#999 - How Can You Profit From This Next Cycle? | With Raoul Pal and Jamie Coutts

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0:57How can you profit from this next cycle? Hi, everyone. Welcome to the Real Vision Daily Briefing. I'm Maggie Lake. And with me today is Real Vision co-founder, Raoul Pal, and Jamie Coots, our chief crypto analyst. Hello, gentlemen. Double trouble. Hello, Maggie. Double trouble. Jamie's not even signing on to that. He's like, hi. Right. It's always double trouble when Raoul's here. And our opening question, listen, it's just a nice way of saying, how do we not F this up? Right? And that is the question that we've been asking all week and really looking at for the past two weeks in this special series we've been doing.

1:31And Raul, you kicked it off with some pretty stark warnings about the retirement crisis that we're all facing. But it's not all doom and gloom. And throughout the conversations, I was really struck by, even in the first week, the fact that there was optimism punching through, even though we were talking about some of these really big challenges. And some of it was sort of contrary. You know, on the one hand, it's really bad, but here's the sort of optimistic thing I'm thinking about. I'm just wondering how you're feeling as we wrap up this two-week campaign. I think people have been aware for a long time now that everybody's pretty fucked.

2:10And the world is kind of rigged against you unless you have all the assets. And so people get that. So I think a lot of people have been thinking through it. I think what's interesting is most people agree what's gone wrong. People aren't sure how it went wrong. I'm demographics biased, other people are whatever. But they all roughly agree with the problems itself. Debt, aging populations, excess intervention by central banks to try and solve these problems, all of these things, government interventions in the whole thing. But people have, financial markets are problem solvers by core. So they're always looking for different ways.

2:58And a bunch of people would say and have been saying for a long time, gold is the answer. And gold has done OK in this environment. It's protected global purchasing power. It hasn't created wealth, but it's kind of protected. Other people look at other ways of doing it. And I got to the conclusion that if everything is correlated and driven by this same debt cycle, then you just want to back the fastest asset. And by a long way, it's crypto, which I keep pounding the table, have done since 2014 on Real Vision, that this is the biggest macro opportunity of all time. Since the first time I talked about Bitcoin on Real Vision, it's up 450 ,000%.

3:41I mean, it sounds make-believe when you say that number. It's bananas, right? This is a bananas world we live in. And it's a gift. It is. So I'm going to take a step back and say one of the two themes that came up, yes, crypto was a part of it. And we know you feel strongly about that. Jamie's looking into it. And Jamie just said before we came on and we had some folks listening in, welcome to all you NFT holders, that when I looked at equities. So everyone has a foot in macro, still has a foot in macro, started out in macro before they went down into crypto or got on that bandwagon. But at the core, it's really technology, right?

4:19And that's the other big theme that came through in this series is sort of the technology revolution that we're facing. And blockchain is a part of that. The issue, and we're going to get into that in a little bit, and Jamie, I'm interested to hear your thoughts, has always been access to that, right? Whereas the rest of us can feel and use and access technology and invest more easily in technology, the crypto part of it has been a little bit more challenging, although that may be changing. So let's talk about those two buckets. And I'm going to start with technology first, Raoul. And one of the things that comes up again and again is AI.

4:58And we had a great conversation between Jordy and Beth. In fact, somebody's like, who's the genius that put those two together? And behind the scenes, we're all like, who is that? We think it might've been Raoul's idea. Damn you. We think it was your idea. But it was a great conversation. And really talking about what that's doing and ways to invest in that. And this is something that you've been looking at a long time. You've talked to both of them before in the past. Does it feel bubbly to you? Does it feel like we're in the early innings? How are you thinking about AI? There's not even an AI company to trade.

5:33We're trading. So I don't know how to bubble. I mean, yeah, you can trade Microsoft, but it comes with a bunch of other stuff. NVIDIA, okay, it's a chip maker. Yes, it's creating AI software and other stuff. That's the closest we've got. So it's not like there's a bunch of, you know, it's not like 2000 where every tech company goes up. We just don't have that. So I'm not sure how investable it really is outside of the semiconductors, which I've been long off for a year for ProMacro and also in the Exponentialist. And they've done incredibly well. And they continue to go well because there was a panic to buy compute.

