Raoul Pal & Jamie Coutts React to Tariff Fallout: President Trump, The Tariff Rollout and Crypto Markets

30:48I do. If you just give me a second, I've got actually a slide deck here, which I can show. Yeah, because that's quite a statement to say, one set of your indicators, say it's all over? Well, okay. So if we have a look at something that was published by CryptoQuant, which is the Bitcoin data provider that I use. Let's see if I can bring this up on the screen. Okay. So this is their bull score. Now, the bull score is comprised of an aggregate of on-chain metrics, which makes sense. I mean, they are an on-chain data provider. They don't factor in anything to do with macro or liquidity. And so the bull score for Bitcoin has dropped to around 20.

31:36The last time it did that from being at 100 was really the May 2021 correction. And so you're left assuming that, okay, this is just like May 2021. The problem with that in May 2021 was that we were 13, 14, 15 months into a massive liquidity expansion, which had already moved prices substantially higher. By that stage, I lost your sound, Jamie. There you go, you're back. Yeah, so I was just saying that there is a lack of context with using on-chain data alone because it doesn't factor in liquidity. And so when the last time the bull score dropped like this was back in mid-2021, but that was at least sort of 12 months to 15 months after the massive liquidity expansion that we saw in the response to COVID.

32:40Now it's dropping just as liquidity is about to expand after a three-year contraction. So it's just, yeah, so I pointed that out in the research.

32:58And what about technical-wise? Are you getting anywhere technically that is interesting from you? And I've got DMARCs. I'm just going to share with you something in a quick sec, just to flip charts around. So here's Solana Weekly again, 9, 13, 9. That was the top. We're counting down to the weekly nine, which should come in any day next week. So it tells us a potential low. When I look at the daily, this brutal collapse from 280 something back down to 115. Again, we're now at a seven count would give us another two days. We would have a 9.139 bottom. So we're really starting to set up in many of these.

33:43um i think sui on a weekly as well was a perfect nine signal we're now looking where we might be in the this is the daily we're on a 10 of 13 and a six of a nine so it kind of feels so close to me that we're at the capitulation time that you and i spoke last time back in september and the forward-looking liquidity stuff looks good. Yeah, so I think for the leaders of the crypto ecosystem like Solana, that looks to me like if liquidity, if now we see the response from central banks on liquidity starting to pick up, you've got a false break below a very important support level. And typically when you see a false break, the reaction to the upside is pretty dramatic because it always catches people offside who get very, very short right into the bottom end of that range.

34:44So that's, I think, with Solana and a couple of the large caps like SWE. There's been so much destruction in the DeFi space. If you look at DeFi charts, they have broken through the one-year lows and so they're just in free fall. Right. Whereas Solana... And that would make sense because on-chain activity has been so low. They are hypersensitive to the change in on-chain activity and they're higher beta. So they get sold first. And so I think that for them, the leadership will come from Bitcoin first, Solana, even Ethereum. and then it will flow through into some of the DeFi assets, which, I mean, just from a fundamental standpoint, they are looking increasingly attractive.

35:39It's just that the price action right now is shocking. And so I've been very reluctant to add any new assets into the portfolio as the prices have been sort of coming back. And I'll probably be a little bit late before adding them as well because I want to see the price structure start to change. but they are trading on like multiples to fees even with the fee reductions from the drop-off of activity um you know at sort of historic lows so you know i think that it all bodes very very well um and you know i think bitcoin will lead lead the sector out and how's positioning in bitcoin i know you got chart i'm seeing on the chain about bitcoin futures are subdued Where are we with all of the market positioning?

36:30How short is the market going into this or how kind of non-frothy is it? Have we unwound all of the excess leverage that was there? Yeah, and it's unwound for really the last sort of five months. I mean, it peaked in December. And then since then, it's actually been very, it's been coming down. So funding rates are extremely low. So there's nothing there that suggests that the market is over positioned at this point. I haven't looked at realized losses. That's a very good indicator for Bitcoin. And I don't have a chart on that. But in terms of just futures activity, the open interest has backed off.

