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Raoul Pal’s Introduction to the Exponential Age

This information is from Raoul Pal’s excellent YouTube video that is embedded on the page above. You can also find it at the following link on YouTube:

Hello, I will introduce myself as RAOUL PAL of Global Macro Investor and not as RAOUL PAL, CEO Real Vision. I such as to compare both because Real Vision has no opinion, but I do.

I get paid to have an opinion for some of the world’s most significant hedge funds, sovereign wealth funds, family offices, high net worths, etc. That’s my research business, Global Macro Investor.

I want to give you the big picture, the massive picture of where I think everything is going. This, of course, is mostly about digital assets because I think that’s the essential thing that everybody needs to understand.

Journey of discovery to you

I’m going to describe my journey of discovery to you so that you can piece together some of what I’ve learned along the way because there’s a lot of narratives that you’ve heard me talk about. Still, I haven’t put it all together to give somebody or all of you something substantial to get your head around.

Now, again, you don’t have to agree with everything. Still, I want to show you my journey, how I got here, what I think is going on in the macro backdrop, what I think that means, and why I chose Bitcoin and then Cryptocurrencies, why I diversified, where I think the actual space is going, and where this whole thing is going, and how it fits into the future of everything.

There’s a whole lot here. It’s going to take a little moment of time, and it’s probably going to take a few watches of this to get over everything that I’m trying to talk about.

Let’s go back to the beginning

2008 was a period where I will even go back to 2000. In 2000, we started to see the debt bubble grow and the rise of central banks.

Alan Greenspan in 1987 was the first to stop using interest rates to stabilize markets, which became the modus operandi in 1998 when long-term capital exploded. The Fed did it over and over again under Greenspan. Then we had the stock market crash and recession in 2000. Again, interest rates were used heavily.

Well, the money illusion meant that lower interest rates, people thought, I’m going to take on more debt, so they took on more and more debt. That led to the housing bubble, as we know. That exploded and almost brought down the global financial system. Now, I was in Spain at the time.

I had left the hedge fund industry, but I was still writing, as I do today, Global Macro Investor. I realized that the system’s fragility was becoming the most urgent thing and that we hadn’t solved it after 2008.

European crisis in 2012

In fact, by the time we got into the European crisis in 2012, it was pretty darn clear that it hadn’t been solved at all, and debt was the big problem. The only answer at that stage became printing money because there was no other way to deal with it.

It had become too big, too gigantic, too scary, too dangerous for anyone who wanted to keep the fire burning. The whole Austrian economic idea of creative destruction was now almost impossible.

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RAOUL PAL: for anyone who keeps the fire burning.

The whole Austrian economic idea of creative destruction was now almost impossible to implement because the destruction would have been total and complete. many people think well, the bankers could have gone down.

Maybe we should have cleared everything. Well, at this point, with so many older people as baby boomers in retirement, in their retirement years, you would have also destroyed everybody’s savings and investments.

That is fine if you start with nothing, but anyone who started with anything would have been destroyed. Now, this story should come as no surprise to you because it is the story of Japan.

We saw this in Japan, where the Japanese realized that they could not destroy their aging population and their savings. The only thing that could do was to try to manage the crisis through the role of the central bank and merging it with government policy and fiscal policy.

Japan was the petri dish for all of that, and almost everything that Japan has done has happened elsewhere in the world.

After 2012, I wanted to make sure that there was a way out. Well, that was the first time I wrote an article. It goes back to 2013; I wrote an article called “The Life Raft,” where I talked about Gold and, in fact, Bitcoin.

Bitcoin on my radar screen

I had started to have Bitcoin on my radar screen because some good friends of mine, some members of Global Macro Investor, were involved in the early days.

I wanted to create the safest bank in the world; that was the idea. A bank that held only U.S. Treasurys, and that any money on deposit was fully backed by Treasurys held at the Fed. No rehypothecation, no nothing. It was a bank outside the banking system.

I had this idea, but it’s damn hard to start a bank, and people like Caitlin Long are good at it; it’s tough to do. I went around the world looking at this idea, and the Bitcoin idea came to me from Emil Woods. Emil said to me, listen, this could be your answer.

I had seen it and looked at it, and it was exciting. In 2013 I bought it, it went up 100% in a month, and I sold; I was like, wow, okay, what was that?

I created an article in 2013 or 2014 concerning the stock to flow of Bitcoin, looking at it against Gold, and saying with Gold at about $1300, where it was at the time, I would assume about without doing the great math that my friend Plan B has managed to do.

I had a rough rule of thumb that Bitcoin was probably worth a million dollars in relative terms by getting the inventory to flow, how much Gold was on the ground, how much Gold was being mined, etc., extrapolating that back into the Bitcoin price.

That gave us a macro framework. That macro framework became pretty well known at the time and was passed around and brought many people into space.

Then I was out of the space for a while and came back in around 2015, 2016. I started buying, again, probably around 200, and I think I sold early when the forks happened. That was the FUD of the day. We had scandals and S-curve moments in Bitcoin all the time. At that moment, I didn’t understand the ecosystem.

I didn’t understand the adoption effects of Metcalfe’s Law, and it was much earlier. I thought this was an existential crisis. When you fork something, what did that mean? I didn’t know. I wasn’t feeling well, and I had made ten times my money, it was at 2000 at that point, so I was taking profits.

Of course, then it went up again 10x, and I felt like an idiot. Well, I didn’t. I have money in the bank, but I didn’t make as much money as I could have, should have. I didn’t have a massive split. I have a deep, reasonable size but no life-changing amounts.

It taught me a lot about the cycle. I pretty much saw the top of the market, and then it came down. I still believed in what Bitcoin was, but I didn’t think about a time and place right now. I thought it mattered because macro mattered to Bitcoin and didn’t exist in a vacuum. It wasn’t on my radar screen.

I was looking at most of the macro opportunities. We’re talking about 2018, 2019, 20182019. We saw some exciting opportunities in the bond market because I thought the global economic cycle was slowing down, and we had one last shot at the interest rate trade, the heroic trade of loading up on Eurodollar futures because the Fed had to cut rates and offset the rate hike that they made.

I know that the bond market would start pricing in deflation again because my economic indicator started predicting a recession. That came, as we know, in March, but in March, we go back a little bit.

I had always said that Crypto and Bitcoin in particular and macro were the same things. They didn’t know it yet. Most of the attendees didn’t know and didn’t understand. Crypto came from a different community. It came from a community of developers, the cypherpunks.