6:13But what was really interesting is Elon Musk was talking earlier in the week about, okay, there's a panic to buy compute now. Most people have put in the sort of orders they need to put in. So going forwards, NVIDIA's growth may slow, whether it's next year or the year after, and it will inevitably slow, right? This is like a pandemic panic into purchasing stuff. But he's like, well, the next thing is you need transformers to step power down from power plants to chips. And it's like, we don't have enough in the world. He was speaking at Bosch, the German electronics company, and said, you guys need to make more of this stuff.

6:54We're about to run out of the ability to generate enough power to generate all of this stuff. And then he's saying, and then we've got a problem with electricity. We're just not ready for the amount of power we need for this compute. So this story is going to keep unfolding. And we really have only just started. Yeah. One of the interesting things Beth said was in this cycle, I thought this was such an interesting comment that a lot of what's happening, we'll see if it continues, is happening in publicly traded companies. Whereas previously, now that's not to say there's not a boatload of money being invested in the private market, chasing this.

7:29But there is a lot of activity in the public market as these companies move into that business. That wasn't always the case in other cycles. I thought that was so interesting. So think what's happening here. I'm not sure that VC in AI is even going to generate any returns. And the reason being is by the time you raise the capital, launch your product, but OpenAI has destroyed it. I actually personally believe that OpenAI is building AI using AGI or something close to AGI. So they're using, there's no way 500 people can generate this much disruption across this many business lines in this speed.

8:08So I think they're doing a different process than anybody else. So every time there's a bunch of new startups come along, OpenAI just basically destroys them. So I think it's very, very, very difficult to generate value in this space unless you have all the compute. So there's a few companies, the French one, Mistral. I'm not even sure how EMAD's stability AI will do. And I think it's really, really hard to compete in this. It's really hard to compete. You need deep pockets. You need that power. Eventually, as you mentioned, you're going to need the energy. It's different than what we've seen before.

8:47Because the applications layer, don't forget, by the time GPT-5 comes out, they'll have, Sam Alton was talking about this, they'll have multi-agents, which means that you can ask it to build a website that does X, blah, blah, blah, and it'll just do it all. So how do you build businesses on the applications layer when the AI itself can create the applications layer in 10 minutes? And then you get into the problem in the future is, let's say somebody developed something amazing, and it's really cool, and it's getting traction. So you go to the AGI and say, I want to replicate this product, but with stronger behavioral incentives, and I want to skew it towards the larger audience of India, go.

9:32It'll build it in 10 minutes. So then how do you build companies? And I talked about this in my piece, is like beyond 2030, this becomes a very, very, very complicated world because a lot of what we understand to be true will not be true any longer. Yeah, which is a daunting thing to think about. And this is also why we kind of kicked off the series close to the top of the geopolitical conversation with Dee Smith and Jacob, because you're talking about how to build businesses. How do you create a business in that environment? We've got to figure out how we operate as societies in that environment.

10:10And it's going to be messy as we make that transition. Jamie, I want to bring you in, though. Let's talk a little bit about what's happening in crypto. So, of course, that is the other big sort of opportunity set people are talking about. And we now have a situation where we have this Bitcoin ETF. So theoretically, it is a little bit more accessible to people. Some of the barrier perhaps has been taken down. We know that there's been headlines around how successful, how quickly it's grown, the most successful ETF launch ever, if you just look at the speed in which it generated inflows. How are you thinking about the crypto market in the wake of that?

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13:43yeah well i mean the success of the etf products um i think it's taken most people by surprise we're seeing just in the last week or the last couple of days we've seen some outflows so we're starting to see that first that first pullback really from the um from what we saw from the outset but really we are still very very early in this game there are a lot of platforms that have not yet signed up or opened up to the ETFs. So I think this will be a drip feed into the market over many, many years. But Bitcoin is still going to be subject and crypto is still going to be subject to the same cycles that we've seen before.

