June 2025: Raoul Pal The Journey Man's Monthly Recap

0:00Join me, Raoul Pal, as I go on a journey of discovery through the macro, crypto and exponential age landscapes. In The Journeyman, I talk to the smartest people in the world so we can all become smarter together.

0:18To me, there's a lot of relevancy by what you did in Kingsway. One of it is like, it is not easy to invest in Pakistan or Bangladesh. You can't buy it on your phone, right? So market access is something you learn, complicated market access. How the fuck do I do this, often in weird instruments, because there's no other way of doing it for FDI reasons. Then you're dealing with, as you say, currencies that are complicated and economies and governments that are complemented, that rug pull you all the time, that things happen. Then you've got this thing that you're dealing with, small growing economies that are trying to learn as they grow.

1:01And to me, that is the entire crypto world. How different is it market access? Crypto is the frontier market. It's a frontier market. And I've written a lot of pieces about this is how I think about the crypto economy and the sub economies within it. They're all frontier markets. Some are larger than others. So we call them emerging markets plus frontier markets. We've got this problem of market access. We've got the same complications of governance. We've got all of the shit that you've gone through. Exactly. We complicate it because it's all digital and claim it's all different. It's not. It's the same stuff.

1:38It's building small economies and businesses in these highly volatile economies. That's what we're doing. Absolutely right. And I guess you put it really well. I mean, this is maybe, you know, what did Elon say? In hindsight, it was inevitable that I would end up in digital assets, given, you know, that this is just a logical extension almost. But also, frankly, you know, I'm really mission driven about this as well. Like, you know, I've seen a lot of poverty in my life. You know, sadly, this is not a joke. Like, this is not this is a human rights problem. I was at the Oslo Freedom Forum last week.

2:10Actually, Pavel Dorof gave a very passionate speech or interview that this is online. And, you know, I've come to the conclusion, right, that people aren't poor in these countries because they're lazy or stupid. Because in my humble experience, you know, most of them are not lazy or stupid, right? They're poor because they've only got labor working for them, not capital. And there never is any true capital formation because the little money they make from their labor, there's no place to put it other than fiat currency cash of the worst kind, not even interest. And so it's a pretty big deal that for the very first time in human history, the poorest people in the world can choose and are choosing the same stores of value in cyberspace that the richest people in the world are choosing.

2:47You know, starting with the US dollar, stable coins, massively popular. But, you know, of course, Bitcoin and then you go down the list. Right. And so that is new and it could make a massive dent in the poverty reduction, financial inclusion, economic empowerment. And I'm here for it. I had a lot of charts in this pack. Really, that's surprising. You generally are quite light on charts. I know, I know. Which I think then stacks up with this, right? Because this is not, GlobalM2 here is not updated for the dollar's recent move higher. And I actually think the dollar may head a little higher here.

3:19I'll show you that chart in a second. But if that's right, then this top bit in global M2 will come lower and should set us up for that corrective phase, which that other chart also matches. And as I pointed out in MIT… But financial conditions leads M2, right? Financial conditions leads M2, but here you're talking about the rate of change versus… Remember, it was that whole thing of the everything code dominoes. There's a bit of a difference in the lead versus rate of change versus outright. and so basically what here they would line up to say around august we should see something but we we have to see right it really depends on what the dollar is doing because if i just shift but we're expecting financial conditions to continue to ease right because we think there's another leg lower in the dollar we think rates either stay flat or move lower yeah so that's right so but if i think if we look if we just skip back up here i'm going to come back to the dollar um where are we here right so we now we're coming lower obviously yesterday we we moved a little bit higher but i think that ultimately the trend's lower but i also think over the next if you look at i'm going to guys i'm just going to change screens here that's all right um to bloomberg if we look at the dollar here right i mean we've counted down to wave five and we had a 913 9 and this is basically where you and i were like this is going to go higher um the truck's on the screen is it no it's off yeah okay is it there it goes now it's back then it came lower and then we unlocked a wave two or now we've unlocked a wave three of potentially five higher i don't know if that plays out.

5:09But you can see that the counts are all stacking up here pretty heavily. So in the event that the dollar does move higher to, let's call it 104, which DMARC wave count suggests, which seems a bit high to me, but nevertheless, this would unlock that corrective period. Which is looking like August into September, maybe. We don't know the length of it yet. Yeah. So that's why I was saying at MIT, the next move in the dollar is going to tell us everything that we need to know about the ISM, when that peaks out, everything else. But I think whether this goes higher or not over the medium term, not even medium term, I should say with the short term, we still think it goes lower.

