Crypto Gathering 2023: Is It Game On? Raoul's Macro Setup

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1:29Hi, everyone. I'm really excited about what we're doing this week on Real Vision. What we're doing is looking at the crypto market and trying to figure out, is it the time? Is it now? Is it the time that we should be refocused back on this? is it game on? Now I've got my own views on this that I'll run you through but what's amazing about this week is true to real vision form we've got a bunch of different views and what I've tried to do Nico and I have worked together in trying to build the best roster of guests to give you all the analysis you need to draw your own conclusions. So I'll kick it off with my macro crypto framework in kind of classic RAL style.

2:16Then we'll have some of the best technical analysts and on-chain analysts in the space. We will have hedge fund managers, how they're allocating capital, where they think we are, what risks they want to take. We'll also look at the Web3 people as well to find out what the hell's going on in NFTs and is this an opportunity or is it something worse? Basically, anything you need to know will come up over this week. there's content everywhere so enjoy it but let's kick off with my macro framework and how i'm thinking about this you'll remember that back in june in the peak of the three arrows capital lunar debacle i stick stuck my hand up and said listen i think it's time to buy e um eath got absolutely decimated that period of time and so we started adding to our eath positions I never sold anything in the bear market because my time horizon is really out to the end of this decade.

3:14So I'm looking for massive weakness to add to my positions to make as much money over time as I can, because I truly believe in cryptocurrency, digital assets and Web3 at large. I think this is game changing for the future of the Internet. And that view of mine has been proven out as well by looking at the traditional finance people coming into the space, the famous hedge fund managers coming into this space, but also what everybody in the crypto world has built is the rails for the parallel or future financial system, and we're just migrating across to it over time. But what they've built is so profound that even the central banks themselves are going to build their central bank digital currencies on blockchain rails.

4:00Central banks and other supranational organizations are issuing bonds on crypto rails. So it really is game on, even though we've gone through this regulatory cycle and it feels miserable. The broader adoption is happening so much so that the old world has already admitted that the world we live in is a lot better. Anyway, we know the macro picture, I'll come more onto that in a bit. But let's go through the, that's the big picture secular theme, obviously. Let's come on to where we are. My hypothesis, and you've heard me talk about the everything code, is that debasement of currency is the main driver of asset prices globally.

4:42Currencies are getting debased by excess printing. We all know this from crypto, that if you have too much inflation in your money supply of a token, it tends to go down a lot. And that's the same with currencies, but all of fiat currencies being debased, and that's driving the reserve currency of the dollar to get debased against asset prices. So optically, it makes things like the S &P 500, property prices, gold prices go up. But once you divide them by the debasement or even just use the Fed balance sheet as an easy approximation, what they tend to do is operate in line with the debasement.

5:21i.e. they're just holding water. They're not making you wealthier. There's not much of an investment. It's kind of like a bond of old. But I found in my work that two things really outperformed technology and crypto because they've got secular adoption cycles too. Okay, so where are we in the liquidity cycle? You see a lot of noise on Twitter because everyone's starting to pick up about this liquidity. Again, I'm using liquidity here as a proxy for debasement, not just pure liquidity. I think that's less relevant. So the GMI Weekly Liquidity Index, year on year, bottomed exactly when ETH bottomed in June.

5:56That was the first signal to me that something has changed. So that got me focused on buying ETH. Then we saw the non-confirmation of ETH when Bitcoin bottomed in November. That was really interesting to me. And that coincided with ongoing increase in liquidity. If you remember, it started with the Bank of Japan. They started printing money to buy JGBs in a process called yield curve control, expanding their balance sheet significantly. That was then followed by the Bank of England, who expanded their balance sheet to try and bail out some of the pension system and also kind of stop their bond market getting out of control.

6:35The Chinese have been slowly debasing their own currency by a slow crawl of debasement. And then we saw the US come in in March when they had to quickly inject money into the banks, which they've been drawing out again. Anyway, the trend is higher. But too many people get fixated on the next chart, which is the overall trend itself, not the rate of change, which is more important. But the overall trend, well, that is the same trend as most asset prices. And that's because debasement is lowering the denominator. So what we saw is that massive rise in liquidity that happened or debasement that happened in 2020 and 2021.

