Wealthion: Raoul Pal and Anthony Scaramucci on the Crypto Revolution

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0:44Use the link in the description and I'll see you there. It's going to be incredible. Hey, everyone. I'm Raoul Pal, and this is my show, The Journeyman, where we kind of get to the nexus between crypto, macro, and the exponential age of technology. One of the things that I've searched for in my investing life, which I think many of you have is the answer, the answer of how you can change your life. Because we don't just invest for the fun of it. We invest because we want that future vision of ourselves to be met. Now, sometimes we don't get there, but it's a really important thing because if not, you kind of feel like you've let yourself down.

1:31And in this world, when I started my career, life was a lot easier. You know, the 90s were a great time to be in markets. There was limited volatility when there were. It was a crisis that was kind of tradable, like the Asian crisis. Then we had the dot-com bubble. These were kind of big macro events where you could really make some returns. If I came out of the hedge fund industry and people made big returns over that period of time. But after that, returns got crushed on everything, particularly after 2008. Just how bank regulations changed the nature of risk-taking, what people were able to invest in, and the expected returns as GDP growth, trend rates came down across the world, as rates came down.

2:17And what you found is suddenly the expected returns out of stuff like the stock market just weren't good enough. and it's become a problem for all of us is the cost of many things has gone up particularly assets but our wages generally haven't gone up anywhere near as much just look at the houses around you the one you were trying to buy that doubled in price but your salary hasn't gone up and that's all part of this whole idea about how fucked up our future has become because of this demographic issue and the debt issues of the past. Those have now clogged up the economy and ruined all of our opportunity sets.

2:59And we all have to find a way to figure this out. And we've talked about this a lot on Real Vision. We had an immensely successful series called How to Unfuck Your Future. And we've actually got part two of How to Unfuck Your Future coming up. So watch this space, and we're going to cover everything from the big problems from commercial real estate to financial repression to also the opportunities in technology investing, crypto, obviously, and a whole bunch of other things. So it'll tell you where the problems lie, which you all know, but you don't know all of. And I urge you to go back to watch some of the content from the previous campaign where you can see about the big issues of demographics, for example, and my piece that intro'd it all back then.

3:43Now, obviously, I'll be doing something for this too. But I found one thing above all others really unfucked my future. And that was crypto. You know, I've talked about the value of having an income and the value of businesses and those kind of things and how to have lifestyle goals. And that lifestyle is the ultimate bank. But you also want the opportunity to get ahead, to start beating the game a bit. And crypto was the thing that really unfucked my future. and it's unfucking many of your future now, as long as you don't, sorry to swear so much, fuck this up. You know, it's really important that if you've been given the gift of the biggest macro opportunity of all time, that really you don't mess the whole thing up by doing stupid stuff.

4:31And again, it's like hold 80 or 90 % in your core major positions. Those should be in the top five tokens only. Then have a DJing bad where you want to trade FOMO mean coins or whatever you want, NFTs, you can do that, but not with the main part of your portfolio. There's plenty of returns to be made without taking the risk for that 100x. Those things don't come along often and very few people nail them. But crypto really is the biggest opportunity. It dwarfs everything else in risk-adjusted returns. And that for me was the big unlock. And it continues to be an unlock to today. And I think it's going to be with that for you too.

5:19So in this next journey, man, we're switching the tables. This time Mooch is interviewing me. I've interviewed him many times. He's a good friend of mine. And what we're trying to do here is he's trying to pick my brain in how I got into this in the first place, how I'm thinking about it and what I've been thinking going forwards. And I just thought it might add a bit of value for you you guys. Anyway, hope you enjoy conversation between myself and Mooch. Join me, Raoul Pal, 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.

