Stop Mid-Curving Investing In Crypto ft. Lark Davis

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0:57Hey, everyone. If you like this podcast, go behind the paywall to get privileged access to the smartest minds in finance. Visit realvision.com slash rvpod and use the promo code podcast10 to get 10 % off our essential membership for the first year. Join the Real Vision community and learn how to become a better investor. And now to today's episode of Rao Pal Real Vision. Welcome, everyone. I'm super excited to have back on the show Raul Pal. He is founder of RealVision.com and the writer of the Global Macro Investor Report, a very, very popular publication. And of course, Raul Pal has been really making a name for himself in the investing space, the macro investing space.

1:40And of course, he came very popular in the crypto investing space. We're very excited to have him on today to talk about crypto. And maybe we'll get some time to dive into some other really juicy topics like the exponential age and some of the investments that they made in that space. Raul, welcome back. It's great to see you, Lark. It's been a while. Been too long. Been too long indeed. Now, we are recording this at a very exciting time because we just got some very interesting news out of the USA that XRP has been deemed not a security. So just what's your hot take on this situation? I mean, we thought the good news coming was going to be the ETF.

2:15We knew this was in the background. I always had a decent probability that this was going to happen, but it dropped like a bomb today and XRP is up 75 % in a day. But what it does is say it shows that the regulators are overreaching. Now, we don't have that around elsewhere in the world because most of the regulators elsewhere have been reasonably decent about crypto, but the US was the one that weren't. Gensler was really attacking the space. So what that's done is unleashed so many of the larger alt tokens that launched in similar ways to XRP that should not be deemed as security. And that's going to make the space more investable.

2:55At the margin, it allows others to enter into the space. We saw XRP get relisted by Coinbase immediately. Okay, that's a big statement. It means that institutions will be more comfortable around it. That allows more people into the space. So people who might have been nervous of Solana or some of the others may look at this now and say, look, the probability of those being called a security is now becoming much smaller by the day. And therefore, the risk profile of owning these things is much lower. It's very fascinating to see how quickly things move in the cryptocurrency space. One ruling can just completely change the sentiment in the space.

3:31And of course, a lot of this recent bullish sentiment has been kicked off by BlackRock and what they did by filing for a Bitcoin ETF. And this is going to add a lot of fuel to that fire. So what's your thoughts around the Bitcoin ETF situation? Does this XRP really make it more likely we're going to get those Bitcoin ETFs? And maybe was it just inevitable once BlackRock entered the game, they were always going to get a Bitcoin ETF? So my personal opinion, and look, I know nothing, is that Gary Gensler was under a lot of fire politically because saying no, no, no, no to everything. And he had said that Bitcoin was not a security.

4:08So therefore, it becomes really difficult not to allow or to appease the politicians by saying, look, I passed the bloody Bitcoin ETF. At least I've done something. You know, I'm comfortable with Bitcoin. So my guess is he gave the milk to BlackRock and said, listen, I need to do something. We're going to do this. And they've obviously been having open conversation with the SEC. The SEC had given the guidance as we will accept this if you do this. So they all did it. What was really amazing within that, a bit of humble pie that the SEC is suing Coinbase while at the same time are going to approve them as a major part of the mechanism of the ETF.

4:55And it kind of shows the incongruity of this ridiculous situation they found themselves in. Then you add the XRP ruling and it makes it really hard for them to stop some of this stuff. So, you know, I think Gensler probably comes under more political pressure because of what's just happened as well. It kind of fuels the politicians, the pro-crypto politicians were like, this is not sustainable. And Gensler's opinion appears to be wrong. So the overreach argument. So overall, these are really good things for the space. Now, the Bitcoin ETF, I've always said the ETF doesn't matter unless the market has momentum.

5:33If it has momentum, it becomes a sucking sound of bringing in RAAs in the United States and individual investors and pension plans and others. And lo and behold, we're in the middle of crypto spring where things are starting to really warm up. And that sound of FOMO you hear in the distance is thundering closer and closer. And that's going to bring these people in. So if we continue the way we've been going and prices are rising and let's say Bitcoin's at 40 ,000 by the time the ETF comes in, there's going to be a blind panic. Because everybody kind of knows that it's very cyclical as an asset and that when the cycle goes, it can have tremendous returns.

