The Crypto Big Picture

0:00It's crypto summer, which means it's festival season. At Real Vision, we're getting ready for the next festival of learning in partnership with Kraken. It's taking place April 18 and 19. And the theme is don't F up alts, memes and NFTs. Yep, there's a big world of digital assets beyond Bitcoin and ETH with lots of opportunity and lots of risk. We'll be bringing a ton of timely and actionable knowledge from speakers, including Raul Pal, Sergio Silva, Kevin Kelly, OSF and more. It's completely free to attend. Just go to realvision.com slash festival of learning to get the details and save your seat.

0:40We'll see you there. Hello, everybody, and welcome to day one of our Festival of Learning. We kick things off with Rao, giving his thoughts on where the market's at and where it's going. It's chart heavy, so get ready. Then later on, Sergio Silva joins Ash for a Three Ideas episode all about the Solana ecosystem. And then we end the day by unlocking the first episode of our next series for Crypto Academy, all about how TAs think and do their work. We kick it off with Carpe Nocta. Enjoy the day, everybody. Join me, Raoul Pal, as I go on a journey of discovery through the macro, crypto and exponential age landscapes.

1:21In The Journeyman, I talk to the smartest people in the world so we can all become smarter together.

1:32Hi, everyone. Now, as everyone, I do a presentation like this. I'm speaking on behalf of not Real Vision, but of myself, Ralph Alton, Global Macro Investor, and also from Exponential Age, the asset management firm that I have a crypto funder funds that a lot of this research is from. So you'll see XPAM charts in here, just so that you know. Now, to set this up, you're all here for the Festival of Learning. and it's all generally about crypto and how we look at crypto and macro together to give us what we're looking for and i'm trying to teach you how i look at this and there's a lot in this there's going to be a lot of charts to run through but i think it will give you a very cohesive picture and what i want to get across to you today this is the biggest macro opportunity of all time I've basically dedicated a lot of my life to this trade now.

2:26And many, many others in the space, particularly macro players, have basically just given up trading other instruments and just gone towards crypto. Because the world driven by the everything code is basically a one trade, the debasement of currency by the central banks. And therefore, you want to own the best performing asset. And if the world is that simple, it really does make things much easier for us. Now, this is not for everybody. Not everybody wants to take the kind of risks, but this will give you a very good idea of why this is the biggest macro trade of all time. Now, when I first wrote about it in GMI back in 2012 or 13, I said it then.

3:10And I stupidly should have just dropped everything and just done this one trade. But I didn't. But really, I've been in it full time since 2020. The sell-off in 2022 was the opportunity I was looking for to add to the trade. I don't believe that if you've got a long-term view, you should really trade around it. You should just keep compounding. But others think differently to that. And I don't know what I'll do this time around. I'll probably take some lifestyle chips off and continue to run the trade. This trade is the biggest macro trade of all time. And it's not just about this cycle. It probably goes into 2030 and maybe well beyond that.

3:44So it's a big one. So anyway, pay attention, everybody. I'm going to start to go through the charts of why this is the biggest macro trade in history. Firstly, I'm going to start with the everything code. The everything code is the proprietary thesis that we built a global macro investor that we actually now run our portfolio for XPAM, investing in the very best hedge funds. We use this everything code as the basis. and it's the one where I discover that the debasement of currency is kind of everything and how it's very cyclical and it's understandable and forecastable as far as we can tell. Obviously, things can change.

4:24Nothing is a pure perfection, but I think this is right and it seems to be proving itself outright. So firstly, we observe that over time, the trend rate of GDP growth has been falling in the United States and all around the world. Current trend rate of GDP growth is about 1.75%. Why is it falling? If you remember, trend rate of GDP is driven by three key factors. One, population growth. Two, productivity growth. Three, debt growth. So let's address these three factors. Firstly, let's have a look at productivity. Productivity has been declining over time as the workforce has been aging, and that lowers the trend rate of GDP.

