Crypto Gathering Day 1: The Crypto/Macro Setup with Raoul Pal

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0:43That's S-Q-U-A-R-E dot com slash G-O slash R-E-A-L-V-I-S-I-O-N. Hey there. This episode of Raoul's Adventures in Crypto is sponsored by the Token 2049 Blockchain Conference. Join over 10 ,000 attendees for this year's biggest crypto event at Token 2049 Singapore on the 13th and 14th of September. Balaji Srinivasan, Mike Novogratz, Arthur Hayes and over 200 others will hit the stage joining the industry's most influential names for an unforgettable experience ahead of the iconic Formula One Grand Prix race weekend. Singapore will transform into a crypto hub for a week from the 11th to the 17th of September with over 300 side events that make for unparalleled networking opportunities.

1:31Builders and investors at the bleeding edge of innovation will drive an agenda that covers ever-evolving topics ranging from the regulatory landscape to the convergence of crypto and AI, Web3 gaming, NFTs in the metaverse, DeFi, scalability interoperability and much much more visit t2049.co slash real vision that's t2049.co slash real vision for 65 % off regular ticket prices with the code real vision or click on the link below in the description what is going on everybody ash bennington here for real vision we are hosting a crypto gathering twitter spaces right now crypto gathering the macro setup this is going to be an incredible conversation.

2:13We've got, as you can just see, just joining the call right now, Raul Pal, our CEO and co-founder, Bijan from the Real Vision community, the Real Vision community manager for Real Vision Collective. Mark Ritchie II is going to be joining us and Nico Brugge. Hey guys, welcome everybody. Looks like folks are just getting joined onto the call right now. Hey Raul, can you hear me? Yeah, I can. Can you hear me? I'm on a mobile phone, so I haven't got a headset on. So hopefully you can hear me still. Loud and clear, perfectly, actually. Great. Good to be here. Excited. Well, it's great to be hosting.

2:46Raoul, I know we've got some more people joining the call, but while folks are getting on board, why don't you set us up? Talk a little about what's going on in your mind. I just watched an incredible piece that you did on Real Vision earlier today called Is It Game On? It's a provocative setup. Give us the context. Yeah, so look, we're all grappling in the crypto space right now is where are we? you know, is this the time that we should be really allocating to this? Are we getting ready for the next bull run? Now, the crypto space overall is not certain about this. There's a lot of people who think we've got another down leg to come.

3:20Others think we've got this kind of 2019 style correction. So what I decided to do, along with Nico, was to try and put together an incredible week of content, the crypto gathering, as we call it, to get all of the best thinkers together, put my ideas first and say, look, this is what I think. And this is why from my typical macro crypto viewpoint, and then bring on the very best technical analysts, hedge fund managers, Web3 people, just to bring as many people on as possible to get their views. So we can all learn from all the different divergent opinions to figure out, OK, is it game on? And, you know, I think you know already that I think it is.

4:00And it has been for a while. I've been positive on the space since, you know, certainly ETH since June and the rest of the space since November. Luckily, time those pretty well. But most of my work suggests putting together things like the everything code, along with, you know, the general liquidity analysis plus price action and business cycle analysis suggests to me that the markets continue to rise from here. So I'm pretty bullish. I'm really interested to see how others think about this this week. So So today on the Real Vision platform, and it's free for anybody who wants to go and have a look.

4:32I think it's realvision.com forward slash gathering. You can just go there and my video's out. It's, I don't know how long it is. It's maybe 35, 45 minutes. 45 minutes. Yeah, my in-depth analysis of everything that's in my head, how I'm looking at Bitcoin, Ethereum, Solana, Coinbase, and a whole bunch of other stuff as well. with kind of, yeah, a lot of analysis tying it all together. So hopefully it's going to help people frame up what they need to know right now. Well, you know, Raoul, I just watched it earlier this morning. And what's interesting to me is the context that you bring to this is very much a macro context drawn from this broader concept about liquidity, currency debasement, the Fed balance sheet, G5 central balance sheets.

5:20Talk a little bit about that frame up that you bring to the table. Yes. So how I've looked about this and people have heard me talk about this a lot is. My view is the biggest driver of all asset prices right now is global debasement of money driven by the printing of money by all the world's major central banks. Julian Bittle, who works in a global macro investor, put together an index of that. It's quite a complicated index, but generally it's our GMI global liquidity index. And that has, let's say, 97 percent correlation with the Nasdaq. and about 87.5 % correlation with Bitcoin. The reason crypto is less correlated is because it has these huge up cycles that tends to diverge from liquidity because of the network adoption.