37:11So open interest and funding rates are the two components of my derivatives risk score for Bitcoin. And I'm not sure if this is visible, but let me see if I can bring it up. um really what happened in q1 of 2024 was an extreme reading for the derivatives risk score um but since then actually it's been fairly moderate so i mean how similar that is to the kind of 2021 period where you come into the year and then the whole thing just gets subdued for a period of time also yeah the one i look at a lot what's not on here is 2017 where i think there's a lot of similarities but it feels that everything is unwound yeah yeah i mean it it all it almost feels like that move in 2024 was actually the most similar to the 2019 mid-cycle rally that just went too far too fast remember when it came off the you know in 2018 at the end of 2018 bitcoin bottomed and by i think it was sort of april so within like five months the thing had 5x'd.

38:21And so the futures market was pretty immature back then. It was BitMEX and maybe one or two others. But it's really the rate of change that scares, that gets things, is when you should be most concerned. And the rate of change in terms of the open interest and funding rates at the back end of 2023 into 2024 when the ETF launch was very extreme. but at that point you know again we weren't in some sort of like massive bull market or the end of a bull market and liquidity was actually tight so you know these readings i don't think are indicative of end of cycle readings they are just the typical mid-cycle exuberance that happens with bitcoin um and that and like the end of cycle readings you get only once liquidity has been liquidity has expanded considerably and the Bitcoin prices has obviously moved a lot.

39:19What other charts should we look at?

39:23I think the one thing I sort of wanted to just sort of bring everyone's attention to was perhaps just looking at where we are in terms of like rolling four-year growth rates. Oh, super interesting. So this is another dashboard which we are looking to convert into a dashboard inside the RV platform route. And so all I've done here is I've aggregated smart contract platform on-chain data. So this includes around about sort of 40 or 50 blockchains and looks at all the key performance indicators. And so things like daily active addresses, transaction fees, DEX volumes, the number of DAPs that are generating fees, how many DAPs are generating fees and things like that.

40:17These are all data that we're looking at. We're actually going to be building our own custom scores as well. And so if we look at the last sort of six months, we've seen quite a bit of activity destruction because of what's been happening. daily active addresses are around 17 million as of today they peaked at about 24 million around the time of the trump and melania coin mania um and so it says that it's it's off eight percent here but from the high it's actually much higher it's more like 25 which is a big pullback in market activity number of active addresses and that's basically been the death of the meme coin market or whether it's the death or the on life support system of the meme coin market.

41:06Yeah, the sin binning of the meme coin market. Yeah. It shall return, I'm sure. Humans being humans. Exactly. But if you just look at the four-year growth rates, this is where you sort of just distill the signal from the noise and look at how much the ecosystem grows year after year, whether it's a bull or bear market. So I've done it over four years because that tends to be the pattern. And we can see here that actually we've seen a large uptick in daily active addresses. We can see their relationship to price in terms of the correlations. And so we know that if these things continue to increase, then obviously prices will move with it.

41:49The big problem, again, coming back to what we were talking about earlier, is the lack of dispersion within the asset class It moves with each other. And there's also a reason for that is the immaturity of the asset class. There are other factors which really pull down crypto assets performance. And that's largely to do with the tokenomics and the way that a lot of these assets come to market. And so we're in this sort of inflection point where activity is going to dramatically increase and regulations are going to start hopefully cleaning up a lot of the fuckery that's been happening with the way in which protocols disclose their supply, the tokenomics, the OTC deals that get done with market makers, that is really destroying confidence of the retail investor.

42:44So all these things sort of combined, I mean, I think the market and the outlook is very, very promising because once we have rules and i'm you know i used to be very much an advocate for like hey man this is decentralized just let the whole thing sort of like be its own thing and everyone will work it out but in equities we do have basic reporting which is required of all of all companies and i think some sort of reporting logic that's enforced on protocols if they're not sufficiently decentralized, where insiders control a large part of the supply, then they should be... Which is most new tokens, right?