5:16Debt, on the other hand, has been rising. But what we find is that household debt growth actually stopped in 2008 because the banks just stopped lending to people, so it's just harder to accumulate debt. Also, corporates have also been paying off debt and have really not been growing as fast as GDP, but really a lot of the debt growth is now driven by the central banks, as we all know. Currently, the US is running massive deficits and is financing it by issuing yet more debt. And we'll come on to that in a minute. But the key thing here, the thing that drives everything for the everything code and the world around us, the return on assets, The inflation, everything is driven by demographics.

6:04So here's the working age population, age 15 to 64, trend rate of growth. It's been declining over time as the population ages. Those people are less productive. The older you get, the less productive you are. They had borrowed debts in their early years and now are debt tapped out. So this explains a lot. and I've talked a lot about this on Real Vision in the past. But we can also project forwards. And if you remember my piece about the retirement crisis, I've been introducing this chart for a while, which is the labor force participation rate versus the births deaths rate. Sorry, this is the births rate going forwards by 14 years.

6:49And obviously the birth rate drives how many people in the labor force over time. And it suggests that participation of the labor force should continue to fall over time. Now, we've had some pickup as part-time workers have come back into the workforce because people don't have enough money, and we'll see some of that too. But over time, we're going to see the labor force participation rate falling because the replacement of new people in the population is not as much as people leaving the workforce. And that is the problem that slows economies. It's affected Japan, now affecting China, South Korea, Taiwan, and most of Europe.

7:30So anyway, that is the mega trend. But this mega trend has some special qualities. When you strip everything out, and I keep saying demographics is everything, you find that the labor force participation rate is exactly mirrored by US government debt as a percentage of GDP. so what it says is as the less people in the labor force the economy slows but there's all of the services to pay for for the old people the government debt increases that correlation is stunning and that is an incredibly powerful chart to understand the world we live in today why governments keep issuing debt and eventually why then we're having to print money to solve it It's all a function of population.

8:24So what they do with that debt is they add liquidity into the system. That's the debasement of currency that I've talked about. And you can see the correlation between Fed net liquidity and the US government debt as a percentage of GDP. They're basically the same thing. Yes, the scaling is different, but overall, the trend is the same. So they're using liquidity to pay for the growth in debt by debasing the currency. It's called financial repression. Hey, everyone. We're going to take a quick pause and hear a word from our partners. We'll be right back. Hi, you. Hey, listen. If you're enjoying this, come and see me on the YouTube channel, Raoul Pal, the Journeyman.

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10:09The other stark thing that we found in the Everything Code is actually the real mechanism is that most of the government debt increase is just paying interest on existing debts. They're not actually borrowing a lot more to invest in the economy. It's basically servicing of old debts. And so there is a very strong correlation between the interest payments from the previous cycle and then the liquidity for this cycle. So i.e. they issue new debt. It comes up for renewal. They've already been issuing new debt again this cycle. So to pay for the interest payments from the last cycle, they debase the currency via the Fed liquidity.

10:53So they're increasing liquidity into the system. Now, look at that curve. That's the expected path here, driven by the interest payments from the pandemic debt, which was a huge increase in debt. Now, this debt keeps compounding, obviously, because you're adding debts on top of debts on top of debts on top of interest payments. So I don't expect it to play out fully like this, but we should expect a big increase in liquidity going forwards. And that's crucial to the theory. You see, look at that trend of total liquidity. Think of it, again, in a different world. That is the ongoing trend of debasement of currencies.

11:35That, when you debase the currency, gives you an optical illusion that asset prices are rising. So this chart of the NASDAQ versus the total liquidity index shows how correlated they are. It's actually 97.5 % correlation. Now, the Nasdaq actually outperforms this because it's a secular trend. But this debasement explains almost all of the movements of all assets over time, which is why everything is so correlated. Yes, some things lead, some things lag, but this is the crucial chart to understand. The answer to the demographics is more debt. The demographics is causing a slower economy. And to get over that, they issue more liquidity, debase the currency to pay for it.

