Raoul Pal: Investing And Innovating In The Crypto/AI Roaring 20's (The Reboot Chronicles Podcast)

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1:29Welcome to another episode of the Reboot Chronicles, a no-holds-barred forum with global leaders, authors, entrepreneurs, and CEOs about how organizations stay focused on growth and innovation in unprecedented times. I'm your host, Dean DeBias, coming to you live from Raviv's North American headquarters in Chicago, and we would like to thank you for joining us from around the globe today. I'd like to welcome Ronald Paul to the Reboot Chronicles. He is an investment strategist, podcaster, author, and co-founder of Exponential Age Asset Management, Scientific Magic Studios, and Real Vision, where he's also the CEO.

2:03So we're going to talk about that today. Well, it's good to see you. Great to see you. You're in your barber chair. Those of you can't see it online, he's got a nice backdrop on my green screen, which usually puts up cool logos and stuff. I don't know where to start with you. You know, we're both in a lot of Web3 businesses. You're obviously more into crypto than I am, or maybe anyone I know, for gosh sakes. But maybe let's start with the real vision. I've always, since you started it, always liked the concept of the democratization of financial information. And I think you called it the Netflix or HBO of finance, which to me probably resonates better with the millennials and XYZs than any other tagline.

2:43So I'm sure that's not on your logo. But yeah, in a way, I almost view it as, hey, it's like financing insights for the rest of us. I'm sure you have a lot of boomers, too. So I'd love to get into all of that and how we think financial information, whether it's the three networks or the financial channels, a lot of entertainment going on there, right? So you've kind of taken a stance against that. But you guys actually are entertaining because you're heavy video. So you're really – so I'd just love to hear about that. And then maybe we'll dig in a little bit on baby boomers in our audiences. Yeah, let me give a bit of background about Real Vision.

3:23It's really my background and why we got there and what we're doing. And it's actually the same story as the crypto stories. They're all tied together. So I was at the epicenter of the world's financial system. I ran the hedge fund sales business at Goldman Sachs in Europe in equities and equity derivatives. I had privilege to all of the information with the most powerful firms in the world, which were the hedge funds who kind of ran the world at the time.

3:51And I then left to join a giant hedge fund, the largest hedge fund firm in Europe, to start a global macro hedge fund. Global macro is when you invest in all assets from equities to bonds to commodities to currencies to anything you want. So that's my remit. I look at the big picture world and see what's playing out and try and place bets accordingly. I then decided to opt out of the rat race and I moved to the Mediterranean coast of Spain, where I started writing macroeconomic research and investment strategy, which I still write 19 years later called Global Macro Investor. That's read by the world's biggest family offices, corporations, sovereign wealth funds, hedge funds.

4:28I was in Europe from 2005, and I forecast the financial crisis, and then the European sovereign and banking crisis in 2012. And it was quite shocking to me because I knew what was going on. In fact, I'd made money from it. But friends of mine and friends of friends didn't. And they would come up to me saying, why didn't we know? I mean, I tried to warn so many people that I knew what was happening, yet people lost their life savings in the Spanish banking system. Friends of mine who were property developers went bust. Yeah, Spain was hit hard too. Yeah, it was really hard for everybody. And when people came up to me and said, why didn't we know?

5:14it just sat badly with me. And I thought, I need to do something about this. So we started thinking about video. I started thinking about, do I start a new newsletter to reach an audience? How do I tell people? But we coalesced on an idea around the co-founders who were all in Spain at the time as well, about the idea of video. Netflix had just launched. YouTube was just starting to get going. And we thought, well, this is probably the answer. and everyone said we're crazy. We should have short form content that should be free because that's the only model that works. And we said, sorry, it's too important.