It came from the philosophy of the Austrian school of economics. It came out of libertarian philosophy. It came out of several different things, but it started to catch the attention of finance people, especially macro guys like me.

Our job is to find assets that best represent our views and where we are in the world, and we’re all concerned without question about the debt supercycle and how that’s all unfolding. When we saw Bitcoin, people switched over one by one.

As we know, Dan Morehead was the first and then a lot of people, whether it was John Burbank, Mark Yusko, whether it was Dan Tapiero, whether it was me, Mike Novogratz. Little by little, everybody from the macro world.

Stan Druckenmiller, Paul Tudor Jones, Alan Howard, whoever, they all come over. Because they recognized the magnitude of the opportunity because we all knew that these were not parallel paths but converging paths, they all converged last March.

That’s when I got excited when Bitcoin collapsed in the significant liquidation. It had been building this beautiful chart pattern, that beautiful, massive, gigantic wedge.

I call it the best chart pattern in the world, and a break of 10,000 will be the confirmation. I loaded up with every single penny that I had available. I put it all into Bitcoin, and it broke out.

Because what was going on was we were now going into the most significant recession, maybe in all recorded history.

As you remember, my thesis was liquidation phase, which was into March, and I closed out on my shorts, then it was going to be the hope phase. Then it was going to be the insolvency phase.

The Hope Phase

The hope phase happened, built on vaccines, and things will be okay, and herd immunity and all the narratives that happen.

Something else happened, too. Interestingly, the real-time economies didn’t pick up for a while.

They did exactly what was expected, but the markets didn’t. The markets did the opposite. I said that we would probably end the year with GDP growth of -3% to -5% year-over-year, and that’s where we ended up.

Hope was misplaced because the economy sucked and people were getting laid off, and structural unemployment, and many the people in retail, for example, will never find a job again. There was a fundamental structural problem.

The Bankruptcy Phase

The bankruptcy phase should have been that the BBB companies, the giant corporations, were running out of cash because they didn’t have enough cash flow to make the debt payments that they needed to make.

It’s getting harder and harder, the stock price is falling, and the whole thing is getting harder. That also happened at the household level, where the households, where some people were furloughed, some people got payments, but at some point, the payments stopped. If they didn’t have jobs, the musical chairs would stop, and you’ve screwed the same thing with small businesses.

We saw that the government did something immediately that it had never done before, which was immediate transfer payments. That was an impressive step toward an MMT-style environment, where fiscal policy and monetary policy are roughly the same things, or they work hand in hand, which is what we’ve seen in Japan over the years.

That was amazing. It helped a lot of people and delayed the insolvency phase. Technically, many companies, many people, many businesses are insolvent, but they are kept alive by central banks and governments. To this day, we are still in the same cycle.

It has become apparent, and I have talked about this in the past, that governments and central banks need to do absolutely everything they can to avoid the insolvency phase. I guessed that it’s unlikely that we’re going to resolve everything.

I think it is playing out longer, and it is actually in play, but we won’t know until we try to get back to some normalcy. That’s one of the main reasons why central banks can’t allow interest rates to go up because you will destroy any chance of recovery. Anything the market wants to do to price in higher interest rates leads to steering the yield curve.

We have pseudo yield curve steering in Europe, we have yield curve steering in Australia, we have it in Japan, and I think it would come in the United States.

That means that interest rates can’t price in inflation. Now, I’m not an inflationist. I think we’re going to get cyclical inflation because of the supply constraints and the massive increase in individuals coming back into the labor market and back into the economy.

While we’ve calmed down, I think the narrative of debt deflation, technology, globalization, the aging population, all these things will continue to fuel inflation.

Over time, as the economy settles into the trend growth rate, inflation may fall. I actually think that the trend growth rate could change positively, and I’ll get into that at the very end, but there’s not really a post on that, and that all comes later.

It’s the macro background that’s very important to understand because the only answer to that was to create more money. That creation of more money was very beneficial to Bitcoin because that’s basically what it was created for.

I pointed out early on, in March and April, that Bitcoin was two things. It was the store of value narrative, and it also had a call option on the future.

I started to develop some great meta-narratives to help people cross the line. Because I know it’s a scary different world, and people don’t understand this weird digital bunny.

I do not wish to expend it. I’ve been trying to explain to people in simple terms what the original collateral is all about, how it’s superior to a lot of the things we have in the existing system, or all the things we have, how it’s different, how you can’t create more of it, or how it’s worth more as collateral, and therefore a better cornerstone for the financial system of the future.

As a store of value, it resembles the printing of money and how it could transition into a future economic system with incredible value.

That’s what made me irresponsibly long. I think that helped a lot of people get over the line. The next part of that, which I think was maybe the light bulb moment for a lot of people, was my Bretton Woods, the new Bretton Woods, the Bitcoin lifeboat piece, and that was essentially saying that, okay, we all see this coming, it’s the central banks have seen this digitization of money, and they want to be involved.

They want to create a central bank digital currency, not as a competitor to Bitcoin, but as a side agent within this new digital money system. That’s all well and good.

These are stable government coins. Good. I get it, and it’s much better. It works well, but it also has other qualities because the other qualities are programmable.

Essentially, the central banks can program the money so that we all have different monetary policies or a different tax system, or whatever it might be.

The point is that Behavioral Economics will creep into monetary and fiscal policy, which are interconnected. Now, we have to rely on:

what central banks do. Can they destroy money? Can they destroy our capital, our savings?

Of course, they can, and we needed a life raft, and Bitcoin was going to be it. As we fast forward, we now see pretty much every government on the planet with record deficits. That means they’re all theoretically bankrupt.

We know that in this modern world of money printing, the bankruptcy of governments doesn’t mean the same thing unless you can’t print money, so emerging markets go bankrupt, but developed markets don’t. The answer to these record deficits is just the story of debt.

How do you finance that debt? Well, you finance it the old way: through taxation, inflation, and devaluation. Taxes are being raised all over the world, without question.

There are very few you can do about it because of the legalities, whether you like it or not, but inflation and devaluation are two different things.

Now central banks around the world have set inflation targets that are higher than what we have now.

Will they be able to achieve them? My opinion is still and has been for 20 or maybe even 30 years: No, I don’t think inflation can be generated structurally. I could be wrong. Of course, I could be. Let’s wait for the massive fiscal stimulus that has to come.

