ever grande country garden um you've got china effectively now entering deflation so the economy slowed down to the extent that retail sales are down unemployment's up at all time highs a lot of people say that you know china may be you know china sneezes the rest of the world catches a pneumonia, maybe China is the problem.

16:48Now, they are taking steps. They are taking meds to try and get better. So they are, I mean, I did read a whole lot of articles of banning short selling, for example, reducing the requirements to give people more mortgages, preventing default in certain mortgages. Do you think that China might be in trouble? Do you think that or do you think that that's maybe a good that is a good way to get liquidity into the global markets? So let's play this through. So China's a shit show. It's quite clear. They've got a liquidity problem. They don't have enough liquidity. They've overbuilt property markets.

17:23There's too much debt in China. So what is the outcome? The 2008 playbook. This is where they invented it. Print money, stimulus. So there's the second largest economy in the world starting to increase stimulus. Let's flip to Japan. What Japan has been doing is interesting. They've been holding their interest rates at this half a percent and they've just ratcheted it up. And how they've held it there is what's known as yield curve control. They buy all bonds at that price. So bond yields can't go higher. What is that? That is printing of money. So they've been stimulating. So the Chinese - Won't they stop stimulating now because of the inflation threat in that country, The GDP spinning out of control there.

18:08Do you not think that, I mean, the fear is that they're going to have to increase rates because it's the only way they're going to combat inflation. No, that's bananas because they can't. They're 265 % of GDP in debt. Okay, so they can't increase the interest rates. If you introduce the interest rates, you have to issue more debt to pay the interest, right? It's this massive problem. So what do you do? Keep interest rates roughly at your trend rate of GDP growth. So then your GDP can pay your interest payments. So everybody's doing the same. And I've gone back and proven it that all of the QE that's happened since 2008 exactly equates to the interest payments from the previous cycle.

18:55That's Japan. That's the UK. That's Europe. That's the US. Wow. So you're thinking that the US is going to have to increase liquidity because it's an election year and because they're nearing the top of the interest rate hiking cycle and things are starting to break. And the only meds for what's going to break is stimulus or increased liquidity. China... More cowbell. Yeah. China, same thing. China is broken. The only way to fix it is more stimulus, more liquidity into the markets japan gonna need to keep if they want to stay alive they're gonna have to keep doing what they're doing which is more liquidity into the markets if what you're saying is in europe right europe's super slow they're getting towards the end of their rate hike cycle we're starting to see the economies that led the rate hike cycle cutting so that was actually weirdly this time around it was brazil and chile and a bunch of others they've all started cutting rates.

19:57So the rate cutting cycle has started globally. And we will just see more and more countries in the rate cutting cycle. The Europeans will need to stimulate at some point. They're going to finish their cycle. Inflation, they'll do the same thing. They'll try and make sure inflation is absolutely going to undershoot their target of 2%. The US will do the same. The UK will do the same. And then it's all on for stimulus again, because the need to repay this debt, the only way of doing it is shunting onto the balance sheet of the central bank at lower interest rates. Look, I haven't been in the markets for as long as you have.

20:32Is this the normal length for a cycle? When I say the normal length for a cycle, like COVID for me was the beginning of a cycle where we started printing a lot of money. That was 2020. We're now going into 2024. So are these cycles generally four-year cycles? I mean, is that how long the up-down cycle usually is? Yeah. And when you look at the maturity of debt for all of these governments, they're mainly in this kind of three to five year area. So every three to five years, interest rates go up because the economy's been growing. But what happens is there's so much debt that higher interest rates lead the economy to slow down, obviously.

21:16And they then use that period to pay the interest payments on the previous cycle. So yes, four years has been like clockwork since 2008. Why since 2008? Something magic happened in 2008. We had a global debt jubilee. Now, most people understand a debt jubilee is none of us have to pay our debts back. What they did was something more subtle. They all said, none of you have to pay the interest on your debt. We're going to make interest rates zero. So every government was like, we now don't have to pay our interest. because they'd all hit 100 % of GDP in debt or higher. So there's not enough GDP growth to pay all this stuff.

22:00So this keeps moving forwards and it keeps rolling. And I don't know the way out of this yet until we get some productivity miracle and we can raise GDP growth. That's the real issue here. Sure. No wonder we said you're brilliantly bullish at the beginning. Because I mean, I've had a lot of guests on in the last couple of weeks. And I mean, none of them have broken it down like that. They've all focused on one of the problems. Well, because they all say, and I see it everywhere on crypto Twitter and macro Twitter, is we've got a recession. The markets need to collapse. I'm like, if we are going into the deep depths of the recession, it's the opposite.

22:40Because that's the higher probability of stimulus. We had this priced in last year. When the markets saw inflation, they knew the central banks were going to keep raising rates. So that was our recession in the markets. The markets are now following the liquidity cycle. And that's confusing the hell out of people. Everybody I speak to, I was just speaking to, you know, one of the well-known friends of ours in crypto, he's like, yeah, I'm still sitting on a lot of cash, but I don't know what to do because everyone's kind of expecting another big leg lower. they're all going to get caught out you're seeing it in the stock market too all of the institutions are underweight because they've been waiting because they didn't believe the rally no one believed the rally yes and i'm like but it was priced in last year let's talk about bitcoin and i mean i mean i think we should probably spend a couple of minutes talking about the grayscale etf decision um i mean i want to ask you a question do you think that the grayscale etf decision was bigger than the Ripple SEC decision.