6:01I don't like making these predictions because both people like you and I get beaten up over the head with it and said why didn't it happen yes i mean i guess yes i i i've made a lot of wrong position predictions which is why i want you to be wrong as well misery loves misery loves company as long as people accept that i am going to be 100 role

6:28welcome to well beyond and speak up and thanks for joining us i'm your host anthony scaramucci Before we start, I want to remind you that our mission at Wealthion is to help investors achieve their financial goals. We say become financially resilient, resilient in other ways in life, of course, as well. But financially resilient is the motto for Wealthion. So if you're interested in some expert guidance, go to Wealthion.com for a free no-obligation consultation with one of our fully vetted registered investment advisors. And while you're there, don't forget to subscribe and share our shows. Remember, Wealthy On is a conversation with you, our vibrant community.

7:10So keep the feedback coming. We want to hear what you have to say. And now let's dive into the show. I've got a great guest this week, a dear friend, Raul Paul. He is an author and an expert on many topics, macro crypto, Web3 and more. Raul Paul of Real Vision, welcome to Speak Up. It's good to see you, my friend. We're both in the tropics today, so we can gloat. I'm wearing my, you know, I don't know what this is. I think it's called a lei. You like that? Because you know you like that word. I've got the necklace. I've got the bracelet. So, yes, I'm here in Hawaii. So I want everybody, every speak-up viewer to eat their hearts out.

7:50I'm here in Hawaii. And you're also, you're obviously on Grand Cayman or Little Cayman. I came over from Little Cayman yesterday. I was there for a week. I've just come over to Grand Cayman because, you know, you've got to live between two small Caribbean islands. Amen. And you and by the way, and you deserve to live there because you've been right about so many different things. The first time I talked to you, by the way, about this, obviously, we go back three decades to Goldman Sachs, where we both share time there. First time I talked to you about all things Web3, Bitcoin, crypto was November of 2020.

8:26and I had just taken a position in Bitcoin. This is before my Ethereum and Solana positions. And you were explaining this stuff to me. And so before we go into where you are today, I want to go back. I want to go back to the day where the rock hit you in the head. And you said, wait a minute, I've got to be a part of this. Because Raul, you're a traditional finance guy, as am I. But yet you saw something and you were brave enough to make the transition. Tell our viewers and listeners what that was.

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10:45so my moment happened so i i'd left goldman i was running a hedge fund i'd left the hedge fund opted out the rat race moved to spain i was writing macroeconomic research global macro investor which i still write and i was writing and predicted the financial the financial crisis and then the european crisis that came just after i'm living in spain the banks are defaulting They're going bust. They're taking people's money out of their accounts and saying, it's not your money anymore. I'm seeing what happened at Lehman Brothers where nobody knows who owns what when a bank goes under. And I'm like, this is a huge problem.

11:24So I thought, maybe I can try and create the world's safest bank. So I went around the world with a bunch of family offices trying to start a bank. And we got stopped by the Dallas Fed. They said, you can't do a non-fractional reserve bank because you'll take all the deposits from the system. So we're just not going to allow it. But it's a good idea. I'm like, so a friend of mine, and I think you probably know him as well, Emil Woods and Chad Casquerilla. Yeah. They were Global Macro Investor subscribers. They said, take a look at Bitcoin. I'd kind of hit my radar screen in like 2011. but 2012 I went down the rabbit hole and realized actually this was an asset that you can own outside of the financial system that has value and the blockchain rails could everything in finance could be built upon them that was my first idea and so I wrote the first ever macro strategy piece about Bitcoin I think ever written back in March 2013 and I bought Bitcoin at$200 dollars.

12:26And then I've been in it ever since. And even when we started Real Vision, which is the kind of financial knowledge platform, the first video we ever did in 2014 had Bitcoin in it. We've taken as many people as possible on this journey to say, listen, crypto is really important. You just don't understand it yet. But everyone will find their way in, in how important it's going to be for a future financial system. Well, you mentioned Chad, so I'm going to talk a little bit about him. I had dinner with him last week in Miami. Chad was an early, early OG sort of a Bitcoiner. He was mining Bitcoin under$100 a coin.