Because these deficits are not going away, the U.S. alone is due for another round of substantial stimulus programs this year, not to mention Europe.

Now, Europe will be hit by the virus again, but there’s going to be more stimulus. There are more stimulus programs almost everywhere.

I don’t think maybe infrastructure spending is creating inflation, and maybe it’s just cyclical, maybe it’s structural, maybe it’s all changing.

I don’t know how you get around the rise of technology, the aging population, globalization, and debt dynamics. I don’t know how you create inflation in the process.

Let’s assume that doesn’t happen. It’s cyclical; it spooks the bond market, the Fed controls the yield curve and expands the balance sheet again when that happens. That’s an exciting thing, but demonetization is the thing I was thinking about.

I think people confuse inflation, CPI, and demonetization. Most people expect the dollar to collapse and don’t think that everybody else is printing money.

It seems like, sure, the dollar could go lower, well, they do more than the Europeans, but overall, if you look with honesty at the DXY, something that I expected to break out higher, either the dollar higher than last year, and it didn’t.

When I look at the chart, it didn’t break out lower either because that’s what everybody thought. It looks like it’s in a range at about 96 as an average.

So the currencies are not moving. That’s interesting, that got me thinking, and interest rates can’t move either. Because when they go up, the yield curve is controlled.

When they go down, they’ll try to stimulate the economy more, and interest rates drift up a little bit. Let’s say the 10-year U.S. interest rates move between 0% and 2%.

Maybe they’ll go negative, and maybe they won’t. Either way, there is no interest rate trade to be had. The death depth of macro in interest rates, I think, is writ large.

I know many people think, no, no, you can short interest rates forever as inflation comes back, but the central bank is not going to do that. We have seen that in Japan. What’s very interesting is that controlling the yield curve means they buy bonds, and the Fed buys bonds by printing money.

I looked at that, and I thought to myself, okay, if there is no inflation, where does this money printing go? There was the argument for a long time, which I disagreed with, that QE finds its way into the financial markets.

I thought I don’t see that mechanism perse. Of course, it finds its way in some places; wealthier people, companies with better balance sheets find it easier to borrow. You see it in the credit markets, how easy they are, those kinds of things.

I understand that, but the stock market was the one that didn’t pass the smell test because the stock market went up on the back of QE, but the volume did not.

What’s the buying then? Where is the buyer? What’s going on here? At that point, I started looking at the chart of Bitcoin versus other assets, and many of you will have seen that in Macro Insiders and also on Twitter.

What became apparent, and this was strange now when we talked about September, October of last year was that Bitcoin was about to outperform every single asset on the planet and had already done so.

All the charts of, say, Bitcoin versus the S&P, Bitcoin versus the NASDAQ, Bitcoin versus Gold, Bitcoin versus real estate, Bitcoin versus everything I could find, every asset. Sure, you can all find a single stock that did better, but one asset class, not one asset class in the world, looked like it was outperforming Bitcoin.

I’ve never seen anything like that in my entire career. That made me stay up and take notice. Then I compared it to the Fed balance sheet.

Fed balance sheet

First, I looked at the S&P compared to the Fed balance sheet because the Fed balance sheet is the purest expression of money printing.

I also use the G4 central bank balance sheets to look at global money printing. Let’s use the S&P versus the Fed balance sheet; you can see the chart here. The market fell 80% in 2008 and has moved sideways on this chart since then.

What’s interesting is that Gold looks similar. If you look at the chart of Gold divided by the Fed balance sheet, it looks similar.

If I look at the chart of real estate versus the Federal Reserve’s balance sheet, it also looks similar. If I look at the chart of Gold, which is the oldest denominator, the form of money versus the S&P, the S&P doesn’t look particularly expensive, a little bit expensive, but not the bubble that we see.

That got me thinking about these relative asset prices and the fact that Bitcoin is outperforming everything. I realized that we’re all looking at that part, and I certainly had. This chart or these charts show that the denominator, which is not the U.S. dollar per se, but the value of the fiat currency in terms of the assets that you can buy with it because that’s essentially all fixed assets or low supply assets.

Anything that was a low-supply asset went up in price, but in dollar terms, the price goes up, but if you look at the money printing, they held themselves after the massive collapse of 2008, and that feels intuitively right to us.

The anger, frustration, and economic malaise that has occurred since then are a function of that, making sense. Variable inputs, like consumer goods and wages, have been destroyed as a result.

That also makes sense. Your wages allowed you to buy fewer assets. If assets are a way to create savings for future consumption, you could buy fewer of them. Therein lies the retirement crisis; therein lies the ability of Millennials to buy housing. So therein lies the reason why the middle class is held out.

Now, of course, the wage is also a competition among global workers. It’s also a competition, significantly, against technology, which is slowly grinding away and killing the job’s job. That’s what creates this imbalance. everybody is right. Central banks are creating a problem here because they’re doing the old thing of debasing the currency.

Everyone is looking in the wrong direction because they are looking for CPI inflation, and the cost of goods is going up. Yes and no, the cost of some things is going up, things that the baby boomers drive because they were the driver of inflation, things like health care and their kids, the millennials, the record number drove up the cost of tuition.

That’s going down now because they’re all getting out of college age, and Generation Z is smaller, but the Boomers are still driving that. Overall, the asset basket is going down, but the asset basket continues to go up.

It’s just adjusting its price terms to the denominator that has fallen since 2008, which is the endless printing of money.

It’s not that it’s creating a bubble. The bubble is on the central bank’s balance sheet; the assets are not in a bubble because when you look at them relative to each other, they make virtually no sense.

That’s a significant shift in thinking. You have to think about what that means, but the only asset in the world that offsets money printing is not Gold. It’s Bitcoin.

Bitcoin has not only matched the money printing, but it has also massively outperformed it. Another asset has, which is the NASDAQ after 2008. Before 2008, no, Bitcoin didn’t exist before 2008 either. The NASDAQ did, and I’ll get to that towards the end.

Bitcoin is the one thing that outperforms the Fed balance sheet. That means it is offsetting the devaluation of the currency. We can also look at this trend globally. It works for the MSCI world versus the G4 central banks.

Everything is a function of any limited supply asset is skyrocketing in price. That’s why the art market is going up, and the wine market is going up, the classic car market is going up.

It’s not because rich people have exponentially more money. Well, they do because they can buy these things, and they go up in price, but actually, even real estate has just offset that devaluation of the currency.

When I realized that and that Bitcoin will be the supermassive black hole that hits all the other asset classes, I just realized that there’s no point in doing anything else.