43:28It takes a long time to decentralize and distribute tokens. Yeah. And it gives them a pathway to decentralize. More onerous the requirements are for centralized tokens, hopefully, the faster they will want to decentralize. and that's what we're all here for really. Yeah, so I mean, the other thing is just that I think that discrepancy between the value of smart contract platforms and the applications that sit upon them. So if you look at fees now and if you delineate between the fees that are being generated by smart contract platforms and the fees that are being generated by Defo protocols on a daily basis, they're now about even.

44:12Now, that's a huge shift in the balance because it used to be all generated on smart contract platforms. But as DeFi protocols have actually seen a real uptick in usage, they have actually started to accumulate as much fees as smart contract. And is that also because so much DeFi is on ETH and so much of ETH fees have contracted because of the change in ETH and the layer twos? I'd say, I mean, yeah. So the dynamics with ETH have had a huge impact on it for sure. But it's also been there have been other ecosystems which have started to organically grow. And so that is also a part, a large reason as well.

44:54But at the end of the day, activity within the crypto ecosystem is still highly concentrated amongst just a few platforms. And that's why there is this sort of large cap bias within the sector. I mean, you can have flash in the pan protocols that outperform for months and maybe even longer. But eventually, if the activity is not on that chain and the activity is not sustainable, i.e. the liquidity, sorry, the incentives that protocols will provide to draw users on, to draw developers on, if that doesn't stick over the long term, then that price performance fades really quickly. And this is basically what I've always talked about when I talk about network activity and Metcalfe's Law.

45:44This is a much more detailed way of establishing how vibrant is the network? How real is the activity? What's the longevity like? What's the growth like? Because these are the things that drive price. We know that obviously global liquidity drives price. But the other thing is the network has to be valued. and network value is what drives the long-term secular trend above and beyond that of liquidity this is the magic of why um some cryptocurrencies do so well versus global liquidity you know for example you know we see the bitcoin is almost like 8x the performance of the nasdaq and so So the NASDAQ is 97.5 % correlated to, or it has an R-square of 0.97, to global liquidity.

46:37And Bitcoin's 85. The reason it's 85 is because when you get to a bull market, it actually wildly outperforms because of this, which is the network adoption. Yeah. So it's the juice. Like you can have an asset class rise, a rising tide lifts all ships. But actually where you get the outperformances is actually this thing is being used. which is just common sense and so if you're not tracking that information and you're getting caught up on the narratives because of the kols that are sitting on twitter just peppering you know with all sorts of narrative driven stories because they're being incentivized to do so and you're not looking at the underlying fundamentals and just simply ranking and look on-chain data is flawed there's if you look at any one of these metrics and isolation it's not going to get you over the line because each one of these metrics now is also gained by protocols.

47:33But at least what this dashboard is designed to do is actually say, hey, look, we understand all that, but let's just aggregate it and then look at the aggregate metrics versus the market cap of this space and does it have signal. And so you do get these strong correlations. And so if you expect regulations and stablecoin growth and Web3 development, then the trajectory of the asset class is very clear. Now, if you were to apply this framework to the major tokens, does it give you anything interesting? Like what is real and what is not that you see currently using the data? Big part of it, that's a big research project that I've been working on.

48:20So what I can share is that Firstly, you have to take this data, you have to clean it, you have to smooth it, and then you have to analyze it over many different time periods to then get a reliable indicator. And the reason for that is what I just mentioned about incentive-driven campaigns. So I'll single out one blockchain right now, and it's not to accuse them of doing anything that other blockchains don't do. And it's not to say also that this activity will not stick. if you just look at sonic which is the revamp phantom chain right so they've had a rebranding and they're they were on real vision yesterday i think yeah yeah um and so they are doing what ideally you know what most blockchains will always do is this they will try to bring new developers on they've got a you know a new um consensus model and so the the throughput on the chain is a lot faster.

