URGENT: Raoul Pal's Macro Thesis UPDATE

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1:28So when you work with Bitwise, you're not just getting professional crypto exposure, you're helping fund the future of crypto itself. Check them out at bitwiseinvestments.com or email james at bitwiseinvestments.com and tell them Raoul sent you. Thanks. Hey, everyone. As you know, on this podcast, I bring the best guests in the world at that nexus of understanding of macro crypto in the exponential age of technology. If you're enjoying the show, a quick five-star rating goes a long way. It helps us grow and keep these conversations coming with the best guests in the world. Thanks a lot. Hey, everyone.

2:05I'm Raoul Pal, and welcome to my show, The Journeyman, where we explore that nexus of understanding between macro crypto and the exponential age of technology. I've just come back from a trip to the Middle East, to Dubai and Abu Dhabi, where things are really thriving in both crypto and the exponential technology. There's so much going on, it's difficult to get across. But these nations are leading from the front and deciding that blockchain technology plus AI and all the component parts of AI are the future. And it's from a top-down mandate that spreads across these emirates, which is really profoundly interesting and positive for all of us.

2:44But I was also there for Solana Breakpoint and a bunch of other events. I was there with Binance in Dubai and also meeting people, the Sovereign Wealth Funds and others who are out there. And the one thing I can get across to you is how bullish the setup is. I met with a lot of the key players of the industry, both the United States and around the world as well. And all everybody sees is adoption as far as the eye can see. Whether that's coming from stablecoin rails, whether it's coming from tokenizing real world assets, coming from tokenizing equities, coming from investors, coming from regulation, coming from liquidity, coming from fiscal stimulus.

3:25It seems that everything is in place. But to be honest, the back end of 2025 has been shitty. It's made most of us question, what the hell is going on? Is it all about the four-year cycle? Are we missing something? Why equity is getting the party and we're not? Why is gold getting the party and we're not? So I thought I'd speak to somebody or give you a presentation from somebody I found a little boring. I hear him too much. I think he says the same things time and time again, but he has got a long-term view. And that's me, Raoul Pal. It's my presentation I gave on stage at Solana in conjunction with XPAM, my asset management company, and also with Bitwise.

4:09We were running the institutional panel there. But I think it frames for you very simply what it is I'm looking at, what is going on, why it's happening, why it's still about liquidity. I know it's boring. I know we want to have nice things. I know we all feel like we can't have nice things. I know it feels like shit. But I honestly believe that with the work that we've done and speaking to all of the players in the industry, 2026 feels like it's going to be a lot different year than 2025. We've had to put up a lot, some awful P &L swings, whether you were in Bitcoin or whether you were further out the risk curve, you know, Solana, Sui, whatever.

4:46It's been bloody difficult. I get it. And, you know, those of us who've been in technology, it's been a good year for technology, but not a straightforward year either. So I'm hoping for a better year for 2026. I think it all stacks up, but let's hear about the framework and the thesis on why that's the case. If not, have a fantastic holiday season. Have a great new year. Get some rest. 26, I think, is a big one. Join me, Raoul Powell, as I go on a journey of discovery through the macro, crypto and exponential age landscapes. In The Journeyman, I talk to the smartest people in the world so we can all become smarter together.

5:32Good morning, everyone. So it should be an interesting day today where we're going to go through a whole lot of things about how to allocate in the space, how to think about the space, and also how to think about markets and the macro overlay. And what I'm going to go through is what we use at Exponential Age Asset Management, XPAM, to overlay our kind of fund of hedge fund portfolio to think about the macro and how to use it. And I know a lot of you are a little bit bored of price action right now because it does nothing but go down every day. or chop around. But over time, as always I say, we just need to zoom out.

6:09So let's go to it. This is the work that we do at Global Macro Invest in my research service. The whole game that we're playing at the top level of crypto itself is this debasement of currency, the 8 % annualized growth rate of total liquidity, which is the debasement of currency. That becomes our hurdle rate for investing. And on top of that, we then built the crypto rails to do all the other things that we can do with it. But this was where we all started and it's still the main driver of what we do today. So I use something called the Everything Code. I think most of you will be familiar with the Everything Code right now.

6:46And it's my understanding of how this all fits together from a very big picture to how it fits together into the business cycle, to asset allocation, where we are, all of that. And this has been very, very helpful for me. I based it upon the magic formula, which is GDP growth equals population growth, productivity growth, and debt growth. So that's how we understand what drives economies. Once we understand that, we can understand the messes we're starting to get into. Trend rate of GDP has been declining for decades now, for 50 years, basically. As the population starts aging out, trend rate has been going down.