12:27That makes asset prices rise. This is the everything code, and it's really important. You see, most people don't understand that this is the global liquidity index from all the major central banks. It's growing at an 8 % annualized rate. Now, once you add in global inflation, and let's call global inflation about 4%, you've got a 12 % hurdle rate for any investment. Now, that's pretty staggering, because if you think about the S &P 500, it does about 12 % a year. So basically, you're not getting ahead by doing it. Your savings aren't accruing future value, just present value. This 12 % hurdle rate is a huge problem for people if you don't understand it.

13:15You are basically getting poorer if you don't hit your 12%. So if you're just investing in bonds and think it's a good idea to get the 5 % interest, well, actually, your future self is getting poorer. So when we look at global equities versus the total liquidity index, we've seen that since 2008 from the crisis when they started printing money. It collapsed, but then it's been sideways ever since. So they've basically offset the balance sheet, but done no better. And if we took it from 2007 before the big printing started, it's actually lost 2.54 % a year versus the debasement. So you've been poorer for owning equities, generalized global equities, than the debasement itself.

14:09So that's cost you money. When we talk about crypto, I use the charts of Bitcoin here because Bitcoin has the longest price history. It too is stunningly correlated with global liquidity. You see, Bitcoin has an 87.5 % correlation, not as high as the NASDAQ, because as you can see, it's the periods of outperformance that lowers that correlation. When we start to get full kind of mania, crypto mania cycles that you get in this exponential asset, because it is a much more exponential curve, because it's driven by tech adoption. And we'll come on to that in a second as well. But you can see that liquidity is the driver of Bitcoin plus technology.

15:00But when I look at Bitcoin versus global liquidity, it's outperforming the debasement by 105 % a year. I mean, that's a staggering difference versus global equities, which are not doing anything at all and are probably negative. that's a huge huge difference in your future purchasing power which is why this is such an important asset and again i'll come on to more of this in a bit but we've ascertained that technology stocks are in a secular bull market they're 97.5 correlated but they've been rising very well over time. However, when you look at NASDAQ versus Bitcoin, this is a crucial chart.

15:49So NASDAQ is the best performing equity market in the world, essentially. But when you look at it versus Bitcoin, since this period of debasement, NASDAQ has underperformed by 99.93%. Just wrap your head around that. And it doesn't stop. It's underperforming by 45 % a year. And as you can see, we're going to break to new lows, and this chart will just continue. As Bitcoin and crypto eat the world, it's something I call the supermassive black hole. I look at Bitcoin charts versus every asset, and they're all the same. They're all down 99.9 something percent. And then I look at relative values between Bitcoin and Ethereum or Bitcoin and Solana.

16:43And that's where you get to choose what you think the fastest horse is. And that's why I chose Solana this cycle. But basically, crypto is the supermassive black hole, the asset that appreciates faster than anything else and on a risk adjusted basis too. So what's driving this? But what's driving this is obviously the debasement of currency, but why the other 105 % excess returns versus that? Well, it's this chart. This is starting the internet at 5 million IP users and crypto at 5 million wallets, active wallets. So yes, I know that neither of them are perfect measures, but I'm not looking for perfection.

17:28I'm looking for understanding. And what we saw is the internet, which was the fastest adoption of technology the world had ever seen, it grew at 76 % a year and then slowed down after year 8 to 43 % a year. Crypto has been growing at 137 % a year. It's now at 516 million users versus 187 million of the internet at the same stage. And then what we did is assume that crypto just slows down its growth to the same as the internet. I don't think that's going to happen. I think it'll be faster. But it gets by 2025, the end of 2025, we get to 1.1 billion users. So that'll be double the pace that the internet grew.