7:20And that some of that got withdrawn. But we're back basically to the long-term trend where we've been crawling for a while now. So we're not seeing a massive shrinkage in the balance sheets. We're seeing some expansion, which is what the previous chart showed you. So that's what's driving the market higher mucks to everybody's chagrin. Now, remember, a lot of people get confused about this because everyone's using different measures of liquidity. Our measure is G5 central bank balance sheets, maybe G6, and then we use a kind of net liquidity for all of those different markets, combine them into one super index, and it gives us like a 97 % correlation with the NASDA.

8:00So it's a very good approximation for what's happening. Other people just using Fed net liquidity. Now, that's useful, and we'll come on to that in a bit, but it's not everything. And we're starting to see divergences of things like NASDAQ from that. That's normal. What we find, and crypto will do this a lot, it will diverge from liquidity enormously because that's the bull cycle. That's when adoption goes through the roof and speculation goes through the roof, and you get the massive outperformance versus liquidity. We should expect that. If it doesn't, then it's not going to outperform the balance sheet.

8:32Remember that, right? So we're expecting to see that phase. So what is this balance sheet expansion all about? This chart is a chart I've not seen anywhere else. And that is the chart of the balance sheet, which is in white versus in gold. It's the interest payments on the debt and is lagged by 36 months or leads it by 36 months. What it's telling you is that for some reason, all interest payments from 36 months ago are being paid for by debasement, i.e. they basically put them on the Fed balance sheet in quantitative easing. So what is this all about? This is to do with the Great Reset. One thing that everybody expected was a Great Reset.

9:24Well, I've now realized it happened. that happened in 2008 when all rates went to zero globally. And that essentially allowed everybody to reset their debt payments. Okay, that's like a debt jubilee. You didn't forgive the whole debt, but you basically forgave the interest payment. And everybody rolled their debts three to five years. So now we have a concentration of all government debts around the world in this three to five-year sector, which every three to five years gets rolled. And that is leading to a cyclicality in the economy, that it starts slowing down because the interest payments become due, the economy starts slowing down, and eventually the central banks monetize those interest payments from the previous cycle and roll over the debt.

10:13I'm expecting the same again. And that would give was this chart. This is the future use of the balance sheet, potentially matching the interest payments to come. You can see the massive spike that was due in 2025. Those are the payments from the pandemic period. So it looks to me like there's a lot of debasement to come. It says the balance sheet gets to$12 trillion. I actually think it goes higher because I think some of the banking crisis gets tacked on. So I'm looking for something like$14 trillion from the balance sheet. Let's not get caught up in the exact projections and the exact maths.

10:51It basically tells us there's more balance sheet woes to come, more debasement, and that's very good for crypto. It also proves that the case why we need crypto, the broken financial system. Now, if you remember, Bitcoin was launched in 2008, 2009 period. That is the same period when interest rates went to zero. And guess what? The halving cycle is exactly the same as the economic debt payment cycle. They're all the same thing because they were all born at the same time. So that, I think, is the big driver. The macro is the big driver. So when we zoom out, we look at the Bitcoin chart on a log scale.

11:33and you can see the trend rate of adoption over time. The acceleration is when the balance sheets start getting used and people start putting money into the space and the space grows over time. And we will see that ongoing. So the total crypto market cap hit 3 trillion at peak. What will it be at next peak? Probably 10 trillion. As more money comes in, more people stay in the system and opt out of the old system or find new uses and applications in a Web3 world that makes the internet just better, fairer, and more democratized and more decentralized. But that trend rate of Bitcoin, well, we got in that beautiful cyclical low, the buying opportunity we were all looking for.

12:19People are still arguing whether it's going to go lower, etc. The probability is it put in the lows, and now we're on the upcycle. And it's what I think is the start of crypto spring. I think we've been through crypto spring, and we're going to be moving into crypto summer. And we'll talk about that in a sec. Crypto summer is the point when prices start going parabolic. It usually coincides with the money printer go burr, or more cowbell, as I like to say. So there's some really good analysts in the crypto space. And one of them I really like is TechDev. I subscribe to his newsletter. I have no affiliation.