6:13So I think that's going to be in the back of many people's minds who are out of the market right now. With the Bitcoin ETF, they're going to be more enticed by it. So, look, it is very positive. And that capital flow that comes into the space, let's say$10 billion comes in the ETF, whoever, whatever. That money then flows into the space. People take profit in their original Bitcoin. It gets reinvested into ETH or Solana or whatever else. And then before you know it, recycles into NFTs. because all of these digital assets is a kind of global economy, a separate global economy made up of smaller economies like ETH and Bitcoin.

6:48And once you have new foreign direct investment into an economy, things boom. And that's what's going to happen. It's very interesting. Last year, BlackRock launched their private Bitcoin fund. And I was saying at the time, like, you just wait, you just wait. BlackRock almost timed the bottom of the market with their Bitcoin fund. And I said, BlackRock's got something coming. And here they are. BlackRock did indeed have something coming. Now, how has this changed, if at all, your positioning on Bitcoin? If I remember correctly, you didn't have much Bitcoin still in your portfolio. Is that still holding true?

7:22And has this recent Bitcoin ETF news changed any of that for you? No, I mean, I'm not much of a trader. So I take a long-term strategic position. My view for a long time is, while I like Bitcoin, I'm more predisposed towards the broader ecosystem itself, because I think the whole of Web3 and crypto is a much larger thing than just a store of value money component, which is an important part of that in itself. And so therefore, I've tended to have ETH as my larger bet. And I've had that for a long time because my thesis is these things are all valued on Metcalfe's law, which is network effects.

7:59And that's the number of people who use it and then the number of applications really that go on. Now, ETH's equation within that is there's actually more users. The amount of activity is higher because of all the applications, but the size of the transactions are smaller. But because so much is being built on top, the network effects grow over time. So over time, I expect it to outperform. But in each bull market, there's another something that does really well. And my eye is on Solana because it's got a large ecosystem, a lot of developer activity, a lot of applications, layer tools. Now, does that work or not?

8:35I don't really know. But I think it's a reasonable probability that it's like ETH was in 2018-19, came from the dust down 97 percent and survived. The Lindy effect of surviving a massive bear market with all the FTX stuff is a good thing. Could it be another ecosystem that takes fire? Of course, and many will. So it's just a very interesting time. One of the things that I try and focus people's mind on as they get a bit lost in day-to-day price action is$65 billion of venture capital money went into this space in 2020 and 2021. the products that were built are going to be coming out in this bull market.

9:17So if you remember the last bull market, it was like DeFi, NFTs, social tokens. What's it going to be this time around? We don't know. But there's going to be a lot of stuff because a lot of money went into some really smart teams who were building all sorts of applications and ecosystems. It's actually been impressive to see some of the things, the new ideas, the new iterations of ideas. People are already talking about liquid staking DeFi summer is coming up, right? We're seeing a lot of ETH going into backstable coins and going into different protocols and being used in DeFi. And that, of course, creates new leverage in the system that will need to be unwound at some point.

9:54But that's for later to talk about, I suppose. But it's interesting to look at some of these older players like Solana, right? So you're bullish on Solana. And it's interesting because we will see these new players come. And we're seeing a lot of new blockchains come out, whether it's Aptos or Sui or whatever else the flavor of the week is. But it's hard to get traction in this space. It's hard to actually build user base and all this infrastructure and the dApps and stuff like that. And it's a lot easier for someone, whether it be Solana or Avalanche or Polygon, who already has that to be well positioned for the next market cycle.

10:32So it's pretty interesting. Are there any others aside from Solana that you've been keeping an eye on? I keep an eye on a lot. I mean, I still own some XRP, for example. I still own stuff, you know, Matic, interesting. You know, there's the Arbitrum and the Layer 2s, you know, how's that going to play out? That's an interesting space. I've got a stronger thesis on Solana, less strong on others. I'm very interested in Sui and what they can do, because, you know, the technology is, you know, is very empowering. And Aptos, you know, that's a very interesting application, a different type of chain.