6:04But that liquidity cycle is driven by debasement, which I think is driven by the payment of interest by all the world's central banks. They're all doing it. And I've figured out that all of the QE almost exactly equals the interest payments of the previous cycle. So most government debt is being rolled at between three and five years. It all got reset in what I refer to as the great reset, which was 2008, something I've only recently come across, realising that we're all waiting for a great reset, but it actually happened. Basically, it was a debt jubilee on interest payments. If you set all interest rates down to zero, then nobody has interest payments to make.

6:44Now, obviously, rates go up and down in the business cycle, but generally we've kept them as low as possible. When we reset rates in 2008, 2009 to zero, everybody issued their bonds on this three to five year time horizon. They roll them every three to five years. So about three and a half, four years is every time we end up with a business cycle, which is exactly the same timing as the Bitcoin halving cycle. And every time you roll those debts, you pay the interest on the previous ones and just keep rolling the debts forwards. So the debt burden keeps growing and the balance sheet keeps growing.

7:18That is the paying of interest by putting it onto the central bank balance sheet. It's essentially like taking a credit card to pay off a credit card. So it keeps compounding. So that's what's going on. That drives assets because the denominator, the value of fiat currency keeps falling. And so once you understand that, you understand it's linked to the business cycle and it's forecastable, you can forecast when you think this is going to happen. Now, this is still a thesis, a hypothesis. It's worked very well in the past. We want to see if it works forward. But I think with the everything code, I can project forwards when these things happen.

7:53And we're getting into the zone now where the printing presses should start to come back. Now, we've seen some of this already. Obviously, Japan used it for yield curve control. And as JGB yields edge up towards 50 basis points again, we may see it again. China has been ongoing, slowly, slowly increasing their balance sheet. They've not done any large bursts, but over time they have. The UK did for their pension crisis, had a quick burst. The US did for its banking crisis. I don't think the US banking crisis is done either. The European balance sheet is still shrinking. But over time, I think as the recession bites, the liquidity comes back into the market.

8:34And all my forward-looking indicators suggest that. So this is a really, really big, important framework. And what it really does is drive crypto. And crypto is driven. Crypto is the fastest horse. So it drives the NASDAQ. It drives the S &P. It drives most assets, even gold. But the fastest two horses are the NASDAQ and then crypto. And crypto is infinitely faster as a horse to back. than the Nasdaq in this case. And so crypto itself is driven by two factors. One is the debasement, the other is the adoption of technology. So those two things combined make it so fast. So that's why I'm very focused on crypto, because it's a tremendous opportunity.

9:11We had a huge bear market. After the bear markets, you tend to get really good returns. So that's really my focus here.

9:32Can you hear me? Ash, I think you have your mic off. Oh, thank you. Thank you. Sorry about that. A little tech problem there. Raoul, I was saying one of the things that's interesting to me about this particular Mount Gore thesis, you just set it up there with the internal dynamics of what's happening in currency debasement on the one hand, exponential technology adoption on the other. But what's interesting to me, Raoul, about this macro thesis, unlike most macro thesis, you have the internal dynamics within the crypto space, particularly as an asset class. So you talk about Bitcoin versus Ether versus altcoins.

10:08Talk a little bit about that setup and how you see it. Yeah, that's another interesting thing I found in my work is that traditional financial markets, you have a risk curve. And for example, people invest in government bonds and then they move out to corporate credit and then move out to junk bonds and they move out to emerging market junk bonds or private sector loans. That is generally driven by the business cycle when people decide to take more risk. But I thought if human behavior is similar across how they take risk, then it probably works for crypto. So I started doing the work on the ETH Bitcoin cross as a proxy for, you know, risk taking.

10:48And what I found is it actually mirrors the business cycle and the liquidity cycle. So as liquidity comes in and the business cycle starts recovering, you tend to find that ETH outperforms. So that was a big breakthrough. I found that the ISM, for example, leads a lot of this. And so that gives you an idea of when you should be in certain phases of market regime. And we're headed into the phase, not yet, but we're very close, where things like ETH start outperforming. So we get what's known as alt season. And so then I back that up in a number of different ways by looking at different charts as well and looking at ways and even historical patterns.

11:25That's all within this piece on Real Vision to back up the idea that that phase is soon to come. And that becomes very interesting. And that's where I start linking in things like Solana, because as you go further at the risk risk curve, you should find that the smaller assets with good network adoption start to really move. So that becomes my thesis on, OK, how can you allocate amongst certain levels of risk within the crypto markets themselves? And I don't think many people have looked at this yet, this style of analysis, but it seems to work well. Yeah. Listen, by the way, if you're listening to this Twitter spaces, take a look over on Real Vision's Twitter feed.