13:00But I subscribe to his work because I think he's very thoughtful and is not subject to hyperbole, but just very thoughtful in what he does. We do know that a lot of people like fractals in crypto. Sometimes they work, sometimes they don't. Do they give you an informational advantage? I think generally, contextually, they help you understand human behavior and how prices can move. I don't really like to trade on them all the time or as the main thing, but as supporting evidence, often interesting. I've also had some spectacular failures with them too. If you remember the ETH call, the next leg higher call back in 2021, that was based on a fractal.

13:39It completely failed, but luckily I had call options, so it wasn't that painful. But anyway, so you never always know. But the point being is this cycle is pretty similar to 2010-11 cycle. Same kind of setup. So that's interesting to me. What's interesting, it's a similar kind of setup from the 2017 cycle, 15-16 cycle. So we've got a similar structure and a similar kind of market. 2019 was a bit weird because we had that big correction over all of 2019 after a huge run to begin with, 300 % up, then a big correction down, and then we went parabolic. I have a feeling we might go parabolic earlier here because I think we're getting closer to a banking crisis within the regional banks that will require the Federal Reserve to step in.

14:32Interest rates are kind of getting out of control. So, interest rates going up, the yield curve inverted, bad news bears for the banks. You can use the KRE ETF to see where we are in that. But if that starts breaking 35, 30, then it's game on for more cowbell to come because the Fed are going to have to bail these people out. And then we've got the commercial real estate problems behind it. So that's the kind of backdrop of why the cowbell will come. And I think it's even an excuse. Maybe that's the reason the Fed are tightening rates even further, is to create a crisis so they can cut rates so they can monetize the debt.

15:06Because if they don't, they have to print more money because the interest rates are higher to pay for the debt payments. And that becomes a total catastrophe. So all of you, you know, I've got more of my everything code. I think it's on YouTube. It's on the Real Vision platform. Spend some time going through it. I laid it all out from my work at GMI. It's all laid out for Real Vision pro subscribers. So if you're a pro subscriber, everything is there in great detail. The only thing I don't give out is the price projections because it's actually forward looking and I can map liquidity against price.

15:42And that gives me forward projections for the NASDAQ and crypto, which is still a thesis. It's called the Everything Code. It's a bit tongue in cheek. But when I saw it, I'm like, holy shit, if this is true, it's the Everything Code. But it's a thesis and a hypothesis that needs to be tested. That's why I don't want to give out price projections. And also, I've got to keep value for the GMI subscribers because they pay a shit ton of money for it. Hey, everyone, we're going to take a quick pause and hear a word from our partners. We'll be right back. but I will take you through as much of this as I can in many ways but the key point is liquidity up if I use my simplest forward looking indicator which is the GMI financial conditions index it gives us a five month lead on Fed net liquidity year on year and it says liquidity goes up till the end of the year okay if liquidity is going up to the end of the year it generally means crypto prices are going to go up until the end of the year because I've shown the relationship between the two.

16:43There's in fact an 87.5 % correlation between, well, a global liquidity index, not the Fed net liquidity, the global liquidity index, and Bitcoin. The reason it's only 87 % and not higher like the Nasdaq, which is 97%, is because Bitcoin completely diverges so much in bull markets. That's the outperformance and the boom bus phase. Anyway, Fed net liquidity is going up. Global liquidity is going up. We can look out five months. I can actually look out to 2026. That's the theory and hypothesis that I've been working on in the Everything Code. But right now, it tells us liquidity goes up. Now, liquidity also does something interesting.

17:23In all financial markets, after a period of contraction. When liquidity comes in, it goes first into the highest quality assets. And then eventually, once the trend is established, it goes out much further down the risk curve. So you see in bond markets, goes from government bonds, to better credits, to junk bonds, to emerging market junk bonds, for example. That kind of risk curve is very common. And it's the same in crypto. It's like a human behavioral trade. When do I feel comfortable taking more risk? How am I making money, don't want to speculate more. So what I found is while I was thinking through this thought, well, obviously crypto must act the same way, and it does.