7:27The population is aging. You can see from the chart here, it's the same trend. Older populations tend to produce less growth. Productivity. Older people are less productive. So we have a decline in productivity over time as well. So this is driving this slower economy across the whole Western world, whether it's Europe, the US, or elsewhere. Then we start to see debt growth. Debt growth is the big problem that we've been facing for decades now. Now it blew up in 2008. So total debt to GDP in the US has been roughly stable, but that hides the story of what's really been going on. The private sector has been deleveraging over time.

8:09So they've been taking on less debts, and that's been a good thing. But that is entirely offset by the government that's been increasing its debt. And so this debt burden is the real issue that we're facing today. that is all driven by demographics so i said we're going to zoom out this is the really important story of why this is happening and why it matters to us and we'll come down to how it makes us asset allocate into crypto as a sector so that's the birth rate of the total population the trend growth has been declining forever after the baby boomers came into the labor force, they've been slowly aging out.

8:50That whole trend rate has been also prevalent in the labor force participation rate, which is the working labor force in the United States. And we've seen the working labor force has been declining and follows exactly the birth deaths rate. So what we've got is ahead of us out to 2040, nothing but an aging population. so that if you think about it means slow growth for economies difficulty raising taxes more expenditure for governments and this is the mess that we're facing this chart is the most important chart in all of macro and most people don't understand it yet and i keep bringing it up saying i know when people don't get it because it's not being copied and sent on twitter all day this is the labor force participation rate and against it is government debt as a percentage of GDP, inverted.

9:42Basically, all debt has been accumulated to offset the working age population decline. So they're trying to bolster growth by adding debts. And right now, they kind of have broken from 2008 onwards, they've broken debt growth, debt growth is now just servicing of old debts, and interest payments keep accumulating. So this is the whole game we're in. This is why it's happening. Why we've got this indebted world is not because of government overspend based on whatever political party you like or don't like. It's none of that. It's just because we've got an old population. And that's the same in Japan, which has an older population, so they have more debt.

10:17Europe has older populations that have even more debt. And the US has a slightly younger population, but it's exactly all the same process. And you've got these mega trends. So the labor force participation rate just continues in this nice secular downtrend. And government debt to the GDP keeps going up. When you look at it in a log channel like this, you can kind of project where we're going to go, which is what Japan did. If we continue as we go now, we will end up by let's say 2030 at 160 % of GDP in debt. So it just keeps going. And you can't really stop it because we've got this aging population.

10:54So how do we get GDP growth up? Well, that's a story for another day, the story of AI and robots replacing the demographics. But right now, we're in this everything code cycle. And that is the cycle of using liquidity to offset debt. So basically, what they're doing is printing money to pay the debt. That's like using a credit card to pay a credit card. That's the whole game we're in. This is the debasement of currency. This is the game why the rich get richer because they own assets, the poor don't because they have incomes. Incomes only grow with GDP, and assets go up by the rate of debasement, which is at least 8 % a year, plus maybe an inflation rate.

11:33So that's the whole game that is being played at every government level right now. And we're seeing it again yesterday as the Federal Reserve go back to using the balance sheet again. It's all the same story. We've got$10 trillion of debt to roll in the US alone in the next 12 months. So, and I'll come on to the business cycle and how that all interacts, but this is the story. This is what drives number go up and drives adoption of the industry that we all know and love. Or maybe not right now because it keeps chopping around too much, but generally we do. And here's another way of looking at it, is here's the interest payments.

12:13The interest payments are what are getting monetized. And so total liquidity just follows the interest payments. So that chart tells you we've got around$7 or$8 trillion that we need to print just to cover the interest payments over the next 12 months. into the end of 2026 when things calm down a little bit for a while. And this is the reason why the Fed are trying to get rates down or the Treasury are begging the Fed to get rates down because they need to get rates down to the level of GDP growth, which is, let's say right now it's about 3%, 2.5 % trend rate. They're going to have to get rates down to that because if not, that number keeps compounding because GDP is the economic activity by which you pay the debts and the interest payments.

13:03So a quick break in your regular programming. If you're serious about your future, grab my free report called Prepare for 2030. I think you've got five years to make as much money as possible. And this guide will help you navigate what's coming. The link is in the description. Download it now. So what we realized within this is the cyclicality of all of this. And this was an important thing when I suddenly realized that the business cycle had gone from variable lengths. And my job as a macro strategist and an investor was to figure out when the business cycle was going to peak and trough. And it's not an easy game because some years we had, you know, some periods we had like seven-year business cycles.

13:41Other time we had four-year. It was moving around the place. And then suddenly everything changed. It suddenly became perfectly four-year cyclical, starting in 2008. And it was all to do, I found out after a bit of work, to do with the debt maturity. So 2008, we had a debt jubilee. They forgave all the interest payments and all the debts in all the major economies in the world. And when they did that, they restructured all of their debts. So I'm just going to grab some water. They restructured all of their debts, and they restructured them in the three to five-year sector. So as they did that, They created this debt refinancing cycle where every few years they have to refinance all the debt, which requires liquidity.

