Unchained with Laura Shin and Raoul Pal: What a Spot Bitcoin ETF Means for Bitcoin Prices

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0:52Today's guest is Raoul Pal, co-founder and CEO of Real Vision. Welcome, Raoul. Fabulous to be here, Laura. Looking forward to it. So the Bitcoin price is around$44 ,000, which is more than double from a year ago. On Tuesday alone, it climbed about$2 ,000. And obviously, one of the main catalysts is the imminent launch of Spot Bitcoin ETFs, or I should say the likely imminent launch. So do you agree that Spot Bitcoin ETFs will be as significant as the market seems to think? Yeah, let me frame it for people in a way that people might understand it better. So I think many of us know by now that we're building some sort of digital network states.

1:31And we've been doing this over time, even over Facebook and all of the other social media, it's moving towards these online societies. And what crypto did was enable digital online societies to also have a system of money and accountability and finance and value transfer and all of this stuff, which is a new layer onto the internet. So we've created, and I've talked about this in the past, a parallel financial system. So let's call that crypto land. In the other world, which we can call fiat world, we have this massive but broken financial system and people still having to seek returns. And returns have generally been subpar for many in that.

2:10And it's difficult to participate. So this new economy, I think of it like an emerging economy, crypto land. So how do economies work? economies work. GDP growth is driven by population growth, productivity growth, and debt growth. Those are the three components that make GDP grow. So when you go to the fiat world, we've got aging populations and in many countries shrinking. We've got low productivity that may get changed by AI and other stuff, but it's still yet to be proven. But the old population is less productive. And debt growth stopped essentially in 2008. And all new debt growth is really just servicing of old debts.

2:48When we go to this new emerging economy, we have population growing at 100 % a year, which is the number of active wallets. If you think of it, it had a massive recession in crypto land in 2022, and the population grew 42%. So it's like, okay, this is an amazing thing. So obviously, GDP growth is faster. Productivity growth keeps increasing. Things like smart contract was a new increase in productivity for Cryptoland. Let's say compressed NFTs, maybe what Solana's doing with Fire Dancer, maybe ZK Proofs, all these things, a productivity increases. And then debt growth, well, we've just wiped out the debt from the last cycle.

3:30So we're going to rebuild debt again this cycle, because that's what humans do. They love a bit of debt. So now what you've got is this new digital economy that's not easily accessible to everybody. Not everybody's got a passport to go there. And then you've got this Fiat World. And what this ETF is, is a trade agreement that Fiat World people can go and invest in crypto land without having to be a native. They don't need a wallet, they don't need to self-custody, they don't need any of this stuff that we all go through every day as part of our lives because we're citizens over there, but they're not.

4:04But what they've got is a free trade agreement. So free trade agreements really are all about where do I get my highest return on capital? So people want to do free trade agreements with India because it's a growing population, large economy. It's the same thing. Fiat world will be saying, well, am I going to get a higher rate of return over in crypto land? In which case, I'll put some of my money at work there. That's why this is important. It's not about a single event of, you know, we're just going to bring RIAs in. It's something much bigger. It's bridging these worlds. And then as the money comes into crypto land, it then finds its way into the other states within crypto land, whether it's Bitcoin land or whether it's ETH land or Solana land or whatever it may be.

4:47And it gets reallocated on the risk curve. Some of those are smaller emerging states and some of them are more established. So when people think of it like that, it's just an emerging market that's opening up for people to be able to invest. I have to say that's the most amazing explanation partially because for several minutes of it, I was like, I asked him about Bitcoin ETFs. Where is this going? So, yeah, amazing. I totally understand this. And I feel like it's one of those explanations that even non-crypto people will understand, meaning the listeners of the show could use it for their non-crypto friends.

5:24One thing that's kind of interesting is, you know, I feel like the previous booms in crypto had traditionally been led by something that was happening kind of native to the crypto space. So in 2013, it was just Bitcoin itself, kind of the world's understanding that there could be value there. In 2017, it was initial coin offerings. In 2021, it was NFTs. So this bull market, in my opinion, is starting in a different way. So do you think that this bull market will end up being different? Or do you think there will be some kind of tech catalyst to it as well? or how do you think this will play out?

6:01Yeah, so again, we've got this foreign direct investment coming in. So where is that capital going to be put to use? And what is going to be the big unlock? My mental model for this particular cycle is the everything, everywhere, all the one cycle. Because if we think about it, $67 billion went into VC into the space in 2020 and 2021. That money has been given out to founders who are building all sorts of applications and projects and everything else. Some of them will be infrastructure layer, some will be applications layer and everything in between. And if you see the focus of where most of these teams are working on, it's kind of everywhere.