12:04You're going to see some of those charts coming out. Looks like the first one just got pushed out on Real Vision's Twitter feed. So you can follow along with us visually, which I think is very helpful when you see these charts. I think it makes a lot more sense to hear this thesis unpacked. The other thing that I wanted to touch on here is not just stable coins, but also your thesis about Coinbase as a proxy more generally for the crypto space. How's that working? Explain that framework. So generally speaking, if we're going to get towards a well, there's a number of reasons why Coinbase is interesting.

12:38One is obviously every single ETF, I think, has listed them as part of their ETF. So if you think they get approved, then then obviously Coinbase gets a lot of business. And, you know, we've had them on Real Vision. I think they're building a really world class business. They've got some world class people there. But in addition, generally, if you don't know how to trade the space and you know that there's a big movement of capital to come into the space over time. Well, Coinbase is like the tollkeeper because, you know, that is the main institutional vehicle in the United States. Yes, there's Fidelity and others, but many of them also integrate with Coinbase.

13:19So Coinbase itself does well. Now, interestingly, I started overlaying Coinbase, which, you know, got crashed last year against things like the Nasdaq in 2002, 2003. And three, it's following that exact repeat pattern post a crash low as liquidity comes in out of a recessionary period. It also matches the chart of Amazon out of the same period as well, when Amazon fell 97 percent, much like Coinbase has done. So there's a lot of similarities from these kind of post crashes. is what's interesting is Coinbase, KR1 in the UK, which is another small crypto listed vehicle, plus ARK and Solana are all the same chart.

14:00So people talk about esoteric risks in ARK or Coinbase. That's not how the market priced it at all. They just priced it according to liquidity. So as liquidity comes in, these are long duration assets and they tend to do extremely well. So they all look very similar, whether it's Solana, whether it's Coinbase, whether it's KR1 or whether it's even ARK. And it depends how comfortable you are with different risks. And, you know, because, you know, they are individual companies over after, you know, overall. So you choose which part of the risk curve you want to invest in. But they all look very interesting.

14:37They're all driven by the same macro cycle. hey ralph talking about the same macro cycle let me just walk through this as we talk about crypto spring and what's happening in equity markets let me just read this out to folks here i know you've got these numbers in front of you too but just directly from the bloomberg terminal s &p 500 year to date up about 14 i call it almost 15 right now nasdaq composite up 30 percent more than 30%. Nasdaq 100 up over 37%. Ethereum up 56 % year to date. Bitcoin, Bitcoin up nearly 84 % year to date. And Solana up 111. Perfect sequence, Rob.

15:26Exactly. I mean, this was my thesis from last year that this is how it would play out. Now, who knows how it continues to play out but it's playing out exactly as i thought it would be um and the asset relative performances are very similar to what happened in 2018 when the fed got close to the pivot and we saw similar out performances of crypto that time bitcoin took off like a like a rampant stallion and and then had to spend a lot of the year correcting them it went up 300 percent in a short period of time this one looks more similar to the kind of 2015 15, 16 period. But still, it seems to be following exactly the same kind of cycle, because I think it's driven by the same macro cycle, which is this debt refi cycle.

16:09Hey, Raoul, as we talk about the risk curve, let's talk about the maximum extreme on the risk curve. What's happening in Web3 and NFTs? Talk a little bit about this. You've been very passionate about this space. Yeah. So you need to think of NFTs and their current state as assets within the Ethereum economy. Now, the Ethereum economy went through a nasty recession last year and on-chain activity shrunk over time. And that's a typical recessionary activity. If you think of Ethereum as a digital network state, it's undergone a recession. So what happens is, I talk about this in Global Macro Investor a lot, and we've shared it in Real Vision Pro Macro, is there's something called the business cycle dominoes, which shows that some things lead, some things lag.

16:57Now, asset prices, like house prices, tend to lag the economic cycle. So what happens is, as the economy starts shrinking, people stop buying, let's say, the best comparable is Rolex watches and Patek Philippe watches. The economy starts shrinking, people have less money, inflation has eaten into everybody's pocketbooks. So they stop buying secondhand Rolexes. And the price of secondhand Rolex is full, liquidity comes back into the market, people start making a bit of money again, they feel safer in their jobs, they end up bidding up for trophy assets again to make themselves feel good. That's a very human trait.

17:35Same happens with NFTs. So people have been liquidating NFTs to get some cash because it's been an ETH bear market. And that cycle, and I'll come on to blur farming in a minute, but that has created downward pressure on NFTs. Now, what follows from cheap prices is as the eth economy recovers, people start making money again. We're not really in that phase yet. But soon people will start making money again. And once you start making money, you tend to start rewarding yourself with assets. You know, if you make money in the in the meat space in the in the physical world, you end up you buy yourself a car.