5:51It's people's finances. It should be long form and it should be subscription based. That was the bet we took. And what we did was interview the world's most famous hedge fund managers, analysts and strategists and had an hour of their time. The most amazing brains in the world. And we gave that access to everybody. Nobody had had that before. It didn't exist before Real Vision. No, it was all soundbites. It was all soundbite. So suddenly people... It is still. But so we changed the whole model of democratizing access to information. Then we added research tools and live events and all sorts of other stuff into that equation.

6:29And that then created a community of people because the kind of people who come to Real Vision are of all demographics, of all age groups, but they all come as the learning tribe. They're people who are curious about the financial world and how it might affect them. So we've kind of leaned into that community and we've created a large community that spills out across Twitter, across YouTube, across podcasts, across videos, across written research and all of that. Part of that has also been a Web3 journey as well. We were the first people really to take cryptocurrency seriously. And we started our first ever video featured Bitcoin.

7:05and it's been a core part of our philosophy has been educating people about this new parallel financial system that was being built so we've taken people on that journey too and have been one of the leading players in the understanding for millions of people what this means for them and how it can change events so that those are basically what we've been up to can i drill down one of those you and i have talked about how um young people are they they watch cnbc fox business a bunch of others, depending on what country they're in. But they are essentially still trying to play the baby boomer game, as we discussed, and the whole income, real estate, S &P.

7:45You're basically saying, hey, that's no way, if you're in your 20s, that's not the way to plan your future. That is out of gas. Yeah. The advantage set for baby boomers is they came of 30 years old, roughly, in the 70s. And what they got was real estate at very low valuations versus income. They had equities by 1980, equities at a P of seven. I mean, they got given a gift set. And they've ridden it all the way. Now, they've taken a lot leverage as well, because their wages in real terms actually didn't go up as much as they'd hoped. So they took on a ton of leverage, but captured the gains. Their kids are the millennials.

8:36They're now the same age as their parents were. And the equity market's trading in a multiple of three times what they got. The real estate market is so expensive that these kids can never afford to own real estate. And interest rates are low. Their parents had interest rates at 18 % haven't they started seeing even higher yeah so what they've got is a much lower probability of building the american dream well so i know some a friend of mine's dad um bought coca-cola when she was very young and he still has it he's made a fortune on one stock what i see now gen xyz millennials like the patience level the in and outness the microtransaction that i don't see a long game hold mentality, either for cash flow reasons or just mentality.

9:25Is that a bad assumption? Yes. Yes and no. Yes, it's a bad assumption because they're massive 401k passive investors. So they buy index funds, which is one of the things that screws up market valuations, all this stuff. Yeah, we're in this matchy-matchy thing where the companies are matching it. Yeah, Yeah, good point. And then they know that they need to take extra risk because 6 % a year or 8 % a year is just not going to cut it. Right. Because it's never going to buy them a house. So then on the other side is their immense risk takers, the YOLO mentality. And so they will take risks that baby boomers think are ridiculous, but they kind of are forced to take the risk.

10:09Because how else are they ever going to catch up? So it's a risk seeking culture. which has driven entrepreneurship, startups, retail trading, cryptocurrency investments. All of these things are all coming out of this. And I don't think that's a bad thing. They've got lessons to learn. Everyone's got to learn when you invest how to lose money, what's right, what's wrong. But the buy and hold mentality of something that compounds at 8 % a year is just not going to get them to where they need to get to. Not now. Do you view the, you know, I call it the roaring 20s sometimes, probably stole it from someone else, but do you view the 20s as the best time ever?

10:50Or not talking about today's news, but just, you know. Hey, everyone, we're going to take a quick pause and hear a word from our partners. We'll be right back.

11:05So, okay, this is complicated. Yes and no. No, because we have the ongoing debasement of the currency system by the central banks. So that means our purchasing power of our income keeps going down versus the price of assets. But if you can buy assets, you'll probably do very well in this environment. But also, I'm a big believer in what I call the exponential age. And the exponential age is this nexus of all of these technologies all hitting network adoption models at the same time. That's cryptocurrency, AI, robotics, longevity sciences, biotech, internet of things, self-driving car, all of these things, EV, green energy, all of these things are all hitting at the same time.