6:39So we're seeing the asset management, the Fiat World companies are building on rails from crypto land. So, you know, this is Franklin Templeton. This is all of these people looking at tokenizing real world assets. I think that starts, the first wave of that starts. Then we're seeing the other far end of the spectrum is everybody's focused on gaming because there's a huge audience there. So somebody's going to crack gaming in some respects. And pretty much every protocol has got teams working on that. We've got in the middle, okay, things like compressed NFTs and Solana, I think are a much bigger deal than people understand because I think it allows for ticketing.

7:18And ticketing is at scale consumer application of blockchain of which you don't need to know it's blockchain, which is what the space has been waiting for. We've seen some attempts at social media and other sides of that. Maybe we'll see more of that. The brands haven't stopped. So we're still seeing the luxury fashion brands in the NFT space. And I think we'll see a continuation of that. We've also seen the car companies, sports teams, and others. So I think that continued space builds out as well. So I think it's more the applications of technologies than technologies. I think we've also got the identity idea that there's WorldCoin, there's a few people who've started in that space, and then using zero knowledge proofs, which came around in the last cycle, the applications layer from that.

8:04So I'm just thinking it's actually going to be broader than people imagine. And it's going to be more inclusive because we've now got this trade deal, the ETFs, because I think we've got the Bitcoin one certainly coming, and it's a pretty high chance we'll get the each one as well. So between the halving, which is coming up next year, and the approval of spot Bitcoin ETFs. Where would you project the Bitcoin price to be at, say, like halfway through 2024 and then at year's end? You know, I've given up giving prices to people because people on the internet, they're just not nice. And so you get, you know, oh, REL says this, so-and-so says that, it didn't do that.

8:40So I'll phrase it a different way is we're seeing a much earlier ramp in the cycle than we've seen in the past, which is very interesting. It's very rare to be this strong this early in the cycle. Now, we are front running some of the capital flows. And so there's probably some correction that happens by the rumor cell effect. But I think if the space continues like this and we start getting monetary easing and the other conditions that tend to jumpstart the business cycle again, then we should see a very strong 2024 and most likely a strong 2025. the business cycles have been almost like clockwork, two year up cycles, one year peaking, one year down.

9:22And that corresponds. What's amazing is the Bitcoin halving cycle is the same as the debt refi cycle, which is, I think, what drives everything. It's the same as the election cycle. They're all the same thing. So, you know, if that continues to repeat, then it should go until 2026 when that should be a bear market year. But, you know, let's see. So I am obviously very bullish. I don't know. And I was talking to Nova about this yesterday. I've got three outcomes in my head that I'm juggling with. The 60 % probability is we have kind of a very traditional cycle. And that pushes, you know, Bitcoin up to the 100 ,000 to 200 ,000 range and, all the other assets accordingly where they are on the risk curve, there's a 20 % chance this early start is signifying something much bigger, which is the larger adoption and the more capital into the space, which leads to larger price rises than people expect.

10:22Because people are quite scarred because the last cycle seems shorter than most people expected. Everyone thought there was another final leg higher and that never really happened. The kind of 100 ,000 Bitcoin, the laser eyes idea never got there. But maybe this time the shock is for excess returns beyond expectations. The other side that I grapple with as well is, well, maybe the whole cycle's front-loaded. And in fact, it's shorter, but more violent in 2024. So those are the three scenarios that I'm juggling in my head with. But 60 % probability is just, it just does what it says on the tin and repeats what it usually does.

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12:06As we discussed, an Ethereum ETF is likely to launch within months after a Bitcoin ETF. Do you think that's going to have a similar or different reception by institutions? That's a good question. For retail, it's just price action. And what's likely to happen is the moment the Bitcoin ETF is launched, the market will focus on front running the ETH ETF. If the previous front running made money, they'll do it again. So retail will get very interested. And ETH's a broad, deep ecosystem, and people are happy to get exposure to it. the institutions, it depends whether they give the yield of ETH in the ETF or not.

12:45If not, a lot of the institutions would prefer to own ETH itself because then they can stake it and get yield. Because if you don't give them yield, some asset manager who launches the ETF is going to get rich. BlackRock, they'll make all the money because they'll get the ETH staking yield and they don't give it to the ETF holder. And we've seen that very commonly in ETFs in the past. So I think that's the thing, because when I speak to institutions, they get E because it's just like, here's a bet on technology. It's a broader base thing and we get a yield so we can just sit on it, which they don't get with Bitcoin, but they understand the Bitcoin story as well.