14:24And liquidity drives the economic system. So it's no magic that the Bitcoin halving happened to be a four-year cycle. It was just matching the economic cycle. So the NASDAQ, if you look at year-on-year rates of change and stuff, it's all the same cycle. It's the same cycle for every single asset, which I'll show you later. we had this perfect four-year cycle and this is where everybody's scratching their heads right now is what the hell's going on has the cycle finished that's the big question everyone debates all day and for me you can see what's happened here there used to be this perfect four-year cycle and suddenly it's changed well what happened here is we've added an extra year in 2022 2022, at the beginning of 2022, rates were still at zero, and they extended the debt maturity by a year to five years.

15:17So we've got an extra year in the equation. So all of the debts that need to get rolled need to get rolled in 2026, and not 2025. So that's why we've had less liquidity than we've expected at this point. You know, the banana's own point in the cycle has had less liquidity. I only really found this out over the summer when I redid the maths on all of this, and realize, okay, wow, they've actually changed the structure of liquidity here. So when we change it to the new 5.4 year where the debt maturity is, this is what we're going to get. So again, it gives you an idea that we're probably likely to peak out towards the end of 2026 in terms of liquidity as opposed to this year.

15:58So probabilistically speaking, which is how I think about the world, we've got further to go and we've got the big liquidity burst to come. You can see the changes coming. They're changing things like the SLR, the supplementary leverage ratio that allows them to sell more treasuries to banks. We're seeing the Fed cutting rates. We're seeing changes in the money market. We're seeing the government ramping up fiscal stimulus. All of this is telling you that the big cycle still remains ahead. And I know most of us are impatient in crypto because we want things to go up quickly, but that's not how the world works.

16:33It's all based on the macro economy. And you just have to have patience because we've had this very choppy business cycle because there's been no real liquidity yet. Liquidity has been relatively slow. So, but what people didn't really realize, and I think we pioneered the work on this, is Bitcoin is a very macro asset. It's very understandable and easy to understand once you put it in a macro framework. It's not magic internet money that just is uncorrelated to anything else. It's actually super correlated. So, you get this mega trend, which is the secular adoption trend driven by Metcalfe's law in Bitcoin, and it goes up and down, which we all know.

17:10And on a log chart, it doesn't look scary. In the real world, it goes down a lot. and then goes up even more. But when you detrend that, it's actually the business cycle. So it is just driven by the business cycle. The reason it doesn't look, you have to detrend it, is because Bitcoin has all of the price spikes to the upside. So the skewness to the upside changes that. But when you detrend it, you've got exactly it. And what the Bitcoin is pricing right now is a gap that is not normal. It's pricing a business cycle that's going to recession, and I'll show you that that's not the case. So we're getting into the zone where things get very interesting, where the alligator jaws start closing.

17:53But just to show the importance of the business cycle and why ISM matters, it matters for every asset class. Everything on a year-on-year basis is the business cycle. People don't really understand this stuff. Once you understand this, it makes it much easier to understand how markets move when they move what they do. It's even easier when you know that we've got a predictable business cycle based on debt maturity. So if you've got that, you know what drives assets. Some lead, some lag. So crypto and technology lead. They actually follow liquidity. Other things like small caps and cyclical stocks, well, they fit with this.

18:30So here's the Russell 2000, which is essentially small caps, basically the same. If we go forwards to crude oil, same. If we go through to industrial metals, the same. Everything, literally everything in the entire investing world is driven by this cycle. Even things like the ETH Bitcoin cross. So think of this as alts. Alts are driven by the business cycle. So with the business cycle currently low, we haven't had alt season. And everyone's like, I can't believe they've robbed us of old season. It's never going to happen. There's too many tokens. We can't have nice things and all of that bullshit we hear all day.

19:10It's not. It's just the economy stupid because what happens is when earnings go up, when the business cycle is strong, you have more earnings and you invest those earnings further out the risk curve. It's just really basic stuff. It happens for exactly the same as small caps, exactly the same with junk bonds, credit. They all operate in exactly the same way and the business cycle has been subdued. Listen to Scott Besson. He's telling you all day, as is Trump, is we're going to have a banner year next year. Why? Because they're going to jam the market with liquidity, and they're going to jam fiscal stimulus through as well.

19:43Yeah, if you think about it, the US is a service-based economy. They're going to get rid of tax on tips. That's a huge boost to people. There's like$1.5 trillion that will flow into the banking system just from that stuff alone, from the big, beautiful bill. Then we've got the changes to the SLR that allows maybe$3 or$4 trillion of credit creation from the banking system. We've got enormous amounts of this stuff lining up. Why? Because they want to win the election. The good thing is, for once, we've actually got a macro hedge fund manager running the Treasury. So I know how he thinks. He was a long-term global macro investor subscriber.