14:21So the real big question now in regards to the ETFs is what about Ethereum? And so obviously, we've got an SEC that is still outwardly against the idea of an Ethereum ETF, which is just bananas when you think about it. Like they've approved an Ethereum futures ETF. So they, I mean, if that's the case, then what they've done is effectively illegal by approving that product in the first place. You've got all of the emails that came out from the previous chairman, which clearly stated that amongst all the SEC officials At that time, they didn't believe that Ethereum was a security. So it's confusing to the market.

15:06I think this is really just the last gasping breaths of a system or an institution that is beholden to certain interests that are not aligned with the future, not aligned with the productivity and the innovation that's required to dig the country and to dig every nation state out of the hole that's been created over the last multi-decade period. And so I think we're starting to see one of the best indicators for the change in sentiment that we're seeing globally is really what's happening just in the US presidential election cycle this time around. Like in 2020, Raoul, do you remember anyone suggesting without being laughed out of the room that it would become a presidential issue or a policy platform of any of the presidential candidates.

15:59It was like, it was not even remotely on the radar. Now you've got candidates from all sides of politics actually promoting the concepts of, you know, monetary sovereignty and the need for, you know, a digital hard asset, a neutral currency like Bitcoin, but it's extending to also the cryptocurrency space as well. So I just think it's, you know, what we're seeing is just the last gasps of, you know. One of my views on this, Jamie, is that everybody knows how messy the system is. I think the central bankers are not stupid. Everybody knows, and they know what they're doing. They're debasing currency to try to not let the system blow up because all of the savings are with the retirees, and it's, you know, it's a big mess.

16:47So their one job is to not allow the migration into crypto land to happen too fast. I don't think they're going to stop it. I don't think they even probably want to stop it. I don't think the banks want to stop it. I don't think anybody wants to stop it. But I think their real job is to slow it down. What they don't want is Bitcoin deemed to be a currency, a world currency. As an asset, as a store of value, knock your socks off. as an investment, no problem. You want to build on top of the technology, no problem. Just don't think of it as a world currency because that threatens the overall system.

17:26But that's kind of, I just think of them as throttling it. So even, you know, I think all of us are laughing at the SEC trying to now call Ether security. I think it's just a delay tactic as ever. Just slow it down. It could very well be, but I also think about it this way. It's the dynamics of a messy democratic system where you've got vested interests. And I think some vested interests do want to stop it. But what it ends up being is this sort of just basically putting the brakes on the slowing it down, as you said, because there's now multiple factions involved. And that creates the market for the prices, but also it creates the market for the memes and everything else that comes to regulations.

18:11So it feels frustrating. One thing that makes me laugh, Jamie, is the more that they try and constrict it or slow it down, whatever, right, the more the space gets ridiculous. The more the memes come, the more the middle finger comes up, the more the space reacts to that kind of pressure. it makes me laugh how much people don't care about what the old system says anymore. Yeah, I don't think they fully understand what they're messing with, right? So, Raoul, you guys, you find it, by the way, there was like for one hot second almost a meme coin of Raoul, if I'm not mistaken, which was hilarious this week.

18:57But you find it funny and entertaining and a sort of F you to the man, to the government, or to the regulators. Other people see this as sort of casino-like volatility that scares them when they're trying to think about whether they should go into this or put this in their portfolio or try to figure out how to go through the hoops to do that. Melvin asked, we've seen massive Bitcoin ETF inflows. Will we see massive outflows when we reach the end of macro summer, beginning fall? Or will the institutions behave differently this time? Jamie, first of all, is this being driven by institutions? Jim Bianco made the argument that this is still on steroids.

19:42This is weak retail hands, he feels like, and people who are looking for the early gain. He doesn't feel like there's a lot of institutional muscle in this yet. But either of you can disagree with that. But how should we think about this volatility? And Raul, I know you're always warning that this is an alien asset still and it's young and this is part of what you buy into when you go there. But if we're talking about crypto as a possible way to build wealth in the next 10 years before none of us can see the future anymore, that matters to some people, especially depending on your risk profile.