11:05So let's see again. But as you said, it's all well and good to have the best technology in the world. You need to both have a community that is active and growing, and you need to have applications being built. You know, so like ICP didn't really go anywhere because some reason they didn't get one of those, either of those two things combined together. Hey, everyone. We're going to take a quick pause and hear a word from our partners. We'll be right back.

11:36Yeah, it's a real balancing act for cryptocurrency projects. And you've seen so many of these that have had, oh, great technology, but nobody cares. Or people care, but there's nothing there, right? And it's really finding the combination of those. Yeah, because there are a lot of projects with nothing, and Doze being the greatest example. And yet there's a massive follower base. Yep. And then there's a bunch of others that are amazing technology that does everything and no community whatsoever. And so it's a very different world than most other things. It really, really is. It's quite fascinating to see how it how it can work in crypto sometimes.

12:13And now, look, we've already mentioned a few different coins, obviously, Bitcoin, Ethereum, Solana on down the way here. You're somebody who's kind of full time in the investing space. So in totaling your portfolio, this is an interesting question, totaling your portfolio, how many cryptocurrencies do you actually own? And how many cryptocurrencies would you actually suggest for your average retail investor to be holding? So I've tried various permutations and combinations of this. And I've had broad baskets of stuff. But what happens with the broad basket for me is I don't focus on any of it.

12:51so some stuff pumps and i don't take profits and other stuff it's not big enough so it just falls and you don't notice it so i actually find i operate better with concentrated bets so really yes i've still got a small basket of stuff that i own maybe five or six really it's all in two it's all in ethan solana and then i have a bunch of nfts on top and i think that's a relatively safe bet of ETH with a slightly riskier bet of Solana, but not too risky. And I actually, you know, I thought long and hard about this in the last bull market. And I thought, it is too complicated a world now. And you have to be too technical and need to be on top of too many things.

13:36This is not a Bitcoin ETH only world. So I actually started a asset management firm called Exponential Age Asset Management, which is a fund of hedge funds that invests in digital asset hedge funds, because those guys, it's their job to find the small token that goes up 500x. I can't do that. I just don't have the time or the experience, but it's their job. So the idea is to create a vehicle, a fund-to-fund vehicle, to allow investors, high net worth investors, family offices, institutions, to have a broad, diversified portfolio of hedge funds that can manage that side of the equation. Because I just realized I'm just not smart enough.

14:13As you know, it's so time consuming. You can go down any rabbit hole in this space, and it'll consume 24 hours a day, seven days a week. So I've become more focused, more concentrated, use hedge funds for the other side of it. If you're happy to manage a broad, equally weighted basket, you can do that too. I tried it. I just couldn't do it. I just didn't focus on any of it. And so I just didn't do a good job with it. I really feel what you're saying on concentrated bets. And I've had times my portfolio has been so out of control with so many damn tokens. And you're right. You make all those mistakes.

14:42You don't take profits. Things fall off to the side. and you just don't even know what the hell is going on. And actually having more concentrated bets can really make a lot more sense for the average investor. Because look, if we get the market cap up to, I don't know, six, seven, eight, nine, 10 trillion in the next full run, it's not really going to matter so much which particular coins you're invested and they're all going to pump. You have to realize that's a psychology game because you're always worried that some other guy that Lark's portfolio is better than Raoul's portfolio. And I'm like, Lark's going to make more money.

15:12You know, I'm an idiot. what you need to do is stick with what you've got as you said you've got the tailwind of a secular bull market now the advice i do give some people some people like adrenaline they like to trade in that case keep 80 locked away on your ledger device or wherever you keep it and then keep yourself a small portfolio of 10 or 20 where you can be a filthy degen and trade anything you want. You can hold as much pepe as you want. You can blow up, you can do whatever. And that can appease that FOMO thing. Cause you can always tell yourself the lie that you're going to make this 10 % worth more than the rest of the portfolio.