18:15And because this is a network and the tokens are at your participation in the network, they go up a lot. It's as simple as that. It's Metcalfe's law. So when you've got the biggest technological trend of any asset class in all of history, you're going to make a lot of money if that trend continues. This is why it's the biggest macro trend of all time. But it goes on. If we look out further using the internet adoption growth, and we slow down the trend rate of growth of crypto to the same as the internet going forwards, we get to 4 billion users by 2030. That's half the world's population. Now, will this be perfect?

18:59It's been pretty perfect so far. I've been showing this chart for five years now, but let's assume not. Either way, these numbers are simply staggering. And that's why you get that log chart of Bitcoin over time, because it's the adoption curve is what you're seeing, which is why the sell-offs, even though they sound terrifying, down 75%, are just blips in the overall trend. And over time, it just keeps compounding growth. You see, to show how starkly this compounds growth, this chart of all of the asset markets since 2011, I think is hilarious. So you've got the usual NASDAQ, blah, blah, blah.

19:45So So we can look, ignore the top three for a second. NASDAQ, 17%, beating the debasement, that 12 % number, and compounded 800 % since 2011. That's a fucking good investment. What a great investment the NASDAQ's been. Then we go up. Look at the top, Bitcoin. Bitcoin, every three years, is the worst performing asset. The next three years, in a row, it's the best performing asset in the world. And even with the drawdowns, those scary drawdowns everybody hates, it's compounded 20 million percent returns. Since we started talking about Bitcoin on Real Vision in 2014, it's up 450 ,000 percent. Its annualized return is 139 percent.

20:39That's mind-blowing. We've never, ever in history been given an asset like this. But when you go out the risk curve a bit to newer crypto, getting up the risk curve, getting up the adoption curve, well, in 2016, out comes Ethereum. Out of the gate, monster returns. Huge drawdowns. Compounding returns, 364 ,000%. annualized at 149%, which is better than Bitcoin. Solana came last cycle, again, came out of the gate, fell 94%. What are the compounded returns? 7 ,713%, which is 200 % a year. Right, so there is no asset class in all of history that's ever performed like this, even with the drawdowns.

21:36This is why I keep saying to people, you just want to buy and hold them. And if you can make the right switch amongst the big ones as the next big network gets adoption, you'll make even more compound returns. This is the biggest gift we've ever been given as investors. And it's the biggest macro trade of all time. Hey, everyone. We're going to take another quick break and hear a word from our partners. We'll be right back.

22:05let's go back to the risk reward topic here's yurian timmer's chart that i've stolen from him which is on the left is all of the bubbles of risk rewards of assets and how they look pretty typical and this is how asset allocators think about it but when you add in bitcoin you end up with a massive blank page with at the very top right this fucking alien risk reward which is Bitcoin. Crypto is a complete alien in terms of performance and risk reward. This chart includes the drawdown of 2022. So you see again I keep saying it's a gift and people still don't really understand what a gift it is. It's something unlike anything we've ever had in history and it gives us a hell of a chance to make money.

23:04So to sum up what the biggest macro trade of all time is, it's crypto going from 2.7 trillion where we are today to let's say 12 trillion by the end of this cycle and on to 100 trillion within 10 years. And you've got to understand, this would be the fastest accumulation of an asset class in all recorded history in the shortest period of time. It'll have driven the highest returns of any asset class in all of recorded history in the shortest period of time. In fact, in any period of time. And it will be the fastest accumulation of wealth the world has ever seen in the shorter period of time. If we go and generate 90 odd trillion in wealth in the next 10 years, to put that number in perspective, because we're all getting bored of such big trillion numbers, that is the S &P 500 is$50 trillion.

24:07That is the accumulated worth of all the companies that have succeeded and failed and grown over time, driven by the US economy over the last 100 years, is 50 trillion. It's double that. And you're going to do it in 10 years. It's a global wealth shock on a scale never seen before in history. It's like all of the baby boomers coming in and saving all at the same time in 10 years, their entire life savings, plus all of China coming in from the WTO as that opened and the wealth that generated, plus India opening up, plus all the Russians added together and probably doubled. This is the scale of what could happen here.