12:01Mankind has never gone through anything like this. This is the fastest pace of change. Perfect storm or maybe imperfect. Yeah. And you can either shake your fist at the sky and say, stop changing, or you can embrace it. And to me, this is a renaissance. This is a, the roaring twenties is, is going to be fundamentally a shift than what we knew in the last 50 years. So I'd love to jump into web three and AI, but I got to, before we get off of financial services, I got to just, I'm not sure. I've got a lot of Bitcoin friends, a lot of crypto people that fell for the hype are still out there. It's like one of your taglines was, you know, no agenda, no editorial bias.

12:44But, you know, you guys pushed a lot of crypto and then it kind of burst. And, you know, as you're headed into 24, looking at different things, how do you, you know, are people still bullish on crypto? and maybe a better question is, you know, you've got like Balaji, you know, the ex-CTO of Coinbase saying, hey, you know, Bitcoin's going to be at a million. I think you're saying it's going to be at 50 grand, you know, 50K soon. I think it was close to that at one point. So yeah, most people, when they say crypto now, they kind of like cringe and I always say, well, there's Bitcoin and Ethereum.

13:20So how do you kind of walk people through it now when they're looking at the future? Okay. To understand this, I've been involved in this market since 2013, when I first saw Bitcoin. I wrote the first ever macroeconomic strategy paper and valuation for Bitcoin. So I've been all over this space. And the one thing when I wrote that first article is you need a 10-year time horizon. Everything else is done. And if you are worried about these cycles, you are trading it wrong. You're trading and not investing in the adoption of a network. So how does crypto work? Crypto is driven by two things. It's really simple.

14:01Network adoption, which is Metcalfe's law. So that's the number of active users, plus basically the number of connections or applications for those users. That is what drives the long-term trend. The log trend of Bitcoin over time is the best performing asset of all recorded history, and it remains so in every single up business cycle. There is no asset that's ever performed as well. But it is cyclical, driven by the money supply and the liquidity side. And that's what brings it down 70 % or 80%. So everyone goes, what? It comes down 70%, 80%. You've got to remember that if I look at, I'm just looking at the Bitcoin chart now, the low in 2015 was$200.

14:43Then it went all the way up to$20 ,000. And then it corrected down to$2 ,800. All the lows are massively higher. And the highs are massively higher. So if you just step back and say, oh, I bought crypto and it fell, hold it. Your time horizon cannot be three years. Your time horizon needs to be long enough for the network adoption model to work. And the best way of doing that is just using a log chart and looking at it within that. And it's a very smooth uptrend. And then what you do is you learn to use the down cycle, the liquidity cycle, to add to your investment over time, much like you would have done with Amazon or you would have done with Google or you would have done with Microsoft.

15:36They're very similar models. Don't forget Amazon back in 2001, too, fell 96%. Oh, I have articles from Barron's that said they're going to be out of business soon. I'm just about to speak at one of the largest retail conferences in the world. So what's my message to the biggest brands in the world and the biggest retailers about, let's just say, Bitcoin? They've added all these different currencies. There's a lot of wallets being announced at the show. And, you know, what do the big boys do in terms of accepting it, embracing it, ignoring it, which many of them are doing? I don't think Bitcoin will be a payment system except using the lightning layer for moving dollars around.

16:22So it's fine for that. It's fine if you're PayPal and you're in the monetary system because you give people a different product to use. but nobody wants to be the Bitcoin pizza guy and buy a couple of books on Amazon for Bitcoin and then realize because the Bitcoin goes up too much over time. It's too volatile to do that with. So I know it seems fancy. There is a Bitcoin and ETH economy and you can get a share of that economy and that economy can do very well. So we take payments in ETH or Bitcoin or whatever at Real Vision. That's fine. Some people want to do that because they've accumulated a lot of capital in those particular assets.