15:52Cause you're the best trader in the world. You won't, you'll lose most of your money, but at least you're not screwing it up. Yeah. That's, that's, that's, I think pretty solid advice. Keep the play money separate from the long-term stuff. Now I want to talk about NFTs real quick. Cause you've been big on NFTs for a while and i feel like we are just we've recently got to this just crushing crushing bottom for the nft bear market i mean and that i think was largely precipitated by the azuki drop and they basically resold the same nfts i'm not an expert on the azuki situation of any mean but it definitely was a catalyst that really made people extra bearish on nfts when nfts were already down quite a bit now i saw the other day did you buy a few more nfts and what's your thoughts on NFTs and what do you think for the future of NFTs?

16:37So I have been slowly buying NFTs over time. I'm not a massive buyer. So maybe 10 % of my ETH is in NFTs. But I am quite focused on it now because I think NFTs are like assets in the physical world. They tend to lag consumption. So what happens is you have a recession. People have less money. You're less likely to buy a Rolex watch to reward yourself for being amazing or a new car, right? Or a painting or whatever it is that floats your boat in that status that humans want to prove to themselves, hey, I've done a great job. You might buy yourself a bit of status at first when things are going bad to make yourself feel better, but then you stop.

17:16Right. And what happens is asset prices collapse. So Rolex watches and Patek Philippe's have basically followed the exact same pattern as NFTs. Interesting. Because both the ETH economy and the global economy both shrunk at the same time. now from my macro work assets tend to lag so house prices lag the economic cycle they're slower so what will happen is nfts are bottoming now versus crypto that bottomed in november and it's the lagged effect of the economy and as the eth economy is now picking up nfts once lark starts making some money and feeling good about himself he starts buying some new fancy clothes and before you know it, Lark's buying NFTs because he wants to show his crypto punk off.

18:03Right. We're humans. That's it. That's it. So I've been buying some stuff. Again, NFTs are really hard to know what to buy. So yes, you can buy, you know, to buy a punk is like buying Bitcoin. Maybe to buy an ape is like buying ETH. It's got more execution risk. But what do you want to buy? that's again not something i i really know or can advise people on so of course you just have to figure your way around that space yes definitely for the nft collectors out there there are some great quote-unquote bargains going around but the question becomes and i think we saw this in 2018 2019 with all the layer one chains that came out in 2017 right who is going to make it because there were a lot of change that were like the big deal in 2017 that are completely irrelevant now and have no users at all and completely failed and so when it comes to nft collections i mean we're talking even more speculative asset class with lower liquidity and more risk but there will be some that rise out of the ashes of this bull market and go on to be the ones that are like wow you've got one of those i can't believe it that's crazy that's right um we kind of don't know what they are.

19:19The blue chip of blue chip projects, you've probably got a decent idea, but A, they're expensive and B, they won't go up as much. But what is the next CryptoPunks or the next Bored Ape? Maybe it doesn't exist yet. But again, to be really good in NFTs, and I've got some friends who are very good in that space, you have to be really in it. You have to know the team what's going on be in the discords figure out why you know why it's appealing to people stuff like that even the art market you know we've all bought crappy art that we've spent a thousand bucks on that's worth nothing but you bought it because you like it in an art shop on holiday somewhere how often have you bought a piece of art for a thousand dollars and suddenly it's worth a hundred thousand never so it's right it's the same probability right it's actually very hard It's just, it's a more public market and faster moving.

20:10So you can see things when they change price a lot. But, you know, art is art and just treat it for art. PFPs, again, who the hell knows? It's all meme-based. And, you know, like I owned a Rekt Guy, which is one of the NFT projects because it was all about being wrecked and it was very good for the 2021. Does that survive as a token of prestige that you survive getting wrecked then? Maybe, maybe it comes part of folklore. maybe the meme dies yeah i have no idea it's pretty interesting though and it make let's make this a good segue into the next thing i want to ask you about and that's the mid-curve meme because i saw you post about this recently and i thought man it's just it's just so true and you know the mid-curve meme for those of you who don't know it's got the guy on the left who's kind of the dumb ape and the guy on the right who's the you know savant genius and everybody else in the middle just arguing no this can't be the case and maybe some things are just so much simpler and i I think with NFTs and a lot of times with crypto, we can really come on that.