18:14If you've been really lucky, you can, you know, upgrade your house or you might buy yourself a watch whatever the exact same mechanism works in the crypto markets so as people will make money they'll go back and buy punks or art or whatever they choose they think gives status and makes them feel good and rewards themselves for success so i'm getting very interested in ft space right now because it's totally on its ass it's kind of the lagged effect of what happened to eth last year so i get very interested at moments like this when everybody's kind of panicking, everybody's puking out assets. What I also like is when there's a technical reason behind stuff like in June in Ethereum, it was the three hours capital and all of that.

19:00And then in November, it was FTX. Here we've got Blur with its incentive mechanism. So Blur is an exchange for NFTs like OpenSea, except that they've got this kind of high frequency market making components. And these people called farmers who provide pricing liquidity are given token future tokens as incentivization. So what's been happening is they have been kind of churning through NFTs, buying and selling and buying and selling to try and earn future rewards. Now, what happened is, and I'm going to I'm going to partially blame friends of mine over the Amanda for this. They dumped a whole bunch of bored apes, I think, on the market.

19:47Now, there's no natural buyers of NFTs right now in any bulk because of the ETH economy recession. So large sales like that hit the market. These market makers buy them. They then flip them for a small loss to another set of market makers who buy them, flip them from the small loss and you create this downward spiral. These guys are hoping they get offset the lot, the small losses by the value of the token. So we've had this weird dynamic price. Now, what's getting interesting to me is the blur token keeps falling. My guess is they're not going to get compensated for the risk that they took and they're going to take a huge loss from doing this.

20:29So the perverse incentives by blur, which is they thought a good idea to get activity on their on their exchange may end up being the death of their exchange. Now, maybe it's not that dramatic. But the point being, I think a lot of this activity is going to die because people are not going to be keen on getting paid in a token that's plummeting in price that could be worth a lot less than they paid. So we're getting to the bottom of this cycle in NFTs. And if I'm right, that the ether economy is going to recover in the crypto economy more broadly, then people are going to be buying trophy assets again.

21:02So the game in town is to find what trophy assets to own that people are going to want later. Now, NFTs are even more difficult than the more speculative end of crypto, because, you know, who knows what's worth zero and who knows what's worth a lot. But there are some things like bored apes, punks. I mean, apes are probably riskier than punks because it's more affiliated with what you can do as a project. But I still like that. And I still think there's a good opportunity there and i think they're still og nfts in the pfp space then we've seen you know punks are one of the things that people use the status symbols obviously i own both punk and a and a board ape but really what's been interesting over this i like to see divergences and the divergences came from the generative art market that those have held prices so art blocks stuff like that that's all held prices uh we've seen photographic art bucking the trend as well particularly the generative photographic art like Rupert Rainstow that's been really interesting life in West America but there's a lot of this great art that's been trading at high prices or stable prices so there's the divergence fine art held its price and the other stuff fell and now the question is is what do you own out of all of this stuff it is difficult because most of the stuff you really want to own is bloody expensive you know how to how do the smaller PFP projects some laugh time around like crypto dick butts or let's say mfers or you know any of this stuff how does how does that last into the next cycle wreck guys i don't know uh could they create the have be have their badge of honor for being from the last cycle maybe maybe not so it's a very difficult very speculative space i'm certainly far from an expert so i only have a small allocation of my ETH into NFTs, but I am very focused.

22:52All right, Raoul, it's the moment that you've been waiting for. It's the reason why we do these Twitter spaces. Let's bring folks up for some questions. I'm sure we've got a lot of questions going on right now. It looks like the first person who joined us was Goldmember. Goldmember, please go ahead with your question for Raoul. Hey, GM, everyone. How you doing, Raoul? Ash, thanks for hosting a great space. Great questions being asked. One thing I just want to mention in particular is just the way Raoul has mentioned about looking at ETH, NFTs as a store of value of ETH. And I think that alone has just caused me to just re-envision how I look at this market in general.

23:35One thing I want to talk about is is this the explosion of generative art, so to speak, and why we're seeing it have such much more exposure in the market. One thing that kind of opened my eyes to how big this was becoming was when Ovi actually posted his portfolio of generative NFT art profile pictures or just art as well. And I wanted to ask you, Rao, why do you think we're seeing this change? Is it because the generative art or art NFTs are not really necessarily tied to a utility and are just art and based on, I guess, the popularity or reputation of the artist? Or just, you know, what are your thoughts on that?