49:20Now, they are seeing a huge uptick in daily active addresses. They've outperformed addresses, fees, transaction, because activity is coming on chain. So that's great. We saw that was sweet last year. We see that with every single chain. So the point is that unless you're trying to trade on the short term, we need to, in order to get reliable sort of on-chain indicators, we need to zoom out and sort of look across multiple time periods because that one month rise could very well evaporate. How long a time period do you think we need to figure out what's real and what's not? What's incentivization?

49:55I mean, look, there's incentivization everywhere. That's the point of blockchain is you can use incentive systems. But how long do you need before you can tell whether it sticks? I think about a year because there's a limit to the amount of, is there a limit to the incentive programs and they're running down their treasury by doing so. They're also increasing the circulating supply. So these campaigns tend to be months, not years, not even close to years. So what I've noticed with SWE is that they've had a couple of these events, but after the incentives slow down or stop, that the level of usage is a step higher afterwards.

50:39So sticking around. Yeah. Network effects are being created. They're spending to do it initially, but it's only working because they have a chain which has advantages or features that developers want to build on. And so, you know, rather than sort of get into the nuances of, you know, parallelization or the reasons why this chain is slightly faster and slightly better, I tend to look at the data and the sustainability of the activity data to try and get some metrics. Because everything else is narrative. Yeah, and it also means, yeah, it's narrative and it means that it doesn't necessarily identify very early.

51:17But I think this is, at least for me personally, I don't know about you, it's risky enough being exposed to the asset class. I don't need to try and pick the out-of-the-box outperformer of the cycle. It just makes sense to actually just be exposed to the assets that have the network effects and they should do fine over time. Any other blockchains that stand out? And how does, and in addition, the corollary to that is Ethereum and what your views are? Well, I mean, we haven't had it in the RV portfolio for a very good reason. In the dog with fleas. Like catching a falling knife. I am of the view, though, that actually it outperforms going forward.

52:09But I've been saying that for three to six months, but I've also not been prepared to put any money behind it as well. Like it's an interest. Everything that's happening with Ethereum right now is causing the kind of friction or discussion that the protocol needs in order to improve and to accelerate. So I think they will eventually work it out. But as an investor, if I look at that chart, there's no fucking way. so until it actually starts to outperform other assets i think it's we can leave it alone it's also very hard to fundamentally evaluate ethereum because it used to be easy used to be the easiest yes yes layer 2s add so much complexity and so you can't really quantify that the siphoning of value away but if there is a recalibration of fees or base roll-ups really take off and more of that value flows back to the base chain then it will it will change the value my mental model for eith is that they've built because of the layer twos massive redundancy in in how much the chain can be used and because of how the fees have been allocated it makes it look particularly bad do you track the overall volumes of the evm system and see what that looks like or you know and my guess is the overall volumes aren't suffering it's just the fee layers suffering yeah so and it just means we need more activity in eath because it's so big now and its capability is so vast that you just need a shit ton of activity like the financial system.

54:05Yeah. So EVM as like an ecosystem or as like a subgroup has been performing extremely well. So, I mean, if you look at sort of like Say, which is a sort of an up and coming the generation three blockchain, it decided to use the EVM but improve upon it, use parallelization and use a different coding programming language as well. But it's essentially using the EVM because it recognizes the network effects that it has. So the EVM ecosystem is robust and growing and we're seeing more L2s being added all the time. So yeah, I mean, from that standpoint, it's very hard to displace. the EVM as the central as the central hub for all of the crypto economy and yeah as we see TradFi start to work inside Web3 they will go to Ethereum first and test and trial on the base chain and then create or spin up their own L2s and we've already got examples of that with Robinhood and Arbitrum you know Sony which has been fallible accounts that we shouldn't have expected anything, anything else from our friends in Japan.