17:04But generally speaking, it's a bit of a red herring, I think, for that. Ethereum itself is becoming the payment system of the internet. It's very interesting because it is a base currency of which we quote things like NFTs in ETH itself. I've never seen that in my life. Yeah, it's surprising. But it was a trick question. That's pretty much what's in my slides. So thank you. I'm glad you validated it. But no, seriously, you know, I love this company you guys started pretty heavy hitter Science Magic Studios. You and I are both involved in Web3 companies. What's going on there? So my thesis, my big thesis on crypto is I've started two companies.

17:51One is exponential asset management. That's for investors. to invest in digital asset hedge funds and other vehicles to get exposure to the space. So the financialization of the crypto markets, whether it's family offices, high net worth investors, pension funds, sovereign wealth funds, all of that. Sound Magic Studios was the other side of that equation, which is I look at a lot of Web3, and it's being built from the grounds up. And they're all experiments. Some will fail, some will work. Great. But when I look at what Web3 does, it enables a bunch of really, really big intangibles on a balance sheet, culture, brand, community, to become tangibles via tokenization.

18:35So I always use the example of Disney. Disney probably has the largest cultural brand on earth now. It might have been Coca-Cola in the 60s, but it's not now. It's Disney. What is Disney's brand, community, and culture worth? Trillion dollars? Two trillion dollars? It's worth a lot more than the company is. Now, it's not realizable. But when you tokenize it, it creates that. Science Magic Studios' mission is to tokenize culture, these large cultural communities. Music. Music is one of the biggest cultural phenomenons of human activity. Sports, gigantic. Fashion, gigantic. And then on top of that, entertainment, whether it's film franchises, book, TV, all of these things have cultural currency that can be tokenized.

19:36So the idea of that, we built an amazing team with some incredible advisors to go and talk the talk that needs to happen at boardrooms, not by a bunch of crypto heads with hoodies, but serious people to go in there and explain how we can unlock massive trapped value for these massive communities and drive forward this whole space. So their business model is toward the global 1 ,000 companies and what they should do and how they should partner up. As long as they've got cultural relevancy. Yeah, of course. So if you don't have it, you don't have it. Yeah. Yeah, you can't tokenize. But if you do, and we've seen this, the fashion companies coming out of LVMH, they've all started experimenting with this.

20:25We can see it happening in the music industry. Beauty industry too, fashion and beauty. Yeah, it's all there. So this is going to be very big. And even through this, what we call crypto winter, the brands are still interested in this because they're thinking, okay, what this allows me to do, in addition to turning it to a tangible on the balance sheet, it allows me to have customer loyalty. in a way that the alignment of incentives makes it a very powerful network effect. Because your customers, by owning digital assets from your ecosystem, will appreciate in time, or they can accumulate more of them by being good community members, are now passionate behind your brands, much like kids trade Nike sneakers.

21:15So they're thinking, okay, this is going to make people more loyal, and we'll have a direct relationship with our community or buyers by doing this. And therefore, we can collapse the costs of using middlemen like Google and Facebook, et cetera, the middle too. So it's very powerful. So you probably read some of my articles and listened to this podcast. So Web3, there's an oligopoly that does not want Web3 to come into existence, unless they can control it and own it. So you mentioned a couple of them. we won't go through the top 10 list, but we all know who they are. We still call them big tech.

21:52And to their credit, and I grew up in this, running Silicon Valley media companies and internet companies and games companies, and they paid for it too. They invested trillions. So they rightly do deserve some ad revenue right now, but they're also very much against the concept of Web3, the democratization of e-commerce. Just take that one. So how do you see that playing out? Because the big brands, they're addicted on big media, they're addicted on big tech because it is the advertising that you know the old 50 we just don't know what's you know where it's hitting still happening out there so is this a long transition hey everyone we're gonna take another quick break and hear a word from our partners we'll be right back to the real vision crypto daily briefing

22:40i've spent a lot of time speaking to these guys i've done a Google Talks to all of the Google team and spoke to everybody from LinkedIn to Amazon to Google to Meta to everybody. They all get it. And there's a great crowd of people in those companies who are really smart, who are pushing for change. But many of the senior leadership also agrees. But they've got the problem of how to disrupt your business model without crashing the plane. Quarterly earnings golf, yes. But they do get it. And I think they will transition. Now, Meta have just taken a step back. But again, I know the people there. They're good people.