13:06And he saw something that you're explaining, and I'll just throw in a few Chad quotes. He was like, this is an electronic data system that can tabulate and keep track of the world's wealth, fully distributed, fully transparent, and it's hard, so it can't be manipulated. And one of the things that you and I have seen over the course of our career is that we do get the money from a third party because people generally don't like and don't trust each other, and so they need a third party to validate things for them. But what we have found over 5 ,000 years is that third party has a tendency to corrupt the money, corrupt the tabulation of wealth by inflating the system.

13:50Of course, we had Lynn Alden, a friend of yours and mine last week on the show, talking about broken money. So before I switch over to macro, why is this so important? Why would this be so important to an individual, a high net worth individual, a middle class individual? Why would this sort of tabulation software system be so important? So I'm going to give two levels. The first, a very, very big picture level. is the world is awash with debt. Global debt is 400 % of global GDP. These are bananas numbers. So what does that mean? We talk about debt a lot. What it means, really, is the collateral, the assets, the back of the system, have lots and lots of people claiming on them.

14:44So if anything goes wrong, you get a fraction of your money back. also we're learning the banks are now bailing in creditors so you find that the issue in the leverage world is you actually don't think whatever you think you own you don't actually own it can be taken away from you that's the real issue we're trying to solve here at a very top level is how do i keep that recorded ownership of what is mine and what is yours and don't pollute them because some third party uses them for their own means. And then before you know it, nobody knows anything. But the other big change was obviously the internet.

15:23So when I got into this journey, the internet was around, but it wasn't the scale of what it is now. We're now creating these global nation states that are digital, that operate outside of the US or the UK or Europe. And they need a system of, as we get more digital, each day our lives get more digital. Digital assets now have value. This digital infrastructure is much more efficient at moving stuff around and recording the ownership. So if we now go to this system where in the United States you buy a house and it gets stamped and go to a notary and then it get recorded in a registrar, this can be instantaneous, everywhere and nowhere, and always verifiable.

16:09So it's really the operating system for the digital age. And without it, it kind of doesn't function. It's all a bit clunky. But with this, it's instantaneous settlement, recorded ownership and transfer of everything. See, I mean, this is where you got me with the bug three and a half years ago. I looked at Bitcoin. I have to confess this to people. And I didn't understand it. And I thought, OK, wait a minute. This is just a cryptographic code on the Internet. Why would somebody pay forty two thousand dollars for that? And then it dawned on me what you're saying, that this is actually a broad based tabulation system.

16:54And if you think about what money actually is, well, it's a broad based tabulation system. We're using this technology known as money so that we can transact with each other without bartering. But you and I both know, unfortunately, because of our debt-laden societies, the money gets corrupted by central banks and it gets corrupted by politicians. We were told by Jerome Powell last week in a 60 Minutes interview, you know, we're going to have debt for as far as the eye can see. There's a fiscal crisis coming to the United States unless politicians are going to intervene and become less reckless with their spending.

17:31And so I want to shift gears. I want to go back to one point before we do that. There's another layer on this, which was this thing that happened to both of us really three years ago, which was Ethereum. It's like, what is this smart contract business? So I want people to understand that everything humans do is basically a contract. All societies are organized by contracts. Me appearing with you was a contract over email. Even how societies work, how religions work, everything they're contracts. Some are not that important, like meeting a friend for a drink. You can say, hey, listen, I can't make it.

18:09Nobody's going to sue you for it. It might cost you more drinks next time, but that kind of thing. But others are really important. Insurance contracts, derivative contracts, contracts for ownership of property. All of this can now be digital, so you don't have to trust a third party. So we're now away from the system of money. we're now talking about verified truth electronically verifiable truth done by code so that means we can then get rid of middlemen all over the place and we've all spent too much money on lawyers we've all spent too much money on accountants we've all spent money with notaries all of this stuff disappears things like insurance companies don't need to be insurance companies anymore they're just contracts of payments and contracts the pooling of capital so it can be in literally anything from a ticket to a sports event to the most complex derivative contracts in the world can actually go on this new rails so it's much bigger than we either of us first or when we first saw it it's like no question about everything yeah no no question and we'll We'll get to Solana as well.