24:22Arts are a really complicated game. But yes, firstly, they're one of ones. So that makes a difference. Secondly, there's no utility. There's no game. There's no nothing. It's you buy art because you like it. but then the meta narrative is obviously you want to be hanging out with the cool kids and the cool kids are buying generative art so if you see 6529's museum and all of that buying this stuff you want to own that it's the same that happens with the traditional art market you know you may not like a damien hearse but after a while you want to own one because everybody's got one and it's the same with jeff coons i mean does anybody actually want a balloon shaped sculpture but no you're going to to pay millions of dollars for it because that other hedge fund billionaire bought one too so humans are you know they've they really they like the status they want to copy each other the generous of art movement is a new and important um art movement in the space um in in all of art so you know sotheby's and christie's have all been involved in it so that's got the seal of approval so it's starting to get real um collectors the collectors are getting well known and that's feeding on itself and because they're one of ones they're important pieces of art you know art for centuries has been a great store of value if you can find the right art so backing the art that already has momentum and has recognition tends to be a good strategy you know that's why warhols have done so well over time or jackson pollock or whatever it may be so i think that's what people are looking at is like you know i do have some money i do want to get involved in something that gives me status and it's art that I like and it's an important art movement you know that's a kind of magic nexus we're seeing it with whether it's generative or glitch art with x copy you know he's certainly one of the leading artists in the space and he's kind of a basquiat of of the nft digital art space I mean there's some incredible stuff going on here right now you know I'm not the deepest into the art space overall but I can see what's going on and there's some magic happening really interesting question gold member and great answer uh ral let's go to penny next who is of course a member of the rv collective penny

26:38oh i think penny may have just dropped off probably some technical difficulties there uh hello can i just jump on stage very quickly hello elaine lee gm is the queen of chaos stepping in i just thought um i'd slip in there and say gold member is not only the first end of space Ash Goldmember is our Real Vision Community Manager so a little bit of hearts and loves here gonna put the vibes back in Penny handing the stage over to you my darling community member Penny is back I think you're still muted Penny welcome great to have you here thank you I just wanted to go back to the blur issue do you think it's actually feasible for them ever to do the airdrop for season two or are they just going to keep kicking it on and kicking it on because as it stands at the minute i was reading something the other day for people like matchy big brother and franklin to break even they need to have five dollars per farming point to break even it just doesn't seem sustainable

27:47yeah i'm not really into the true weeds of it yet but i think you're right penny you and i've been swapping twitter notes about this as well it's like this feels like it's a total shit show you know i think that that would be the official terminology that they thought that it was going to be worth more than it was and at these kind of prices i think people have lost a lot of money Now, there was talk of some people moving out of the space already. But let's see. And then let's see how Blur survives after that versus OpenSea. You know, it's not a very kind of retail used platform yet. You know, people still tend to use OpenSea more, but this is where liquidity is found.

28:31So I don't know. But my hunch is your hunch, Penny. There's something that feels like this thing is broken and their token incentive system, which sounded like a good idea to start with, has ended up being the kind of cross, the albatross around their necks. Yeah, because I love Blur to start off with. Can I ask you to explain that question for the noobs here? I don't use Blur myself. So I'm curious to hear a little bit of the context for the question you just asked, if you could explain it a little more broadly. So basically, when Blur launched and it was season one, it was nice and straightforward.

29:03For every NFT you listed, you got an undisclosed amount of points you didn't know what you were getting you didn't know how many boxes you were going to get you didn't know what was going to be in them whether they were going to be i think it was rare legendary and mythic in common um so it was it was kind of like a game the game you find it slightly if you logged into blur every day looked after your nfts relisted them tinkered with the price you were going to get more boxes they ended season one after a couple of delays it was still late um everyone got loads of boxes everyone got loads of tokens everyone was really happy we all dumped our tokens when we got them and then it was game on for season two season two was um bidding points so they bought in where you could bid on nfts um and the more you bid the more points you earned and then you got extra points if um your bids got accepted or you bought from bids and then what happened was all the so-called whales came in and started professionally bidding on nfts to gain points and then to gain more points from their bids they started lowering the floor price on the nfts to gain more points on the off chance that they're going to get enough tokens at the end of season two to recoup their losses plus make a little bit extra and then it put everyone that was a so-called like normal person out of blur because you were just being undercut constantly and season two i think it's on its third or fourth delay at the moment so they keep saying oh it'll be this date or it'll be this many weeks it gets cancelled but when they cancel it they announce a new utility to try and pacify people that something else is coming along and then it became even more of a shit show when they started doing the um loans on the nfts and they started of releasing the loans by collection.