That’s the exact point where we launched Real Vision Crypto because I realized it’s the biggest damn point I’ve ever seen in my life. The more time I spend on it, the bigger it gets. I vastly underestimated how big it all is.

Currently, there is a school of thought that Bitcoin, if it develops, will become the one actual money. Is that possible? Of course, it is possible. Is it likely?

Less likely, I think. I don’t believe Gresham’s Law that all attracted money goes to the most complex form of money. I don’t think that has been proven over time. I understand the arguments, and right now, it doesn’t matter.

Also, I think Bitcoin is the cornerstone of what we need for a new financial system because we are indeed destroying the one we are in.

It is self-destruction. There is no collapse of the bond market; the stock market may not collapse because the central bank prints money every time.

Well, that money doesn’t go into the stock market; the stock market is repriced. Again, to clarify, here is the chart of the Venezuelan stock market. It’s gone up exponentially.

Here is the chart of the Venezuelan stock market in dollar terms. It has collapsed from currency devaluation, and then cents traded sideways. That’s the exact mechanism; it was the same mechanism in the Weimer Republic.

So, I don’t necessarily know if we’re going to go that far, but who knows? We need the proper life raft for that because we are going into unprecedented times.

The innovative feature of this technique is that it doesn’t show up on the bond market. And even if it does, it’s hidden.

It does not show up in the consumer price index because it doesn’t change the cost of computers or televisions or food. It doesn’t show up in things that look bad. The stock market is going up, hooray.

It’s not obvious to people how they’re getting screwed, but everybody knows they’re getting screwed. It’s the denominator change, the devaluation of fiat currency.

Overall, that means you can’t buy as many assets as you could, and therefore your structural savings are worse. Now, with record-low interest rates, you have no chance of making money. Well, not until Bitcoin.

Bitcoin was the game-changer. This supermassive black hole that people would realize would suck in everybody, but everybody, and it definitely will for that base of the financial system because it’s unadulterated security.

Right now, the collateral for the whole market is U.S. Treasurys, but bizarrely, you can create more of them. Why should I hold your collateral when you are creating more, and more of it, and the yields are falling? Will I be rewarded less for lending my collateral to you?

Why should I? Is Bitcoin very different? Bitcoin’s structure means you can’t create more of it.

As collateral, it is precious. That doesn’t change because more people, because the government can print more of it, like the current collateral.

It is unadulterated.

It’s also a fantastic store of value because of the limited supply and all the other parts of it, the robustness and distributed network. It’s a compelling technology that we all know about now. That brings me to December. December is when I started looking into Ethereum.

I wanted to understand the Crypto space as a whole. Because if somebody tells me, and a lot of people did, don’t look at anything else; you’re a fraud.

You’re a shitcoiner; you’re a fraud; if I’m looking at something else, I want to look at it. I started looking into Ethereum. I realized how incredibly robust the ecosystem is.

The volume, the sheer number of developers, programmers, applications, the ecosystem were bigger than Bitcoin. The growth in wallet addresses was about the same as Bitcoin.

I think about that. I was sent an article by – I think it was the NYDIG guys. They were looking into Metcalfe’s Law.

Metcalfe’s Law and how it probably applies to Bitcoin

I asked Remi and turned to Santiago Velez and said, listen, can you help me develop a model of Metcalfe’s Law, just a simple one? We don’t need complex math. We need to prove that Bitcoin is priced into it.

Maybe the stock-to-flow model represents that in a different way. Again, I’m not trying to refute the stock-to-flow model; I use it, I love it.

Everything that Plan B has done is a gamechanger, and it deserves all the acclaim. When I started to understand the power of Bitcoin, it was a Behavioral Economics driven mode, the best of all.

Behavioral Economics in Facebook is why Metcalfe’s Law exists in Facebook because it originally brings you on your uncle, aunt, your friend from school, and you create your network of people, you can keep in touch with them, and you can communicate with them. Those became network effects. Then the corporations came along and created more network effects and so on.

But the shareholders were the ones who got rich, not the users. The shareholders benefited from the exponential appreciation of the network. This is because Metcalfe’s Law essentially states that the more nodes in operation, the higher the value of the network, and so separated the users from the capital.

The investors got rich, and the users could talk to their friends, and then their parents joined Facebook, and they all left and moved to Instagram and so on.

Bitcoin was groundbreaking, and so all the models in Silicon Valley were all the same. They were all Metcalfe’s Law, everything that came out of the Internet, from Google to Facebook to Reddit, the whole damn lot of them. They all came out of meetings with people like Daniel Kahneman, the Godfather of Behavioral Economics.

He taught them how to trigger dopamine receptors in the brain, pushbuttons, and emotions drive behavior because it’s all behavior you’re trying to do. With Bitcoin, you have created a network driven by Behavioral Economics, which is the network of money. Every participant is rewarded for bringing participants. That creates an incredibly robust network effect.

It’s brilliant because the more of us believe in it, the more we attract other people, the more we get rewarded for it. The behavioral incentive is extraordinary. It’s a way to gain acceptance for new money because otherwise, it’s tough to do.

It’s tough to get adopted if you don’t get rewarded. This is amazingly good. I wondered how to value Ethereum because I could start to see that I could value Bitcoin and why it’s exponential, why we need to use log charts.

It’s because the network effects and more people mean that the chart is always exponential. We’ve only just started. We still have billions of people to include, so it goes much further.

As I said before, I don’t have a problem with that. For example, if I use this log chart, this rally could take us to 400,000, maybe even a million in an offshoot because of the money wall I talked about when institutions are added.

Or maybe not, maybe Plan B’s Stock to Flow is correct, and it goes out to 288. I don’t know; it doesn’t matter right now, but be surprised because network effects become exponential over time.

When I looked at Ethereum, the thing that told me not to look at, I realized that not only is the technology exciting, yes, it has problems.

Yes, it’s very different from Bitcoin. It’s not even a capacitor to Bitcoin. It’s just part of a new digital asset ecosystem. I realized that Ethereum is probably the basis of the Internet of value. The Internet of value is something hard to get your head around as well.

I’ll talk a bit about that later, but basically, I will digitize anything you exchange that has value.

Ethereum is leading the way for that. Now, there is the Ethereum 2.0 coming out, which toughens it up as a platform and lowers the supply, and it speeds up and probably cheapens the cost. It’s not perfect.