19:18So tie that in for us to the current macro situation, because you and I both know what we're talking about is still quite small in the global economy. The market capitalization of all of these cryptocurrencies, perhaps$1.7 trillion, again, based on market prices. Bitcoin is roughly half that at about eight hundred and fifty billion U.S. dollars, closing in on a trillion. But I guess I guess the question I have is what is happening in the world that has you so confident that this will rise for everybody and mainstream, Raoul? It will mainstream. So it's kind of at three levels. firstly people understand that the system is broken and they're looking for answers some people choose goals some people choose bitcoin people use different ways of of getting around this they can feel it it's all around you you can see it with populism you can see it with just how markets react so there's this feeling that i need to find an answer here a lot of that is being driven by, we know there's all this debt and I'm scared of it.

20:35Okay, that's good. The other thing is, what is the answer that the central banks chose or the governments? It was create more money. So you've got this macro backdrop of debt and this fear. That's driving adoption. And then people are finding new use cases like NFTs for smart contract stuff. That's creating a technology adoption like anything, like the internet was. And it happens to be the fastest adoption of any technology the world has ever seen except AI, which has been faster. But we're also finding that the central banks are debasing currency. They're making our money less valuable. So we're looking for things that are a store of value over time.

21:17That's not necessarily against goods inflation. It's against the thing that governments and central banks always do. They clip the corners off the coins until you've got no coin left. That's a way of taxing you without you knowing. And that's to pay the debts that the government has because of the aging population and all the debts out there. So those two things are driving the movement of crypto. So the crypto price is based off those two issues, the adoption of the technology, as everybody's starting to build on this new tech stack, and because it solves a lot of problems. And then it's the thing that the central banks are doing, are devaluing your currency all the time.

21:54that creates a super mega trend within this now it as a space is growing on average including the bear markets which are brutal as we all know it's growing at 100 a year as a space so there are 516 million wallets as of end of last year active wallets if it's growing at 100 percent by the end of this year it's a billion then the end of the year after it's two billion because so the numbers are vast as people are adopting it now the difference here between this and the internet or the mobile phone is we were users of the internet and mobile phone but we didn't make money out of it unless you happen to own the right shares but nobody could own the infrastructure of the internet different parts were here you can actually own the thing by owning a token.

22:48So we're getting to participate in something that has never happened for humanity, which is a global infrastructure being built by everybody around the world at the same time, and we can own a fraction of it. So this is, at an investor level, what now matters to everybody, this is the first global homogenous investment product the world has ever seen that can operate like this. So it's the same product. Bitcoin is Bitcoin in India as it is in Nigeria, as it is in London, as it is in Hawaii. It's the same thing. Indian investors can't trade Tesla shares. Yes, they can trade gold, but they don't have access to it because you have to go to the store and buy gold jewelry and you've lost a lot of the markup within that.

23:42But here, anybody can get a wallet because it's on the internet and you can send money home to your mother in the philippines from the united states instantaneously and by just owning one of the tokens an ethereum token or whatever it is you've got a share of it so if more people adopt it you get richer this is like one of the greatest schemes the world has ever seen in creating mass wealth not for wall street but for retail who got to front run all of this and create a new system that solves the problem of what the investment that what the central banks and governments are doing and solves the problem of an over indebted society i mean that's how big it is yeah and i just want to add a few things that you're saying that but i'm going to be more blunt about it but the central banks and the politicians have been drunk driving with the money and a result of which their reckless behavior is eroding the wealth of lower and middle class people, primarily people who are hourly workers.