13:29So they understand there's two different things here at play. Oh, this is so fascinating. Okay. But yeah, right. Because you were talking to people where you've explained the difference. But do you think, do most institutional investors understand the difference between the two even before you explain it? Or is it something that's kind of new information for them? I think it's new information, but they will figure this out pretty fast because the people who were going to add an ETH ETF into their portfolio are reasonably advanced or they're RIAs because they've got retail clients who want it. The people who are much more cautious, but they want crypto exposure will definitely go for Bitcoin.

14:09So I think there's a level of sophistication that means that they would most likely ask the question is, how do I get the yield? Okay. In which case then that ETF might benefit the likes of, or I guess it's not the ETF, but simply that that ETF may not have the same reception or rollout in the traditional financial markets whereas we might see kind of a continued benefit to players like a coinbase or something is that I think yeah I think that's right that would make sense to me but it depends because the markets are pretty quick to arbitrage these things out so somebody will launch one that gives you half of the yield and eventually you'll get the whole yield but you know I know asset management firms they'll try their best to keep that themselves because it's a very lucrative product if they can capture four or five percent just by launching an ETF.

14:58I mean, that's the holy grail for them. Right. So there's been a debate raging in the crypto community about Ethereum versus Solana. You seem very bullish on both. So can you describe your view on the value proposition for each? So Ethereum is broad, deep and has no career risk in building on it. So it's, you know, it's the established it's the establishment it's like if you want to build in this space that's the easiest place to go the the density of talent that uh the density of applications the density of knowledge is immense so how can you not be bullish on that right that's always going to attract people it's always going to create a rich and vibrant ecosystem solana is kind of the new kid on the blog but you know they've managed to solve one of the problems that eth was struggling with which was speed and cost so two of those um they've managed to solve without compromising security so okay that's interesting so that's why we've seen a lot of people start building on solana we've seen a very very vibrant ecosystem being built and so eth had to solve that with layer twos essentially Well, it doesn't have to happen in Solana.

16:16But there's two big system developments in Solana that really means that it has to play catch up in value terms, I think. It doesn't mean it has to be the same size as ETH or bigger than ETH. None of those. It's just the rate of change of value accrual comes quite quickly. One is the compressed NFTs I talked about before. Nobody's got their head around this yet. People are thinking, oh, I can just print a million monkey JPEGs. You know, it's not about that. It's what else can you use a smart contract for? That's really interesting. Secondly, it's Firedancer, which most people aren't aware of yet.

16:55But Firedancer is the validator built by Jump Trading that essentially rebuilds Solana in a different language from the ground up. What they've done is double the security by having these two validators on the network. And in testing, it's had a million TPS. So this is of an order of magnitude different. Why does a million TPS matter? Because Solana's pretty fast as it is. It's because it matters and why it's being built by jump trading is high-frequency traders use fiber optic cables and their constraint is the speed of light. And they're like, well, if we want exchanges to go decentralized and be able to cope with the traditional financial markets, you're going to need to get to this speed.

17:39That's what this is about. And that opens up a whole bunch of use cases. So I see the vibrancy of the Solana developer network. I also think the UX of Solana overall, it's just nicer. It's just an easier place to hang out. And so, you know, the applications built on Solana just seem just a little bit easier. And so the comparison, Chris Berniske talks about this as well. It's like Android versus Apple. It's like, Solana feels like Apple. It's a closed system, but it's very slick, very good, will create great loyalty. Ethereum is much broader, much more open in terms of other things that can be built on top of it.

18:20So do you expect one of them to become more dominant? It's too early to tell. I mean, I would remain that ETH remains dominant because, you know, there is always innovation going on an ETH. It's not like it's a dead chain. So I just assume that the amount of smart people in the entire ETH ecosystem will bring breakthrough after breakthrough. But I just think there's a big catch up in valuation terms of the Solana network versus ETH network. Should it be a multi-hundred billion dollar ecosystem? Could it be? Probably. Could ETH be a trillion dollar plus ecosystem? for sure. I'm not sure that the pecking order changes.