23:27The fight is not over. No, but they - It's just taking time because Meta's under revenue pressure, like everybody is running. Yeah, they went whole hog expense on Metaverse when it was way too early. I mean, I was like you, you know, been running these companies since the 90s. We built some of the first 3D virtual worlds back in the 90s. They have the same amount of simultaneous users right now. So, yeah, a little early. But changed the company name around. It was a bit bold. Anyway, it's not to make fun of them. It's just to, there are, you know, opposing forces. So companies, anyway, back to the big brands, big retailers, big guns, even the financial institutions are trying to figure it out.

24:03They're doing a lot of testing and they're paying consultants a lot of money to figure out everything from metaverse to Web3 to crypto. And I was just curious. So what is your business model that, you know, at the Science Magic Studios? That is a, we are very selective on who we will work with because it needs to be these big cultural communities. and then we have some of the best people in the world to help strategize it and then help to build it we have an enormous network of people whether it's deep technologists whether it's product people everything to then implement it and then we then take a stake in the in the we you know we get rewarded for a stake in the digital asset ecosystem that's been built So we're incentivized for that to be successful as opposed to taking a fee.

24:57We want to drive this space forward. So it has to be successful for us. Yeah, I love that. You're heavy into, hey, you've got to have cultural asset and we'll double down and you can pay us in tokens because that's how much we believe in what the hell we're building for you in the first place or helping you build or drive you. Now it's a good model. I probably know too many Fortune 500s that need it because they're kind of in the hangover phase. They kind of like took some guidance from people we won't mention, you know, some of the big tech ones. And it's the same old ad model. It's not what we're trying to build here.

25:27It's the future. No, and they are receptive, but it takes time. It takes time. And you need to, as I said, a lot of the people who've tried to talk to these people don't know how to talk at board level. But it's going to end up being a board level decision, whether it's the chief marketing officer. You know, it's certainly the C-suite. and you need to go in with the right people and the right conversations and speak the language that will unlock the yeses within the organization you're doing some of my talk one of my slides says should you hire a chief metaverse officer this is a year ago when they all the hype my answer was no by the way what's your chief digital officer and cmo doing in the first place right anyway we won't poke fun at the big guys so much anymore but um so i've been uh in and around the AI business, artificial intelligence, as we used to call it in the old days, for, I don't, gosh, probably a decade and a half now, but really like the last 10 years, it's been a lot of lab work, a lot of things going on.

26:25And there's companies, you know, like Revee, you were on chairman and others that were using AI for specific vertical applications, whether it's health, beauty, wellness, finance, whatever. So right now, you know, you've probably been to cocktail parties where, you know, the moms are talking about AI because it's been glorified. Or maybe we're just moving on to the next shiny object. So half of my friends say it's the next bubble, which I disagree with. And the other half of my friends are more in the camp of this is going to change the world if we do it right. But all I tell them is, there's a question in here somewhere, is the, what you're seeing is the capability at a categorical level.

26:59What the, where the road meets the road is going to be in vertical applications and what you can actually do with it. How to curate, you know, and, and create the next generation of company and, and wealth, quite frankly, but what's your favorite industry to talk about in terms of what AI is going to impact? If you had one example. Look, AI is going to impact every single industry that's based around knowledge. I cannot stress what a nuclear bomb this is for both productivity, deflationary forces, and the knowledge-based economy. It's going to create huge losers, like the shutting down of coal mines, car plants, and steel mills did.