24:46They get their money. It comes in. They have it. But it's worth 10 percent less in two years. And they've lost and eroded their purchasing power. Something like Bitcoin is stable. It's unfettered by the government. OK, so this is a decentralized system. We don't have to trust anybody but the decentralized nature of the system. So the facts are we don't trust any central authority because we're all working on it together to make it decentralized. So with that, tell us where we are. Are the rates coming down? Do we have more inflation ahead? Is there disinflation coming? Raul, where do you think the stock market is, et cetera?

25:28So let's look at those two component parts, main parts. one was the debt cycle that's not changing in fact the governments are issuing more debt to pay the interest on the previous debt and that's pushed interest rates up and it's made it even harder so the debt keeps going up okay so we haven't solved that one and it's just accelerating because we're now having to pay the interest on the covid um bond issuance debt issuance so it's going vertical right now so we know they're incentivized to continue this path on the other side is are they going to debase the currency well they've been doing the opposite in 2022 why crypto had such a bear market as most things did is they were taking liquidity out because there was inflation so here we are where if we look at trueflation which is a on blockchain measure of inflation it's at like 1.4 percent so inflation's come down it's not the boogeyman anymore.

26:27Growth, interest rates are too high for that kind of environment at five and a half percent. So the probability is they're going to lower interest rates. We're seeing China in an economic mess. They've got a full debt deflation going on. Same issues, aging population, high debts, everything's blowing up. They're likely to stimulate further. The Europeans are likely to end up stimulating further and eventually the US will stimulate more as well because they need to get growth to pay for these interest costs. So that is what lies ahead. And then we've got the other sweet spot in the middle of this, which is politicians hand out candy during elections.

27:08And the candy that everybody wants is stimulus. So they will hand out stimulus, which needs to be paid for. It either ends up on the Fed balance sheet or some other liquidity measure to allow the government to fund itself. So what we've got is a high probability that our money's going to be worth less, asset prices are going to rise, but our wages won't, which is the big problem. So our future selves are getting poorer because we can't afford as many assets. And we've got this massive wave of debts to be refinanced. So that's normally a very positive backdrop for crypto. Lots of liquidity and liquidity is what drives all markets.

27:50But crypto is the supermassive black hole that sucks in so much capital when this happens. Hey, everyone, we're going to take another quick break and hear a word from our partners. And then we'll be right back. Picture yourself on the beach, retired early and enjoying financial freedom. If this is your dream, then now's the time to level up your investing game and Real Vision can help you. We arm you with the knowledge, the tools, and the network to succeed on your financial journey on your own terms. Take control of your future and visit realvision.com forward slash free. I mean, it's a mouthful.

28:32I didn't get it in the beginning at all because I went to a classical economic training. You know, I'm going to date myself mid 80s. We were talking about stagflation and the Fed and managing the debt. And when I left school, I think the U.S. government had under a trillion and a half dollars of debt at that time. We've hypercycled this debt. And so let's just give everybody this this understanding from George Washington to George W. Bush, seven trillion dollars of debt, which we all thought was staggering. But we're now Barack Obama, Donald Trump, Joe Biden. They add$27 trillion of debt. We're at$34 trillion.

29:19So, you know, average citizen, Ro, explain it. How are they going to be OK? Is the average citizen going to be OK? Can the government get out of this? Will the government just have to print the$34 trillion coin? What happens, Ro? So the average citizen's not going to be okay unless they take action. This is why people are angry, whether you're on the left or whether you're on the right. You're angry because the system is failing you. And what's happening is you're a wage slave and you can't buy a house. Or you can't invest as much of the stock market that your parents could do. You just, A, cost of living is high.

29:59But B, asset prices keep coming up. and that's because they're debasing the currency. And what debasing the currency is, it sounds like a complicated economics term, but what it basically means is they're robbing you of the power to buy assets by, it's been on average, 15 % a year since 2008. So you're losing the ability to buy assets by 15 % a year. So each year you sit in a pile of cash and don't buy a house, that house is roughly going up at 15 % a year. That's bananas. You sit on cash for two years or you don't have any savings. It gets more and more expensive. What they're actually doing here is taxing you, but by hiding it.