23:43When I said the ETF decision versus the tokens potentially not being securities, which one in your mind was more important for the future of crypto? Probably the Ripple. I agree. Because we had a spaces yesterday where we spoke about this and people were saying, no, the ETF decision is bigger. I said, look, the ETF decision just means more money coming into the asset. The other one is a pivotal moment because it actually changes whether these things are securities or not securities. And that changes the entire future of how people build with these things, use these things. Well, because an ETF Bitcoin, as you say, this is just flow of money, right?

24:22What the XRP Ripple case is all about is really about the future of Web3. I agree. Which is a much bigger concept than just cryptocurrencies. It's about the integration of blockchain technology into everything that we do in a whole bunch of different business models. And, you know, that's not clear yet, you know, where that's going to come out. But it's coming out in favor of Web3 being the future and not everything is a bloody security, which is ludicrous. Hey, everyone, we're going to take another quick break and hear a word from our partners, and then we'll be right back.

25:01one thing i've noticed is when when things are going to the courts web 3 is winning so ripple it went to the court web 3 won there was another monumental ruling this year i actually may have it here it is the uniswap ruling now a lot of people just you know they browse this and say oh it's just it's a case it's a it's a fickle case against uniswap but it's actually not because in this ruling the judge actually acknowledged that defy is a decentralized protocol and you can't hold the developers liable for how people use the protocol. And they also acknowledge that DeFi is just a piece of code, which is, I mean, that is a massive ruling.

25:36The third big ruling we had was Grayscale versus the SEC, where Grayscale said, look, where the judge said, hold on a second, you can't treat the futures ETF different from the spot ETF, because essentially they both rely on the price of the spot asset. So I think that when things are going to the courts, we're getting some fantastic outcomes and Web3 is actually winning.

26:00Just what I think the SEC misunderstood here was how smart the space is. It is the smartest collection of people I've ever come across because they are technologists, they're finance people, they're artists. they are this conglomeration of people with skill sets I have never seen in any industry before. Sure, there's smart people in AI, but they're kind of less commercial than this group of people, right? So you're going up against some of the smartest people in the world who are mission driven and who have thought about decentralized protocols. That's why it was invented because they, the idea is we know that this is an answer that the courts can't deal with because it is code they've thought through you know what an etf is and how it tracks the underlying because we're trying to solve the problem of tracking the underlying unlike the futures contract which sometimes doesn't track the underlying they've thought through you know what is the security and what isn't the futures the futures contract hardly ever tracks it i mean i'm just i just did the charts of the bitter etf versus underlying bitcoin and it always underperforms because of the contango effect of renewing of renewing the futures contracts how i mean look the the bloomberg analysts now give a 75 chance of a bitcoin etf being approved this year and a 95 chance of a bitcoin etf being approved next year first of all do you agree with him or do you think that they yes okay fantastic now let's call a spade a spade how big is etf like if we get a bitcoin etf how much buying pressure do you believe we get?

27:42I was researching the ETF market and I saw that the ETF market in the United States is about a$10 trillion market. So give or take$10 trillion. What percentage of that goes into Bitcoin if we get a Bitcoin ETF? Is that how best to measure the potential of a Bitcoin ETF?

28:04This is a red herring for people. They get confused. They think ETF equals instant capital. There's thousands of ETFs, and many of them have no capital. So what you actually need is an ETF and price action. If the price of Bitcoin is going up, what we all know is every RA has looked at this. Everybody's had a conversation around the dinner table. All of these pension funds have done some work on it, but they all want price to go up first. Because if not, they're like all of our friends who are sitting on the sidelines in cash waiting for it to confirm now so let's say we get the confirmation in the next two months whatever it is i actually think it's going to be earlier but let but what do i know it doesn't really matter but let's say my thesis is right that by the back end of the year we're starting to think about maybe the fed have gone too far how they're going to reverse this how do we think about that how's crypto trading then bullish okay so if you're launching if you're launching an etf and bitcoin's at 40 000 you could probably get 10 billion dollars into it for the launching an etf and 10 if it's at 25 yeah 10 billion dollars is a serious number in a market where they have to buy spot because yeah you have 10 billion dollars of buying pressure in the market that's right so So now if they launched it now, how much would it attract?

29:37Maybe a billion dollars, maybe a couple of years. Yeah, who knows, right? Had they launched it in October, how much money would it have attracted? About zero. So you've got to have the mindset that people want it. And if those two things happen around the same time, oh, yeah, you'll see a ton of money coming in. So it's not a one-off event. If it happened now, yes, crypto traders would trade it higher, but it's likely to actually fall back until actual demand. As you and I know, this space is suffering. The whole crypto economy is suffering from foreign direct investment. There's no new money coming in.