18:03And here's the proof. I don't think anybody's seen this chart before, except Global Macro Investors subscribers. This is the ETH Bitcoin ratio versus FedNet liquidity outright, not the year on year. And FedNet liquidity leads it by three months. And we know that in five months ahead of this, we will see more liquidity coming. It keeps going up. So if it keeps going up, then ETH eventually will break out from Bitcoin. Now, I've been showing for a while this chart of mine, which is the trading view chart of the log chart of ETH versus Bitcoin. And I think it's a huge wedge pattern. And if it is correct that it's a wedge pattern, it's massive and it's on a log chart.

18:48So the data emacinations are week to week or month to month make no difference. But over time, if this breaks, then ETH is going to massively out before, which has been my hypothesis for a while because of network activity and the amount of things being built on top. But another way of looking at this is I can use the ISM, which is even more forward looking than our financial conditions index. The ISM gives us a 20-month lead. It's inverted here versus the ETH Bitcoin cross. It kind of shows us where the business cycle is going. And as the business cycle improves, the ETH Bitcoin cross will improve.

19:23We're at the point where the business cycle will start to turn as we start bottoming in the economy. I know this is the most contested thing on earth, but that's what my work shows. And therefore, ETH Bitcoin cross will start rising and massively so. So that's getting me very interested in that, in ETH over Bitcoin. Now, the next chart is the Fed net liquidity versus ETH. I mean, it's one for one. It's crazy. But, and we see this with many assets, but as I mentioned before, NASDAQ and S &P started dislocating from this as the AI technology narrative started attracting new capital and their secular adoption models too.

20:09And so that starts outperforming. So once crypto starts seeing that, I'm guessing it's going to be the ETF. We're going to start seeing this drift away from the models and start outperforming. And that is, again, a signal that we're going into that acceleration phase that I'm looking for. And I always find that acceleration phase is obviously the most exciting part. That's the point when people start stupidly counting 1 ,000 for every time Bitcoin goes up. I've gone from 30 to 31 to 32 people start putting laser eyes and just lose their general shit um but it's a lot of fun can be very stressful um but that point i think is setting itself up by all the macro indicators i look at the other thing is just the pure chart of e it's gorgeous that kind of wedge with the flat top that's the bottom pattern we've got that zone where it needs to break through with of the previous two peaks breaks through that zone and we're probably into the acceleration zone now could it go up and pull back down and retest for sure how does it do it i don't really care what i'm looking for is the long-term trend of adoption here and the appreciation of the asset price due to the macro factors and also the factors within web3 and crypto itself so that's kind of maybe our line in the sand and again it's not something you just want to buy all in just because it broke that level.

21:35It's one of the marker stones on Roo. We've got all the other macro indicators too. But another chart really struck me, and it's this chart of the crypto market cap minus Bitcoin and E. So this is basically altcoin and stablecoin market combined. Now, I think of stablecoins as cash on the sidelines that move into alt. So overall, I think this chart is a literally perfect wedge pattern. And it too, like everything else, suggests we're about to come into alt season, the risk on season. And if that is the case, this is going to go a long way. This is when crypto total market cap goes from, let's say, wherever we are today, 1 trillion or so, and it ends up going to 10 trillion.

22:26Something crazy like that. I don't know exactly, and it doesn't matter exactly. Too many people care about price targets. It's the texture of the move that matters and the general trend. So everything is consistent here that something big is about to happen. And the time horizon here, a lot of these are longer-term charts, is I think the banking crisis comes back at the end of the summer, and we start to see changes. I think the Japanese may have to intervene in their bond market again. Maybe the UK do too. But we are really at the cusp. We cannot deal with bond yields going like this, going into refi season.