18:59Well, I'm still a bit partial to the ETH flips Bitcoin pecking order because of the number of use cases and network activity measured in different ways. But who knows? It doesn't really matter. Yeah. Those are fighting words. Obviously, I'm sure you know. I do. And again, it doesn't matter to me. I'm an investor in all three. you know uh you know it's yes i'm philosophical about the whole space as well but also i'm an investor yeah and i actually think just from the way you've described them you've kind of pointed out what the value proposition is for each so it's like if you're having an investment thesis around each of them it's separate you know they fill different niches in your portfolio um so i also want to cover this brc20 token thing which is so obviously it's taken off on bitcoin These are the fungible meme coins.

19:52It's similar to the ERC-20 token standard on Ethereum, but adapted to Bitcoin because Bitcoin doesn't have a way to build tokens in the protocol. So this week, Ordi, which is the biggest BRC-20, reached a$1 billion market cap. And I wondered, do you see value in tokens like these, these BRC-20s or similar coins? It may not appear value yet because it all feels like it's memetics being traded. But what, and I think Udi makes this point pretty clear, it's about that the network can be used for other things. So if you remember, I was talking about Ethereum and Bitcoin didn't have any other applications layer because it's purely the store of value idea.

20:37But when you can do other stuff with that network, that's a very powerful idea. And what does that mean for Bitcoin? I don't know yet, but I can only see it as a positive development. And I know some of the Maxi community say, well, this is a terrible waste of block space. They call it spam. Yeah. But, you know, I'm much more open-minded and say, listen, if you've got the most secure OG with the greatest asset, then to allow other applications to be built upon that is probably a good thing. So something that's even more interesting is that now these meme coins are being exported to other chains that actually do allow for native coins to be created on their protocol.

21:26So we've seen ETHscriptions, there's a lot of inscriptions, something called DogeNulls on Dogecoin. There's a bunch of these, like Polygon has them. So what about that scenario? You know, as you mentioned, in Bitcoin, obviously, it's creating something new, but then these chains actually already have an ability to create a token on them. The most important difference here, and it's the point that Elon Musk made, is like most NFTs are actually not assets you own. They point to a place in the database for where the asset is stored. Inscriptions are on the chain. And so this is going to have its own value for different things.

22:06where provenance is absolutely crucial and something could never take away, you know, a database can't go over, a server can't go over, something that loses the primary source of the information that the smart contract is holding. So yes, I think again, you know, I love this space because we start using technology in stupid ways by creating memes, but really the technology is being bootstrapped and to be able to be used for really more meaningful things. And I think the inscriptions idea overall is very powerful. You've said that crypto is macro and macro is crypto. So for, let's say, the next six months or so, how do you see the macro picture affecting the crypto markets?

22:51Yep. So my crypto markets are forward-looking. So most people are saying, well, we're probably around a recession. We're seeing unemployment go up, blah, blah, blah. crypto knew about this last year because it's forward-looking. It actually trades on liquidity condition. And I do a lot of macroeconomic research at my research company, Global Macro Investor. And for us, the liquidity cycle just keeps going for the next two years. So we will see a bottoming of the economy, maybe Q1, Q2 of next year, that people will visibly start to see things improving. But the markets are already trading it. The equity market's already almost back at the all-time highs, crypto markets ripping because they're discounting this.

23:34If we live that six months in the future, are the Fed likely to be raising rates or cutting rates? Cutting rates. At worst, they don't do anything. So the probability is for easing of liquidity conditions. Is there a chance, because we're going to an election year, that they stimulate with fiscal stimulus, pretty much 100 % chance they'd like to buy votes. So 2024 is all about stimulus and economic recovery. That's a very, very, very good backdrop. And that's the transition from crypto and macro spring into crypto macro summer. And that macro summer, crypto summer, is we're starting to see growth pick up, bottom pick up, but inflation is not picking up yet.

24:21still falling from the lagging effects of the old cycle. So inflation is not a problem. Growth is going up and liquidity is coming into the system. That's like the perfect environment. All right. Well, this is the NoHype resource for all things crypto, but this was a very bullish episode. Thank you so much for coming on Unchained. It was fabulous. Really enjoyed it.

24:49Join over 5 ,000 attendees for the largest AI event in Asia, Super AI in Singapore, June 5th and 6th, 2024. for. Edward Snowden, Benedict Evans, Balaji Srinivasan, and over 150 others will hit the stage, joining the industry's most influential to explore and unveil the next wave of transformative AI technologies. Singapore will become a vibrant AI hub for a full week from June 3rd to the 9th, with over 150 side events that will make for unparalleled networking opportunities. Visit superai.com for 20 % off tickets with the code realvision. Look for the link in the description.