5:50The thing I was just going to point out... Which sets us up for phase three of the banana zone. So phase two correction would be this, if it continues to trend sideways or a little bit stronger, that would be a corrective phase when everyone starts thinking it's all over, we'll give up now. And then we should get phase three, which is the final leg in the dollar, potentially a leg lower in rates and the more speculative frenzy that comes at the last part of this. We've had these periods where global liquidity goes sideways. And actually, Bitcoin usually tops before global liquidity tops out. So it's...

6:27When the rate of change of global liquidity slows down, it starts topping. Yeah, because this is being driven by, in the past, a lot of central bank activity as well. So central banks move very, very slowly, but the market detects when inflation starting, when break-even starts to break, the market starts pricing in higher inflation, that the central banks will have to pivot. But they don't pivot on a dime unless it's an emergency when they're adding liquidity, but never when they're withdrawing. So usually Bitcoin will sniff it out many months in advance and we'll see the top form and then global liquidity will roll over.

7:00But the contraction periods in global liquidity traditionally have only been sort of 24 months, so two years. And that was in 2014 and 15, then in 2018 and 19. The one that we've just gone through has actually been three years. So to your point earlier about the cycle being elongated, if you look at global liquidity here in white, it was down sharply in 2022. and then we just had this sort of contraction period, like a wedge pattern that we've sort of been squeezing into and now breaking out of. So a longer contraction period. Buying that low in the first, that's what we did, and it worked really well back end of 2022 when global liquidity.

7:43It doesn't give the strongest price action, but I don't know, Bitcoin's up 6x since then. So it does work just by getting the bottom of it, but the breakout is when it really counts, right? Yeah. Yeah. So the tops are harder, but the bottoms are easier, actually, because at the bottom, it's usually sharp central bank actions. And that's the signal. You don't have to second guess that. And now that we're starting to break out and you look at the sort of breakout of the last contraction period, and obviously 2020 was exceptional, so we're not looking to repeat that. But generally, if you look at the previous times we've gone out of a contraction period, that has been what I define as the super bullish liquidity regime.

8:28So global liquidity can only contract or go sideways for a certain amount of time because the whole system is so indebted that a default risk rises. And also just the interest cost on debt becomes too excessive. So there is an impulse. There's always an impulse to add liquidity. And so like a beach ball under the water, you know, if you keep it down for too long, it's going to burst out. And we're starting to break out now. And so in the past, when we've seen a breakout of the previous all-time high in global liquidity, Bitcoin's sensitivity to the changes in liquidity triple at least, sometimes four or five X.

9:10So in my analysis, global liquidity goes up by 1%. Bitcoin usually rises about 7%.

9:40And the great thing is that in addition to crypto, Plus500 gives you access to a wide range of instruments. S &P 500, NASDAQ, gas, and much more. Explore equity indices, energy, metals, forex, and beyond. With a simple and intuitive platform, you could trade anytime, anywhere. Experience the fast, accessible futures trading you've been waiting for with Plus500. With over 20 years of experience, Plus500 is your gateway to the markets. Visit us.plus500.com to learn more. Trading in futures involves the risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500. It's trading with a plus.

10:19But in these particular regimes, that goes to 20 to 30 times. So a multiplier of five. And what's really interesting is that we got the breakout in global liquidity in early April as the markets were sort of tanking. And so that was this here, this low that we went through, which really wasn't much to worry about, like in terms of Bitcoin pullbacks, but it felt pretty nasty at the time. Massively outperformed the S &P, massively outperformed the equities on a volatility adjusted basis, even though it was down 30 % and the S &P was down 20%. On a risk adjusted basis, massively outperformed equities.

10:59And so when it broke out, when global liquidity broke out in early April, Bitcoin rallied 40%. Global liquidity from that breakout is up about 2%. That's roughly what it has done in those previous bullish regimes where global liquidity breaks out to new all-time highs. You get a sensitivity factor that is multiples, factors higher than it typically is. And so for me, it's interesting that we're not overbought based on liquidity. every new dollar that's created whether it's even through like the u.s dollar weakening or depreciating is an easing on financial conditions it all adds liquidity into the system or makes financial conditions better and the relationship is strong and so you know i'm looking at now a market that is not overheated at all in fact it's doing what it should be doing and it's not doing anything excessive.