20:19I've known him for 20 years. And he understands the game, which is jam the business cycle going into the elections. So we've got that. We've got the debt to roll. It's kind of stacking up and it tells you your beloved or our beloved alt season is still to come. Bitcoin dominance, the same thing. It's driven by the same thing. It's much like when the economy is slow, people tend to be in treasuries. When the economy picks up, they go further out the risk curve in different types of credit. It's all the same cycle. So it's a very macro asset. And here's the chart of the ISM versus Bitcoin. And you can see the peaks and troughs correlate well.

20:56So are we at a top, which is the thing that people bleat on all day on Twitter, with the top of the cycle? We can't be because we're not topping in the ISM. In fact, we've not even gone above 50 yet, so we've not had economic expansion. Main Street has been struggling. They need rates to come lower. They need fiscal stimulus, and that's all to come. So probabilistically speaking, the business cycle lies ahead of us, and it should be quite rapid. So when we start looking at forecasting models of the business cycle, Here's the interest rate model. That suggests to us that the economy strengthens fast and quite dramatically in the next six to nine months.

21:37So that's good for altcoin season. That's good for crypto. That's good for all risk assets. Another way of looking at it is central banks. The number of them who are easing, that leads the business cycle, obviously, because they're cutting interest rates. So that tells us we've got a strong cycle still ahead of us. The one for us that matters the most is our financial conditions index. That's driven by rates, the dollar and commodity prices. And this chart has been very, very useful in predicting where everything goes. And it tells us in nine months time, the ISM should be at 57. And we don't think the financial conditions index is done yet.

22:21Another leg lower in the dollar, another leg lower in rates. And what we get is an extension of the cycle out further than nine months.

22:33So, again, this is a very good indicator. But we can add to this by thinking about liquidity and Bitcoin. Why does all this matter? Well, because the correlation of the two things of total liquidity and Bitcoin are extremely high. In fact, the correlation is 90%. Statistically, that is absurdly highly correlated. When you look at the NASDAQ, it is even more absurdly highly correlated. It's 97.5 % correlated with money printing. So money printing is the story that drives this. and then network adoption is what drives the outperformance. So if you think about the hurdle rate being 8%, everything above that is driven by network adoption of the technology.

23:21Liquidity, where are we now? Well, year-on-year liquidity is not very impressive. This kind of slow grind hire has been what we've lived through in crypto from the bottom. It's kind of stop-start. not. You know, things don't really get going. Some things get a narrative traction, then fall off again. It's because liquidity is not flowing through the system. We've had broken plumbing, and we've had no need to do it yet because we don't have to roll the debt until 2026. When we look at financial conditions, our lead indicator, and put them against total liquidity, well, we've now got a lead, a three-month lead.

23:57And it tells us liquidity is about to explode. And we know that because Scott Besson's telling us that. They're telling us they're going to add liquidity to the system. We know that because they have to, because the plumbing in the financial markets is breaking as well. So we've got that to come. And then when we overlay ISM, we've got this perfect dominoes of the economy. We've got a high lead indicator, financial conditions, leads by nine months. Then we've got total liquidity where Bitcoin and Nasdaq live. And then we've got the ISM where oil and commodities and cyclical things all live in.

24:30So we can understand how the market works over time and asset allocates accordingly. The other thing is part of that financial conditions is the dollar. Here's the dollar last time Trump was in versus this time. It's scarily the same. It would suggest that we probably have another leg lower in the dollar, which would give us another leg in financial conditions, which means that the cycle extends to the end of 2026, which is why I keep saying it's a longer cycle than people expect. Global M2 is doing roughly the same thing. We had that chop periods last time around with Trump. And again, we get the accelerated part as we go.

25:08So that feels like that's coming as well. But we've had a weird world in crypto in the last five months, four months, is where we've diverged from everybody. And we feel now we can't have nice things. It's all over. Everybody hates us. It's a terrible world out there. And it's because of stuff like the Global M2 chart. That was a chart I've shown for a long time. I said, listen, it's not going to be perfect. And then it started diverging wildly. What happened here was because of the lack of liquidity in the system, the Treasury began to increase its general account. There was no offset with a reverse repo and crypto being the furthest out on the risk curve got hit.

25:44But NASDAQ didn't get hit because everybody was underweight NASDAQ going into the last quarter of the year. But crypto got hit. And liquidity is still problematic, which is why the Fed started using the balance sheet again. And that's why we've struggled. It's not been easy because there's not been enough liquidity around in the system. Global M2 against NASDAQ's worked fine. And the reason being, again, is because asset allocators were underweight NASDAQ. it had been a good performer all year, and they've had to chase their benchmarks. So we've seen this kind of stuff, even though we've had kind of fear and greed in technology stocks extremely on the fear side, people have had to chase the market.