55:34So these sorts of things, it's always somehow misguided. But yeah, so they, Ethereum will be the natural home for a lot of activity. Yeah. Yeah. My view is the, the, any bank you've ever worked in or ever gone into, there is not a single Apple Mac. It is all Microsoft everywhere. and it's the same with EVM. You won't get fired for it. So that's my view is like they've now overbuilt capacity and once the financial system kind of uses Ethereum overall, it brings enough activity because finance is like the big daddy of almost all activity on chain. Anything else that interests you or makes you hold your nose and go, this stinks?

56:19What do you think narrative might be wrong versus the reality? or subsectors, if you want to name a token. Well, yeah, I've started to really look at this whole pullback has given an opportunity to really dive a little bit deeper into some of the DeFi protocols because this is naturally where all the activity is going to take place. If we are hopefully moving more away from the crypto casino into a world where traditional financial players start to use blockchain rails, and if there's tokenization of financial assets on blockchain rails, then I think some of these defo protocols stand to sort of win based on their new activity, but also based on the valuation discount that they currently experience versus blockchains.

57:15And again, I think it'll be a concentration of defo protocols, which will capture most of that value. so look we haven't come out with anything uh for pro crypto about this in terms of like specific ideas but there's there's definitely um protocols if you look at you know on base you've got aerodrome which is capturing lion share of all decks volume there you've got uniswap which is you know everyone is most hated DeFi protocol just in terms of like the price action, which should do very, very well. And once they sort out like the fee switch and sort of value accrual model, Athena looks especially interesting, but there is some risks there in their model as a stablecoin player and the way that they're starting to work more with traditional players, maybe even Ondo because of their relationships with some of the, I think it's BlackRock or maybe some of the other traditional finance players.

58:19So I think that space is one to watch as we sort of, you know, approach the second half of the year. What about Hyperliquid that everyone talks about? Sorry, what's that? What about Hyperliquid that everybody talks about? Is that something that you're looking at? Yeah, it's the data providers that I use haven't been as good in getting the data feeds for it yet, but it is something that I'm looking at. I think the app chain thesis will continue to strengthen where, I mean, Uniswap are doing it now. So it's like no better sort of indication that that's where the space will eventually go, I believe, to some degree.

58:56So Uniswap probably operate multi-chain, but we'll try to capture as much of the EVM activity via its own chain. But with Hyperlictor, they've just had an issue with, I think it was a, It was a hack or there was a compromise last week. And, you know, it was quickly recognized that the thing isn't that decentralized, the way that they covered the losses. So you've got, you know, you've still got a lot of embedded risks in the ecosystem, a lot of these protocols. but yeah I mean I think the I know that like the hyperliquid UI is being really well received in the marketplace and it's acquiring, it's gone from nowhere to the large share of perps volume within just a 6 to 12 month period I don't know what's going to happen post this security breach but yeah it's definitely on my radar so to sum up your views give me your time frame for the bottoming of the market in this kind of crappy price action we're seeing today and then what does it look like what is your potential focus for the kind of six months after that like where where would you look to place your bets so i think in the next i think we'll sort this out this bottom out in the next three to four weeks.

1:00:29Is it much lower in price or sideways chop and beer? I'd be really surprised if Bitcoin trades lower than sort of mid-70s, which is nothing from here. If you just look at the consolidation pullback that we saw in the middle of last year, there is so much volume that builds up in that range that I don't really see Bitcoin breaking much below that. And we've had seven of these corrections since the bottom. And the last cycle, we had six, five in the last year of the cycle. Sorry, the one I look at a lot is 2017. We had five of them that were all like 30 % plus. We're all potential and children. We're just never happy, even though it's like delivering and delivering over the long term.

1:01:23release bitcoin is anyway yeah and then so okay so we bottom over the next three weeks four weeks um probably more sideways than sharp down um obviously alts probably still continue to bleed for that period of time because bitcoin needs to establish itself re-establish itself coming out the other side we've got a lot of discounted stuff defy is one of the areas that's kind of front and center for you um anything that's the face it has the uses So if the thesis is right, then DeFi should do really well. And it is the only sector or any sort of DAP sector that's really gained traction so far. Do fees matter in speculative phases?