20:15Jamie, you first and then Ralph. Okay. So the market structure has definitely changed. It changes every single cycle. There's a new cohort that comes in. So there is institutions involved in this cycle. You can see it in the median transaction value of Bitcoin transfers. So it reached a, you know, a disastrously low median price of transfer level around seven or eight months ago. It was just, it was around$10. Now that's gone up to$300. It's just one measure. I mean, the price has gone up as well. So you have to sort of disentangle that, but definitely transfer values and the on-chain data is clear.

20:56Some of the buyers of the ETFs are institutions. BlackRock and Fidelity themselves are allocating some of their other ETFs, their multi-asset ETFs into this product, which was always the long-term gain plan. And so I think a lot of institutions are doing the same thing. They're thinking about as the new asset class. I certainly think that is the case. Digital assets in a whole, and I would bucket that Bitcoin and everything else. But some of the allocations are going into long-term multi-asset type portfolios, which will have an impact, a very differing impact on the cycles because the way that they treat those allocations, the way they rebalance based on performance will change and potentially smooth some of the volatility over the long term.

21:45But there's still retail there. There's still the same sort of FOMO activity that we've seen in previous cycles. But I don't think you can say that this is the same as every other cycle. It's changed.

22:01Also, the RAAs do the same kind of thing. It's like they just often will say to their clients, we'll put 1 % of your portfolio into discretionary stuff. So that changes. I think they all are aware how volatile this is. It's been sold to them as a volatile asset, and this is a long-term thing. My guess is there's more long-term holders. Later, you'll get the FOMO retail of everybody trying to do this. But right now, this is a lot of people like Bitwise, Fidelity, Franklin, everybody going to their client base, talking them through it, explaining it. This is more thoughtful allocation. The other thing that people haven't realized is you can now put it in your 401k.

22:43So the average millennial who's a buyer of the NASDAQ or the S &P 500 passive index products will buy this. And they'll buy it every two weeks with a paycheck. And so we will see a difference in the structure of flows, as Jamie's alluding to. It's just going to change. Probably means it's less volatile on the down cycle. It also could cause a full bubble in the upcycle this time around because you've got numerous new participants who could enter. And this is a limited supply asset, and 80 % of it's hoarded. So it can get pretty tricky. So I don't know how it plays out. But I don't agree with Jim Bianco.

23:24I know a lot of purists don't like it because it's an ETF and not people opening wallets and self-custody. I actually think of it as a Trojan horse, where we're actually teaching people about this product. Before you know it, they understand why they're buying it, and they come into crypto land. So I think it's relatively good quality holders. Also, Hunter Horsley hinted that, I think it's on the quarterly statements, you'll see who the big holders of the ETFs are. And he hinted that you'll be surprised who's on the list. Bitwise, right, Hunter? Bitwise, yeah. Yeah. Interesting. Yeah, I've heard the suspicion too, Maggie, that we've already started to see accumulation by institutions at a sovereign level, whether that's sovereign wealth funds, the pensions, potentially nation states.

24:17You've got mining operations now in several countries around the world where the countries themselves have co-invested with private mining companies. So, and these are countries that are sort of typically energy rich. and significant players within that, you know, within the energy markets. And I think they see the world very differently to, you know, Europe or the United States or Western countries. I don't think we'll see any major announcements in the short term. I just think that, you know, my working hypothesis is that they're accumulating. They've got access to virgin Bitcoin through the mining operations.

24:53If they foresee a world in which Bitcoin does become significant, they can avoid one of the major steps in disclosing and showing their cards by going to a BlackRock, going to a Coinbase to acquire coins. They have access to Virgin coins domestically. So it's just, you know, it's another sign for me that, you know, the game has changed. Fascinating stuff. And Pluto5, I think that answers your question. SlimyTom, I love these handles. Slummy Tom asks, we had a mild crypto correction. Do either of you think we will face a more substantial drawdown along the lines of the usual pre-halving 30 plus percent?

25:34It doesn't feel so. I mean, we did, I mean, Sol did, what, 23 percent? Maybe it makes a new low. It could be an ABC correction or it just forms another little wedge pattern. I don't really have a strong view, but you should just expect 30 percent as normal course of business. And if you get away with less than that, great. I don't know, Jamie, you got a view? We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing. Few investments make a better long-term hedge against inflation, depression, and economic downturns than precious metals like gold and silver.