25:02Assume Raoul is a moron. It's always a good thing to do. Maybe I'm wrong. Discount me by 50%. Discount me by 75%. At 25 trillion, it's one of the largest increases in global wealth the world will have ever seen. This is why it's the big macro opportunity. This is why so many of my friends and colleagues, famous macro people, have just walked out of the old world into the new world because it's like, this is the big one. Macro people look for the big trade. You know, it was the subprime crisis, all of that. But the returns coming out of this space dwarf all of those opportunities added together.

25:45Gone are the days where an incredible macro year would be Paul Tudor Jones up 100%. People in crypto get that regularly. That's a pretty lackluster year. And in fact, You expect to see several hundred percent. So look, it's mind-blowing. Anyway, that's enough of the dream speak. Let's get on to the liquidity cycle and how it's driven, because you need to understand that. So liquidity is cyclical. As I explained before, here's the chart, the dot chart of the correlation between global liquidity and Bitcoin. Very tight, 87 % correlation. So we know that. We also know that we can construct at Global Macro Investor a lead for liquidity.

26:29It exactly caught the low in Q4 2022. That's when we kind of doubled down and went super long technology and crypto because that was the bottom. That's when everybody else was getting max bearish. We got max bullish using liquidity. The only other person who really uses it in the same way is Mike Howell. and he does some great work as well. But we've really gone down the macro crypto. We have more macro crypto understanding of global macro investor than certainly anybody else in the world and how this all links together. And I won't show all of it now, but I'll show you some. So that was the low that we chose in Q4 2022, all cataloged in GMI, all cataloged in Real Vision Pro Macro.

27:14We do everything out in the open. So this is not us saying, oh yeah, we bought it, wink, wink. no, we did. It's all catalogued. Anybody who's subscribed to those services know well what we did. And since then, it's been 304%. Now, what's interesting is the Everything Code helps us understand how to forecast liquidity into the future. Again, we're not expecting perfection, but you're expecting the cycles to play out. So here's the ISM with a 15-month lead and the global liquidity. Why the ISM leads is because it's actually inverted there. It's because the business cycle keeps repeating because of the debt refi cycle I've talked so much about.

27:58So what we are is it confirms some of the other charts I showed you before. We should start to see global liquidity pick up going into election years. That is very typical. You know, we've got the commercial real estate to deal with. We've got how the hell are they going to keep issuing bonds to pay the interest when bond yields aren't coming down. Something's got to give and liquidity is going to give it to them. So we know it's coming. We just don't know how. It could be in a new mechanism, which is the Basel IV agreement, which forces banks to hold more treasuries. There can be a number of ways we do this.

28:34We will also maybe see a massive release of the Treasury General account over the election period. That's possible too. We don't know where it's going to come from, It's unlikely to come from straight quantitative easing because everybody knows what that is now. So they'll find ways of obscuring what they're doing, which is making you poorer. They're basically taxing you every year by that 8 % by devaluing and debasing the currency. In fact, the Fed have actually been debasing faster than others at some 15 % a year if you just use the balance sheet. But anyway, let's use that global number. we're also starting to get the rate cutting cycle coming in now rate cutting doesn't actually go into the liquidity but it's part of the things that show you that the central banks want to move towards liquidity we've just started the cutting cycle started in latin america with brazil we're starting to see it across europe we're starting to see it elsewhere and the next two years will be the feature of cutting rates sure maybe rates don't go as low as they were before.

29:39Maybe there's only a few rate cuts. If you remember, or many of you won't, but 1994 was the bond market blow up. The Fed raised rates a lot. Everybody blew up. Banks went under, very similar to 2022. 1995, everybody expected the Fed to cut rates several times. They actually only cut them twice, 75 basis points in two goes, and then went on hold for years, essentially. Now, most pundits in the market say, well, if they don't cut rates as much as the market was expecting, it's going to be terrible. Answer was, back then, the stock market rose 150 % before super accelerating on a rate cut in 1998.