Bitcoin is not perfect for certain things. There is a massive ecosystem also being built in layer-two solutions. Ethereum also has layer-two solutions, but it can also be modified that’s not Bitcoin because Bitcoin is this hard, super incredible asset of money. Ethereum is not. This war between Bitcoin and Ethereum is bullshit.

They’re not even the same thing. I started getting the Internet of value, and we started seeing the rise of Defi, and I’ll come back to that. You could start to see real applications that immediately got massive network effects.

Then I put Ethereum in the same terms that I looked at Bitcoin’s network effects, essentially the number of active wallet addresses. That’s a simplified way of showing network effects. What it showed was Metcalfe’s Law.

When I put it against Bitcoin, if you look at the chart here, you can see that it shows the same traits as Bitcoin in Metcalfe’s Law, but the adoptions earlier and faster.

Then when I put the chart of Ethereum against Bitcoin, starting at 5 million wallet addresses to get them to a point where the network effect starts to take hold, the prices were identical, and the chart patterns are identical, but they were about four years different. How was that?

They are priced the same at different points because it’s just the network effect that prices them. That was a fascinating discovery, and I realized that network effects drive the whole space.

Then you understand that some tokens and get network effect, and then have S-curve moments, they start to get like assumed nobody uses it, and it drops. That’s called the S-curve. The S-curve can be a failure, or a pivot, or a change in usage, and then it goes.

We’ve seen that in companies and startups all the time. We’ve seen it in Bitcoin, where the narrative has changed; Mt. Gox, it’s going to be a scam; it’s all about dirty money. Bitcoin goes away in 2013, S-curve, exponential up again, it survives, and we go into the next set of FUD narratives, S-curve.

That was left by China and Forking, and all that other stuff, S-curve.Then up again, we have the Lindy effect, which is basically if you can’t destroy it, it will get stronger.

Ethereum goes through the same thing, and this whole space goes through the same thing. Some fail, some that don’t fail to get stronger. That was mind-blowing for me. I now realized that I had a framework of understanding that I could apply to everything in this space.

That was significant growth for me. When you look at the speed at which this is happening, because remember, exponential means it’s getting faster and faster. In logarithms, it looks normal. It’s linear, but it’s nonlinear. It’s moving. We’ve seen that. I had an interview with CZ, who built Binance.

In three years, he made it the largest Crypto exchange with 1500 employees. I think it’s the fastest startup in history. When I talk to Sam at FTX, I don’t know how he did it, but he took the whole thing from idea to launch in four or five months and then a year later, the third-largest exchange in the world.

Look at Coinbase

56 million accounts. That’s more than Robinhood and Fidelity combined. It’s incredible, the network effect.

We bring in the institutions, and they spread to Ethereum, and everybody else is building products on Ethereum. It’s happening at lightning speed. I don’t think space can keep up with the change in narrative that’s happening so quickly.

First was the rise of alternative protocols, interoperability, Polkadots, ChainLinks, etc. The alternatives to Ethereum things like Cardano, different types, non-blockchain like Hedera.

The list is endless. I know you would say you didn’t mention my favorite coin, but I don’t care at this point. There are too many of them, and I can’t figure them out. There have been some fascinating things because, as a macro guy, I sit back and look at the megatrends.

What’s the megatrend here?

First of all, define. Holy cow. Here’s a full credit and loan system, probably an insurance system, all distributed on the blockchain. That’s what the world needs. Well, it’s in the making.

Some of it will blow up, some will work. Which ones will? I don’t know. I’m invested in a whole bunch of them, and I’m just holding them as a basket, but oh my God, this is changing everything.

The Bitcoin lending market. Remember what I said a year ago? We need a Bitcoin yield curve. My God, it’s happening everywhere. Yield curves are popping up everywhere. It’s all happening.

The defi space is exploding. I have friends of mine now who are salting their Bitcoin and then realizing that they don’t even need to put it in a bank because they put it in a stable coin, USDC, and earn 8%. Why go to a bank in the first place?

Because they can then immediately send it somewhere else, you don’t need to go to a bank if you want to buy a physical asset in the real world, but savings that need to be in the real world.

That’s a game-changer. Anyone who complains about not getting enough interest on their savings, well, here’s a worldview that came out of the device that allows you to do that. What risks are you taking?

Well, it’s not clear what all the risks are, but it’s not clear what risks you’re taking in your pension fund when you invest in corporate credit as a fund manager. They don’t know what it is, but I know they are investing in more junk bonds than ever before in history.

As long as you spread your risks, you’ll probably be fine. Because there probably won’t be catastrophe risk. There will be a regulatory risk, without question.

The regulators want to get that under their control, so they know there’s no money laundering, and you pay your taxes, box-standard stuff. When we see it everywhere, the narrative of, oh my God, the regulators, they will kill this.

That’s bullshit, folks. It’s obvious when you see the regulators and talk to them; that’s not the case. It’s evident that this green narrative, it’s dirty money. It’s terrible. It is just a narrative that the ECB is putting out to slow down the rollout, and that is perfectly fine.

Everybody has a game to play here; they want to get their digital currencies out, they want to interact with this new system. When they do that, the ECB has talked about the defi being a central part of that.

I think the U.S. will do that as well. It’s already happening in Asia and China; I’ll get to that in a minute. The device and all the loans it’s going to integrate into the new financial system. And why?

Because the European banks are screwed, as are the Japanese banks.You can change all that by using the Defi and the central banks’ digital currencies, and then they’re interoperable, or they connect the on and off-ramps to Bitcoin and the whole Cryptocurrency world. It’s all there. It’s all coming.

This whole financial system that I talked about is being built before our goddamn eyes. People are still fighting it and saying, well, Bitcoin. It’s a little risky. It’s all happening.

Everything you’ve always wanted, everyone you hate the Fed. Everyone who wants Gold, everyone who doesn’t trust the stock market, it’s all there.

This world is coming at you fast, but there’s more than that. The next big thing that came out was NFTs. Again, a lot of people say, well, they’re a bubble.

I don’t think you even know what NFTs are if you think they are a bubble. What they are is a way to authenticate assets digitally. That’s something that the world needs.

Because this whole Internet of value that’s being built with Bitcoin, Ethereum, and all the other protocols and elsewhere, it’s all about trust.

When you put something on an NFT, you create trust. Trust creates scarcity. Scarcity creates value. Now, this is where everybody gets NFTs wrong. They say, “Well, so what?