11:53So I talked about a framework for sort of modeling the risk. What I did was I converted that relationship into a risk score. And the risk score for global liquidity is just this one here. It correlates pretty well to the tops in Bitcoin. So what you want to see, it's a rating system of one to five, but I've also got percentiles and we'll be publishing them onto the rv platform so if people want to get a little bit more granular like it if we're at a four does that mean we're at 82nd percentile or the 88th percentile the 90th percentile we'll get that granularity shown as well but what it's designed to do is to say okay anything below a four is sort of just neutral normal conditions when we're at fours you have to start thinking about okay if there is chips to be taken off the table in bitcoin or crypto and this is not necessarily the full cycle top it can be sub cycles within right because i'm looking at the got to fives a couple of times backs off again so you kind of use it like a weekly rsi kind of idea is like an overbought oversold indicator yeah yeah so what you said is like perfectly correct It's like you've got to use it with some context, like an overbought RSI at the beginning of a breakout of a long-term downtrend is not a sell signal.

13:16It's a buy signal. But this is a little bit more calibrated to knowing when things are really stretched relative to the one statistical relationship which really seems to matter, which is liquidity. So if it becomes extremely stretched versus liquidity, even in a mid-cycle scenario like we saw in early 2024, so we got that read when Bitcoin was around$51 ,000, $52 ,000. It topped, you know, within a week or two at sort of$73 ,000. So it doesn't catch the top. None of these are going to catch the top. But it tells you when the price is stretched versus global liquidity. And of course, we had how I think about this to explain to people is there's a call it a 90 % correlation, roughly.

14:08It's when you look at what's the other 10%, it's often the fear and greed, the elements where the market gets over ahead of itself, which is what you're picking up here is like the the the deviation from the trend. Versus liquidity, right? Yeah. So when it gets too obscene, people have taken too much risk. And then you've got other scores like leverage that then you would add on to that and say, yeah, and the leverage is built up and that's why we're in excess. Yeah, exactly. So like I probably should have said this from the outset, it's global liquidity, it's leverage and positioning, and it's unrealized profit.

14:48so when you get the components of those it's broader than just deviation from liquidity yeah and that's important because that tells the other side of the story so okay you can say that okay it's stretched in terms of where it is relative to global liquidity but is there excessive leverage in the market like if that is also happening at that time boy oh boy do you have a very strong signal for a looming market top because derivative, like open interest and the factors that go into the leverage component or the derivatives risk score are very finely tuned to tops and also bottoms. So that plus also unrealized profit, which you can see on chain, come together in a very good way, like in terms of the confluence that you can get from it to give you sort of high probability zones of when things will top and bottom as well.

15:47so this was this was indicating you know that in the early part of 2024 you know just a couple of weeks before we had that top which i'll show you with the next shot on the derivatives one was really driven by the derivatives market it just was so excessive in q1 with the launch of the etfs that it was you know it was destined to correct it only corrected by 25 30 percent a pretty normal correction, but it did take about six to seven months to unwind all that positioning. And then we also got an overvaluation read on the global liquidity risk score in December as well. And if you remember back then, you were talking about it, I was talking about it, like dollar was strengthening, like liquidity was tightening as we rallied very, very sharply into Christmas.

16:37And of course, So then we had the fallout for the next sort of three or four months. So now where are we? We're at a score of three. We are neutral. There is sort of that 40 % rally off the lows of April is just the normal relationship playing out. If you like this episode, I'd love for you to head over to realvision.com forward slash join for a free membership. Start your journey today to unfuck your future. Just one click away. Have you ever wanted to trade Bitcoin but haven't dared try? With Plus500 Futures, you can trade crypto without the hassle of opening a wallet. With just a few clicks, you can register and start practicing with their free and unlimited demo.

17:20See a trading opportunity? You'll be able to trade it in just two clicks. Feel ready? You can move to real money with as little as$100 once your account is approved. And the great thing is that in addition to crypto, Plus500 gives you access to a wide range of instruments. S &P 500, NASDAQ, GAS, and much more. explore equity indices energy metals forex and beyond with a simple and intuitive platform you could trade anytime anywhere experience the fast accessible futures trading you've been waiting for with plus 500 with over 20 years of experience plus 500 is your gateway to the markets visit us.plus500.com to learn more trading and futures involves the risk of loss and is not suitable for not all applicants will qualify plus 500 it's trading with a plus