23:02So something is about to change. It's going to change big. So keep your eyes peeled. It usually happens like August, September. Then often, I don't know whether we get a usual October bloodbath in equity markets. But if it is, the crypto markets probably do okay. But we'll see. I don't have a crystal ball on that. I just know general trend. I have pretty high confidence of that. Another way of looking at the alt dominance chart, there's this one, and I'm sorry I can't credit to who did it, but it's a great chart. It shows the repeat pattern that's potentially forming between the alt dominance in 2015-17 to 2017-23.

23:36Again, similar texture, and you saw the scale of the moves last time. I think that's pretty likely to me because of this risk curve, liquidity, the structure of financial markets, and the structure of human behavior. So again, I'm pretty focused on this. but here's the rub it's really fucking difficult to choose the small altcoins it's a great game that everybody enjoys doing but you're at the casino it's really hard to have done all of the work and most of you have no edge so I wouldn't get involved if you do it's for 10 % of your portfolio because you want to be racy and have some fun but don't do it en masse because that's where you can lose your skin.

24:19I realized this in the last cycle because I thought, I know that there's huge alpha to be had out of the smaller stuff, but how the hell do you keep on top of it? So I started Exponential Age Asset Management, which is a digital funder fund asset management firm that invests in digital asset hedge funds, so crypto hedge funds, because it's their job to know the ins and outs of the market, where the big opportunities lies. That's their focus, 24 hours a day. So I wanted to be able to allow my clients and myself to be able to allocate via that mechanism to try and capture that alpha. So we don't have to deal with portfolios of stuff that we don't know how to deal with.

25:02It's hard, right? Yes, you can deal with like VC, assuming that 70 % of it's going to go to zero and not perform, but 30 % of it has got a chance of doing something amazing and the top 10%, well, that's where you make the real money. That's possible too. But honestly, you just don't know what to hold in your basket and then your sizes aren't meaningful enough. It's bloody difficult. So anyway, alt season, fun for you degenerate gamblers, pretty shit for the rest of us who are trying to invest in this space. But there is one token that I've talked about that really does have my interest because it's large enough and used enough for it to fit within my framework of macro.

25:43And that's Solana. And I've talked a lot about Solana. Solana got battle tested like ETH did in 2018. It got battle tested last year and it survived. Not only has it survived, it thrived. Volumes have been higher than ETH. We have seen an enormous amount of developer activity. Tolly has been a thought leader in the space and balances the space very well. And we've seen them kind of assuming the role of the consumer chain. And I've talked about this in the past as well. They have a role to play. The cheap fastness of their chain is really interesting. Their ability for people to create a million NFTs for like a thousand bucks is game-changing for the future world of Web3, where we start issuing tickets as NFTs and other things.

26:34So I think there's a lot here with Solana. I think it's super, super interesting as an ecosystem and it's vibrant. So when I look at the chart of Solana, that's an amazing inverted head and shoulders. And it's getting very, very close to breaking. It might have actually broken this week. And I'm recording this a couple of days before you see it. So that to me is suggesting that again, Again, there are opportunities coming where the alts perform well. If you remember what ETH did in 2018, having been battle-tested, it did 47x from the low. Solana got down to 9, so could it do 25x from here? Look, it's possible.

27:22No guarantee. I'm not even sure. And it's only a small part of my portfolio. But I'm keeping an eye on the next chart, which is the Solana ETH cross. And I look at that chart and you'll see that it's been trending down. So Solana's been a bad investment for a while versus Bitcoin did very well when it first launched. It's been trending lower, but I saw that spike and then I've seen this consolidation flag pattern. And that looks like a wave two correction. It looks like something. like that cross-bottomed. And if that cross-bottoms, then we need to be focused on it because if it breaks out, there's a lot of money to be made.

28:06And like I switched my Bitcoin into ETH in 2020, maybe I'll switch more of my ETH into Solana. I am kind of chain agnostic. What I'm not is alpha agnostic. I want to make money. Here's an opportunity. It's one of the biggest opportunities we've ever been given is to take advantage of the price rises in this space, because not only do we believe in the ethos and what this space is all about, but to participate early, you get rewarded for the risk. So I'm looking for that trend line to break, the red line. Now, once it breaks that, the next hurdle is the big downtrend. So there's a bit of wood to chop between here and there.