We can just put everything on NFT, attach it to an NFT, and it’s valuable? No. Some of this stuff gets traded because it’s a proof of concept. Most of this meme stuff is worth zero; most of this stuff is worth zero. What people made was accurate.

You see, Beeple’s piece of art was groundbreaking. A, it was the digital journey of his artwork, over 5000 pieces of art over 14 years, which in itself is extraordinary.

That sold for $69 million, as we all know. That’s about 15 grand a piece of art, actually not that valuable, but what it was a real artist that was acknowledged by the art world, i.e. people who want to put money into the asset as valuable. That’s great.

It was outbid by not the art world but by somebody from the Crypto space who also appreciates it.

There’s a good story behind that, too. People’s art was groundbreaking because this was as hate to most people, as let’s say Damien Hirst and a shark in formaldehyde, or Tracy Emin.

That messy room or any modern wave of British artists, Jackson Pollock, was with his spray paints, stuff, or Andy Warhol.

Everything that comes out of art with real value is generally not considered to have value by the majority; they think it’s ridiculous. How can a piece of digital stuff that can be replicated be worth anything?

Well, interestingly enough, it’s all about authentication. Photographs have value. Original photographs that the photographer signs have real value.

If you own the negative, it has even more value. A book that is printed has value, whatever value that is, minimal. A book, the first edition of that book has rarity value, and it has more value.

The first edition of that book signed by the author has more value. The first edition of a book signed by William Shakespeare has almost infinite value.

It’s the layers of rarity that add to it NFTs do that. I’m interested in the NFT field because it’s expanding. It’s not just about art, and art is an easy way to look at it. By the way, think about what painting is.

Yes, a Michelangelo painting that’s worth millions, but this piece of art is bullshit. It’s just digital. Now, this is a piece of cotton canvas with some paint on it.

The total cost, current price, is probably $50, but it can trade at $500 million. The premium is the price of the art and the authenticity, and the rarity.

Art is a very subjective market. What is beautiful to you or me is not beautiful to someone else. The image behind me is an NFT made by the two Quant guys who developed the Real Vision that we often see on Real Vision. It’s an NFT, and I printed it out and put it on my wall.

Will it be worth anything now? Not unless they get rich and famous, or for some other reason, or the artist does.

It’s topical, and it just goes to show that we can use NFTs in different ways. NFTs are not just about that. NFTs are about attaching scarcity, value, and trust to an asset in a digital way.

Can apply it to tangible assets; why? You can tie into real estate. We are all waiting for the growth of tokenized real estate. As securities laws change and come up to speed, we will see an explosion of that. I guess that we will see a massive change in the next cycle.

Now, why should real estate be tokenized? Should tokenize real estate because it only keeps the rich people from getting rich in the high-end real estate, because again, if you remember, because of the big demonetization and the fact that they’re getting more money, they can invest in the more expensive real estate that’s going up more because there’s more money in that area, and everybody else gets left behind.

When you tokenize it, everybody can own a share. You can have the same percentage of your net worth in it as a multi-billionaire. That’s groundbreaking.

That’s all this digital space does there. It completely levels the playing field. Interestingly enough, the Beeple art was another bunch of Beeple art that bought, then tokenized, and then sold.

I’ll go into that story a little bit in the Metaverse, but that was groundbreaking because anybody can own it. One rich guy can own the $69 million piece, and a bunch of regular people can own the rest.

It’s a phenomenal, massive game-changer. It’s not like a REIT. A REIT has all kinds of little stuff in it. It’s not pure-play. It’s something different.

With an NFT, you have physical, legal titles as part of it. NFTs are also leading the music industry if you see my conversations with people like RAC and Andre.

Andre is a pioneer there. We’ve seen the Kings of Leon; we’ve seen several bands start to realize that this will break up the middlemen in music.

80% of the money in music goes to middlemen, not the artist, which is crazy. We think bankers are outrageous in what they take. Well, in this case, it’s all about economics.

Suppose you can put your stuff on a blockchain and sell it directly to your community as NFTs, well. In that case, you have a direct relationship with your community like a community is a little more messed up, but that’s fascinating.

What’s even more fascinating is that you can make price scarcity for different people.

If most of your people will buy your album or stream it for free, so you get paid virtually nothing by Spotify, then there’s the next level, and that’s current people going to a concert.

Your concert ticket is $50, $100, okay. You’ve gotten more value out of people because it’s rare. After all, you can physically see the artists. Then you might have a meet and greet that you pay a little bit more money for. Okay, that’s all there is for artists.

Then the rest have to settle for pandering to brands. Here, I love Nike shoes. What is it like? If they have a massive community of millions of people, they can also provide them with rare goods.

In that case, for example, you could provide a single shot that no one else has and give it to your superfan, and it could be worth millions.

You can monetize your entire fan base, similar to what most subscription-based businesses do. That creates revenue streams for musicians; they could also share those IP rights.

As they move around, they automatically accumulate IP. They can sell baskets of IP rights. We’re already seeing artists selling their catalogs.

If you tokenize it and sell it, you can still retain some of the streams, maybe 20%, similar to Beeple with its art, and some of these NFTs are with art.

It changes the economics and gets rid of the middlemen. It just brings more to the actual people. I think that’s interesting. We also see the rise of community tokens.

People haven’t quite seen that yet, but that’s coming, and it’s going to be gigantic.


There’s a platform called Socios that has a coin called Chili, which I don’t own. Still, they’ve developed community tokens for big soccer clubs, soccer clubs in Europe, AC Milan, FC Barcelona, several others.

You get as a fan is a token that you get benefits from, like fan club benefits, including voting on what shirt they wear, some of the decisions. You’re involved. Your community token has meaning.

It also has value. If the team does better, your token is worth more. You’re part of that ecosystem, so you get benefits like tickets and things like that.

That’s the beginning of where this is going. Everyone who monetizes online in any form will have a token.

Right now, we’re used to subscription models. Right now, artists, for example, or influencers, have to leverage Google and Facebook to monetize. That’s where brands and themselves meet, and they use advertising and other methods.

Once you’ve got a community with a token, and you have direct access to them, you can monetize in several ways and create value for the community, or you can destroy value for the community. That’s for the community to be involved in, and you can share in successes.

We’re going to see this from everybody, from sports stars to YouTube Channels, to actors and actresses through to charities, through to you name it. Anything with a community is going to tokenize.

It’s going to unlock vast amounts of value; it’s going to unlock the ability for people to participate and feel part of something of a society, which has its form of money.