21:07So you can talk a bit about your thesis behind the mid-curve meme. I have gone the full journey from left to middle to right. I'm not always right. I'm not always on the right side. I'm not always the Jedi master. What I've learned is never be the mid-twit. Be the guy on the left who simplifies it all down to, well, crypto is going up. the guy on the right would be well crypto's going up which is your thesis like i put out tweet today it's like don't fuck this up yeah if the space is going to 10 trillion dollars just buy it right the people in the middle are arguing about well it's decentralized it's not decentralized this there's regulation and oh my god inflation and can't you see what's happening to the economy but the two people on the far left and the far right have it simplified down the difference is the person in the far right understands all of the arguments in the middle and everything else and is distilled down to that one essence.

22:01Aim to be that person, or if not, aim to be the person on the left, because it's really the money of crowds that moves things. So if the crowd believes it to be so, it is so, which is why I saw some brilliant people trade does so well, because they understood that the power lay on the people in the left. So they would put maybe the meme would be the people like Doge or the people like dogs. The left is that I want to buy a dog token. The right is the people like dogs. So it's seeing that and not getting involved in all of the over-intellectualization of the space. and that really applies in macro crypto everything people want to sound smart and sometimes the way of sounding the smartest is to sound very dumb hey everyone we're going to take another quick break and hear a word from our partners and then we'll be right back

23:07yeah that's right it's the old uh the old saying do you want to be right or do you want to make money right and it's you can't always have both unfortunately and i've definitely experienced this where i've been in the mid-curve on some stuff this year and i've been like oh that's that's not going to work or that whatever reason blah blah blah and i should have just know i should have went with my gut and been been a blind ape and i would have made a lot of money right because i was right but i didn't make the money so you know it doesn't matter if you were right or wrong that's right who made the money at the end of the day i found you know it's it's very powerful.

23:40It stops you. If you can't explain to yourself really simply, then you've got the wrong thesis. If your thesis is, well, this has to happen and this will happen because this is going to go on a bit. That's not a thesis. If you can write it down to one sentence, you've got a chance. If you can get it down to two words, you've got a hell of a chance. I like it. I like it. That's very good. Now, I want to switch to a little bit here to talk about sort of the economic outlook, because this is very interesting. We've been hearing all year from the mainstream media that everything is terrible and we're going to have a terrible recession and all this stuff.

24:14And yet the markets have been doing very much the opposite. We have so many stocks hitting their 52-week highs. The Nasdaq and the S &P 500 are both raging. We have things like NVIDIA that have hit a new all-time high price. Apple hit a$3 trillion market cap. We're seeing crypto picking up, lagging behind, of course, equity markets and tech stocks and stuff like that. But how are you feeling about the general economic outlook? Are we still going to get this doomsday scenario playing out? And if so, will it matter for markets? So, Lach, you were in crypto last year. I seem to remember it was apocalyptical.

24:49That was the recession being priced in. So if it priced in the recession early, let's assume we're somewhere around recession point now, then crypto's job is forward looking to start discounting a recovery and liquidity and central banks printing money or rates being cut. Equity markets done the same. What people are making the mistake is they're being very mid-curve. They're saying today, inflation is the X. Well, where is it in the future? Today, growth is Y. Where is it in the future? Today, the central banks are raising rates. Are they going to be that in the future. People argue about today's if that's what matters for markets.

25:30But really, what matters for markets is what it does in six months, 12 months, 18 months. And good macro people live far out into the future, where you know, it's fuzzier. And then you try and get closer to now. So six months visibility of what the economy is doing. And my forward looking indicators suggests the economy bottoms very soon by the forward-looking stuff. And that means that it'll feel sluggish and not great for a while, but the markets discount this fast. And we've seen this. On my work, the Nasdaq should be at all-time highs next three months. I mean, that's staggering because it had a big fall.

26:09And yes, some of these things that really got beaten up, we'll have 300 % years. I love these times because everybody is now macro mid-curve. And really you want to simplify is things are going to get better. If that was the mid-curve meme, things are going to get better because they always do. Well, in the middle is everybody arguing, throwing poo at each other about every single part of the equation. But the housing market, the commercial real estate market, the interest rates. Well, the reality is things are going to get better. Yeah, that's right. That's right. That's right. Things have been pretty bad for a while now.