1:02:12Or is it a disadvantage? It's kind of an advantage over a long-term value accrual. but often anything you can't value like brand new protocols or memes or whatever tend to outperform in the periods of market kind of euphoria yeah and that'll happen again and that'll be you know i will be less inclined to be taking punts on um some of the new launches that come in towards the end of the cycle uh because they're unproven there's all sorts of for the reasons that we talked about earlier, about the way that these things launch. And as a retail investor buying after TGE, you just have no fucking clue of what games are being played with the market makers, how much of the lock supply has been lent out to market makers, which is a regular occurrence, and that needs to be cleaned up.

1:03:13And also the fact that they are just unwilling to launch these things at reasonable valuations. Can you imagine back in the day, like if you were an investment bank and you were working on these IPOs as one of the syndicate banks and you had a record of like every single IPO down three months later after launch, like you would not get any more business. But yeah, I mean, I look at it in another way is take that as accepted. And what you tend to get is every one of these falls 70 % after launch. Yeah. And then that's when you've got to do your work. Is this interesting? Yeah, because if it's interesting and you buy it down 70 % for its first correction or 80%, whatever the number is, that's when you can make some real money if you get something that has real activity and catches a narrative.

1:04:14so the best thing is don't buy these things on launch yeah it is it's a crapshoot total crapshoot but you know i think um yeah we grow i still have a view that we get to about six to seven trillion this in terms of total market cap of the top 200 which is the index i use uh within this cycle i think that we've really seen this cycle getting pushed out i was of the year it was ended this year it looked like it has to be next year and just because of the the amount of um i guess the degree of the growth shock and the level of liquidity that will be now required to shore up the treasury market which we didn't really talk about but like like if if tariffs are being levied and you know there is a fall in exports overall then there is less money recycled into treasuries.

1:05:09And so I think that is just another impetus for the Federal Reserve to come kicking and screaming to the party. If you listen to Trump and Besson and everybody, they're like, first, get the dollar down, get rates down, get oil down, get the tariffs done, get some tax revenues coming in from that, maybe give them out to some people, the bottom 50%, whatever it is that they do with this. And then it's about growth, because they need the economy growing and Besson has been really clear about this is like we need Main Street to be making money again and the issue has been rates have been too damn high and they need to get the ISM through 50 and accelerating higher which is the classic sign of the next phase of the cycle which is when liquidity is really happening the business cycle is happening earnings get recycled people start taking risk that all lies ahead but because the ISM is still bottoming which is unbelievable it's the longest bottoming pattern i think in the history of the ism now it kind of almost certainly pushes the cycle into 2026 yeah which means we've it's still we've got 12 months ahead of us because people i think mentally in their heads are like oh well i want to start getting out by october because um and so they're they keep getting worried we're not going to make the price returns but we've got a year to make price returns and the last year of a bull market we've often seen two, three, four, 500 % returns.

1:06:35Yeah. And look, there's midterms too. That's right. They want to go to the midterms. He needs to get growth ripping by the end of this year. So as you sort of go into the midterms, which could really like influence his agenda for the second part of his term. So I think that bodes well for liquidity and for, you know, ISM above 50 and for asset prices. Fantastic. Jamie, thank you as ever for A, getting up early in Australia, B, sharing the massive depth of your knowledge. And for anybody interested in what Jamie does, his dashboards, some of the dashboards are in Real Vision Plus, also in Real Vision Pro, and he is a pro crypto, and he's a true pro at this.

1:07:25And always grateful to have you on, Jamie. good to see you my friend yeah thanks very much mate and let's see if you're the lucky charm this time like you were last time the bottom pretty much comes in the next weeks you know two or three weeks um from this i kind of think we'll pencil it in for october the next the next time everyone's panicking in a in a market drawdown okay exactly we got that we got it ready all right mate thank you everybody we'll see you uh next time and i might put something out myself on some more analysis later in the week, whether it's on Real Vision Pro or for the broader audience.

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