The money can go up and down in value, or it may be stable. It may be utility and function. That’s okay, but you can’t be part of society without it.

Once you’ve got it, it means the artists can speak to you directly, or the charity or whatever. The community is going to be explosive. People like Rally and stuff like that.

People have no comprehension of how significant this is going to be. I think it’s one of the most extensive underpriced parts of the market because people haven’t got their heads around it.

We don’t even have the heads around insurance and all the other contingencies, bets all coming on intelligent contracts. That hasn’t come out of the ground because we’re still at the bottom of regulation.

Regulation is so darn far behind where it needs to be. You’re still trying to figure out whether it’s a security or not when the fact is you have to rewrite the securities laws because this has nothing to do with securities. This is a whole new asset class.

As a fourth turn, we need new infrastructure, new institutions, and I think that will come. You can’t learn from the central bank to use digital currencies and then not reinvent them.

We’re seeing Asia adapting much more quickly how that’s going to play out. That’s massively important to rewrite the whole regulation from scratch, not squeeze in silly old regulation that requires ongoing court cases. You have to work that out properly.

I think the institutions are very keen to do that. It just takes time. It’s frustrating for companies to try to build at lightning speed when they don’t know. Are they going to be prosecuted for it or not? It’s not right when you’re building something so incredible, but that’s not all.

All of this dovetails into something even more significant: we’re creating digital worlds that we can call the Metaverse. I extremely recommend that you watch the interview I did with Piers Kicks from Delphi Digital about this, and this is the world where everything is digitized.

Barry Silbert brought all of this to our attention very early on when he started talking about decentralization. Within the digital world, there are 3 million gamers.

These gamers live in an alternative world where they interact with others. When I was visiting a buddy of mine, my old friend Darrell, his son Harry was playing at his house, and I think it was Fortnite. I wasn’t aware of it.

I think Fortnite was the biggest game in the world. I wasn’t sure why Harry was sitting in a gaming chair on a sunny day, headphones on, on Fortnite. Darrell was like, well, he’s been out.

He was playing soccer, but now he’s meeting up with his I’m like, what do you mean? We used to go to the mall. He said, yeah, well, they don’t do that anymore.

Because his friends are all over the place, he said they do it online. For some of you, that’s clear, and for the rest of you who see that, that’s what? They socialize and talk to each other, play games together, and interact and exchange things.

Within those games, there are systems of money, tokens, earning a living, everything.

This is a game, and there are many of these games. These games become interoperable where they connect in all the digital universes.

These digital universes now have money that can spread from one to another to be a baseline. Well, Bitcoin can do that as well. What we’re seeing are monetary systems in this digital world where these digital goods have value.

Swords in some of these games now have yield curves because I want to lend you my sword, and you’re going to have to pay me to get the experience of my level in the game.

The same thing with skins or renting the ability to play at different levels in games; there are so many variations. It’s not just about games because we’re starting to see the rise of education the life in these digital verses.

We’re starting to see income, businesses, real estate, everything happening. Digital architects are building digital projects with digital value, the real value that people are paying a lot of money for.

Let’s go back to the Beeple story. The guy who bought the Beeple had also bought much other Beeple art, and he created a token. He created virtual art galleries, physical, digital galleries that you could visit to see the art in different metal versions.

Then he threw a party to start it off, where you could visit the famous DJs in different worlds at parties and play Easter egg hunts. You explore this world where you had to go from one world to another. Then you get to another party and another art gallery, and so on.

That shows you where this is going. Digital art is traded in a digital gallery with live music, wherein in some cases millions of people or 20 million people have participated in some of these musical events in the digital world, where people meet, exchange values, talk to each other, communicate, form communities, make money.

That’s growing at an exponential rate. Most of us don’t see it because we’re not part of Gen Z, but Gen Z is in it. Millennials have seen this edge of it, but most haven’t, and it’s coming.

Universities and schools can all operate in that world. You can now go into a game and play another game from another multiverse within a game. That’s beyond mind-blowing.

When you place on a VR headset in an Oculus Rift and the first thing you walk into is this room, and you think, “Oh my God, I can live in a garage and think I live in a lovely house. That’s just the beginning of where this is going.

These technologies are growing exponentially. The digital world is absorbing more and more people. The whole thing is like the discovery of America.

There is a whole new world that has enormous potential. It will massively increase global GDP, and it could even double because of what’s happening here.

We’re not constrained by the same constraints in a digital world as we are in the physical world. In the universal elemental income world, people can make money within that digital verse, not by creating something, but by creating something for a digital company in a digital world and making digital money.

You can live in a digital house but live in your parents’ bedroom. I know that sounds sad, and it’s not meant to be. That’s just a dystopian version of it, but there’s also a romantic side of it.

When I talk about the Bitcoin life raft, this whole additional world is not just a life raft for Bitcoin. It’s everything we understand of value moving and being built at a rate that none of us can comprehend.

No one, literally no one, can keep up with what’s going on. It’s sucking in all the talent in the world, and whether it’s financial talent, development talent, philosophical talent, economic talent, everybody’s going in there.

We’re creating opportunities and possibilities to make money and invest money on a scale that I don’t think has ever been seen in the history of humankind. I think this is the most significant distribution of wealth underway that has ever happened.

It will happen in such a short period that you cannot believe it. The reason for the short period is that we damn well need it. Because this other system is destroying itself. A lot of us, myself included, assumed that this moment that we saw in March was going to be the big bang. Boom.

All over. How does it end? The end game. There is no end game. The end game is progressive destruction and progressive migration.

We are all migrating over. I know many of you are saying, “Raoul, I wish you would have just talked about the dollar/yen, and we should go back to bonds or traditional macro.

That’s traditional macro where it’s going, and everything is going here. It’s almost irrelevant to talk about the bond market, where it’s between 2% and 0% when you have different yields and different assets here, all reasonably priced without the influence of central banks. Why should you get involved?

Why should you care if the dollar goes up 10% when you can buy into assets to do that? When they are on an exponential adoption curve, and there are exciting new technologies? Why bother? Why does it matter? Why does it matter what the price of oil does over the next nine months?

It doesn’t matter. That’s the realization. That’s why so many macro people have switched. Macro will still be helpful for hedging.

Because all of that is still beholden to the business cycle world, even though most business cycles have been stretched out in terms of the impact of asset prices because the devaluation of the currency has changed the denominator, but there will still be VAR shocks where everything implodes and collapses because there’s too much leverage in the system and the usual shenanigans that people do.

