🎙 “The Biggest, Clearest Bet of All is Ethereum:" Raoul Pal

In this week’s episode I interview Raoul Pal, who retired from the hedge fund world at 36 years old and has run financial media company Real Vision for the seven years since. He predicted the housing bubble, he was early to call the devastating effect the pandemic would have on the economy, and now he gives us his thoughts on what he sees is coming up in the next few months.

Raoul believes the second half of 2021 will be worse than expected, but that the decline will be short-lived thanks to even more stimulus to be added to the global economy. This will cause risk assets to continue their climb, including crypto. And for that he’s well-positioned: he says 100% of his liquid net worth is in cryptocurrencies.

He plans to continue increasing his ETH exposure as all the most meaningful innovation in the blockchain space is happening on that network. In fact, he says the clearest bet of all for the next 12 months is Ethereum. Raoul is most bullish on social tokens. He believes that while DeFi’s potential is big , as it promises to replace the plumbing of the financial system, community tokens and NFTs are even bigger, as they can disrupt every business.

As for traditional assets such as equities and bonds, Raoul doesn’t believe they’re in a bubble. He says it seems that way but what’s actually happening is the relative value of fiat currencies is depreciating. Raoul believes an increasing number of people are starting to realize this. Fortunately, there’s a life raft waiting for them. The parallel financial system that's being built with crypto. 

The podcast was led by Camila Russo, and edited by Alp Gasimov. Transcript was edited by Owen Fernau.

🎙Listen to the interview in this week’s podcast episode here:

You’re a free signup, which means you get only part of the transcript below. Subscribe to never miss out on any content ($150/yr, $15/mo). Click here to pay with DAI ($100/yr).

Raoul Pal: This is the whole story of crypto, of me and my whole macro thing. So I had been noticing and commenting and writing about the global debt bubble since about 1998 when Asia fell apart on a debt bubble. And that was the Asian crisis. And I started noticing the same trends were happening in the West and Japan was also quite far ahead. So I was getting very worried about the financial system. Then 2008 came along, and we blurred the financial system, and the answer was to print money. And then 2012, we almost lost Europe as well based on the same issue, debt. 

Over that period, I started looking around for an answer. How can we avoid this? People had looked at gold. But that was only part of an answer. How do you actually build the financial system? So I started thinking about could I create the world's safest bank, one that held treasuries directly with the Federal Reserve, let's say or whatever it may be. So I spent about a year on that journey. And during that journey, one of my friends came to me and said, have you looked at Bitcoin? So that was 2013, early 2013. 

So I very quickly understood, you know what its promise had, particularly blockchain and the scarcity value. And I probably wrote the first ever stock-to-flow paper from a macro perspective in 2013 about how I valued Bitcoin versus gold, for example, using stock-to-flow analysis. And I first started investing in it back in 2013. And so I had followed the journey of crypto and learned about some of the other protocols and started getting interested in the whole space. 

And by about 2015, I'd started realizing that everything in the world was going to get tokenized in the end, and that this was going to be a predominant business model. But the Bitcoin price after the bull run in 2017 was coming down. And so I got out during that bull run too early. The forking wars had freaked me out a bit. So I got out, but I made a lot of money in it. Or made some good returns in it. 

And then I was following the space briefly. But my hypothesis was that when the next recession comes, we’re going to have to test all of this all over again: the financial system, debt, central bank printing, all of it. And so I was waiting for that. And my work and analysis suggested it was coming in 2020, and had started in 2019. So I was then starting to get much more focused on crypto. There were a lot of other macro things going on, the pandemic hit, which obviously accelerated the process and now made it the biggest economic event of all of our lifetimes.

So the answer was going to be, if my hypothesis was right, the biggest monetary experiment in recorded history that had to be the offset to this. I was then looking at the chart of Bitcoin and it was forming this perfect big triangle pattern, which is a nice consolidation pattern that usually precedes a breakout, and it backed into the middle of this triangle in March 2020 as everybody panicked, and all risk assets sold. And that was the time I said, this is the opportunity. There's only one way for this to go: it's either going to zero which was almost no chance, or this was the start of the move. So I started buying Bitcoin then. Then I really went very long when it broke 10,000 which was the triangle. 

And then over the course of the year, I got to 100% of my liquid net worth by about August last year, that was all in Bitcoin. And then I broadened that out and increased my Ethereum exposure by about October thinking that Ethereum was actually going to massively outperform for a couple of years. So increased my Ethereum exposure, and then added a basket of other tokens, and then took some macro bets in the future of where this is all going, which I think is communities, social tokens, that use of NFTs outside of just artwork but attaching assets to the blockchain, and also the metaverse. 

“And then over the course of the year, I got to 100% of my liquid net worth by about August last year, that was all in Bitcoin. And then I broadened that out and increased my Ethereum exposure by about October thinking that Ethereum was actually going to massively outperform for a couple of years.” 

So that's where I am now. And so I'm now mainly, I think about 55% of Ethereum, 25% Bitcoin, and the rest spread amongst a bunch of different tokens.

Camila Russo: Interesting. So you have continued to increase your Ethereum and other tokens’ exposure and reduce your exposure to Bitcoin?

RP: Correct. 

CR: And still 100% of your liquid assets?

RP: Literally 100%. Yeah.

CR: Is in crypto?

RP: Yes. 

CR: Wow. And it looks like the pandemic really triggered this, because you were waiting for a recession to happen to really go all in on crypto?

[ … ]

Paid subscribers have access to the full transcript.

Subscribe now so you don’t miss any of The Defiant content. Subscribers reading this post: Head to posts marked with the little lock to see the full content.

The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access at $15/month or $150/year, while free signups get only part of the content. Click here to pay with DAI ($100/yr).