What we just saw with Archegos is very common. Macro is excellent for hedging some of these things, but literally, I can’t even tell you how big that is and how ample the opportunity is.

If we look at the traditional macro world that I’ve highlighted now, I think it’s the death of macro, and I don’t think currencies are moving. I don’t think bond yields move, and not in the sense of secular contests where you can make a lot of money, but if you follow your career in that shit, that’s done. So what’s left? Does it leave stocks? Okay, and it leaves Crypto.

We need to see more money. Yeah, we also have commodities. Loans, they’re tied to interest rates, so that’s all gone.

Credit is gone, bonds are gone, short-term interest rates are gone, foreign exchange is gone. Yes, emerging markets are a function of equities and further out on the risk curve, but that will force more money and more people to migrate into the source of return.

The extraordinary thing is the alpha that this area generates. The alpha is like nothing I’ve ever seen. Alpha in digital assets because there are so many of them.

They’re complicated. It all boils down to network effects. People who buy tokens who understand it are generating massive returns at this point in the cycle.

It’s cyclical, and they’re going to have points where they lose shit tons of their money. Over time, because it’s a network effect, it doesn’t revert to the mean as silver did after 1980.

It doesn’t work that way; exponential assets revert to the exponential moving average, so it always goes up. That’s what Bitcoin has done all the way, and Facebook has done, Google has done, all these have done.

Yes, these tokens, some of them will go to zero, but the whole token space, and these guys, will have boom/bust cycles, and they will continue to rise exponentially.

There are also the trading firms that trade Crypto, algorithm traders, short-term traders, macro leaders, everybody. The amount of alpha that these guys generate is outrageous.

It’s also going to happen in the down cycle because they will capture some of the down cycles. There is money to be made all over this.

Every day there are more tokens. These tokens are complex. They are hard to trade. That’s even more alpha for the people who figure it out. This space will be a constant source of alpha for decades when all real estate is tokenized.

We can trade real estate when people are tokenized in future careers or job paths or all kinds of paths, from community tokens. If you can trade FC Barcelona versus AC Milan, community tokens can arbitrage it with something else.

Oh my god, you can’t get your head around this. If we look at the traditional asset space that’s dying, stocks, bonds, they’re all credit.

That’s all $100 trillion, $200 trillion, $300 trillion markets. The Crypto market is $2 trillion.

From here, it’s 100 times, but I think it’s all these assets over time. Maybe it’s 200 times. Now, it’s not going to be a straight line, but this is the most significant change in financial markets, in the monetary system, in the economic system, and in the way economies are run in history, in the shortest time ever.

People will argue about it, people who want to hold on to their narratives to make sense of this world, but this world is U.S.oppable.

It will come, it will have massive boom/bust cycles, there will be times when you lose money and times when you feel like a god, but that’s the opportunity.

Because in an exponential world, the risk does not equal reward. The reward massively exceeds the risk, as long as you’re not stupid about how you invest. I just thought it was important because it’s just the most important thing I’ve ever seen in my life.

I talk about it all the time. I wanted to bring it together to convey how big it is and why I spent a lot of my time in this area because everything else seems boring. In my journey of understanding and migrating to this other world, it gave me a new lens to understand the world we’re in now and the opportunities coming our way.

I’m a big fan of Neil Howe and William Strauss’ book, The Fourth Turning. I believe that we are in the fourth phase at this moment, where new institutions, new forms of government, and new ways of doing things are evolving.

They are evolving over 10 to 15 years. I think we’re in the middle of it. I think this digital revolution is the fourth most crucial game-changer on the planet.

I also think something else is happening. That’s interesting to me because it gives me optimism. After all, the world is pretty screwed. We have the pension system that’s broken and can’t afford to pay the baby boomers, and the millennials hadn’t been funded.

Now they’ve been funded. They’ve started to understand the markets, but maybe not in the best way yet.

We have the debt burden, and we have too many people. We also have an aging population holding back growth, the debt bubbles, and all those things.

The things that we know, the broken banking system, the gap between rich and poor, all the misery and shit in the world around us, but they gave me hope that there was an answer. In my first video about the pension crisis, I said this is the investment you have to buy. That became rather darn great.

I’m beginning to see that this will coincide with several other secular megatrends. I think we’re entering what I call the exponential age, and it’s going to be triggered by the stimulus that’s coming.

Because the stimulus is being pushed into areas to develop a new economy because people need to understand that the old economy can’t generate GDP growth, it’s been proven that GDP growth gets lower and lower after every recession.

If we just made the same point, GDP growth should average about 1% this time over and over again. How do you change that? You change it by investing in technology.

We take place to be at a point when more things are coming together than ever before. I realized that some time ago when I realized that Europe is moving towards a green future and what it’s doing, and I’m not going to talk about all of that.

There’s way too much to absorb. That’s a whole conversation for another day. It’s something I wrote in Global Macro Investor.

At the same time, we have the digital value and money revolution, the whole monetary system, value exchange, store of value, everything, and the digital world we live in.

We also have the EV and green energy revolution, the digitization of emerging markets, the Internet of Things, virtual reality, wearable technology, biotech, 3D printing, autonomous vehicles, robots, AI, distributed computing, 5 and 6G, and space Wi-Fi all rolling out in the next five years. It’s mind-boggling.

I don’t think it’s ever been in history that all of these things are working now, but we’re going to reach Metcalfe’s Law on each of these things in the next five years.

Yes, there will undoubtedly be U.S. and downs, and there will be bubbles and booms and busts, but we’re going to see the largest group of things in an exponential trend that we’ve ever seen before.

It’s a new age. It’s the exponential age, and it’s going to be a Golden age of opportunity. When we leave this old way of doing things, where we go from the fourth turn to this new way, the new way will provide unprecedented opportunities to redistribute wealth. We will be there. I will be there on that journey.

I’m trying to figure it all out, but I hope I’ve given you the big picture. You’re all on the same page as I am about this whole digital world, digital asset world.

Let’s continue to discover more. It’s all a journey of learning. None of us know what’s going on. None of us know where we’re going.

All we know is that it’s fast. I hope that was helpful to everyone. Good luck, and keep adding in the dips because this thing is going up. Welcome to the footnotes.

I initially wanted to add a few extra bits at the end, and I don’t want to shove them in the middle of the videos so you see weird cuts. Again, this is a free thought piece of mine where I spill out whatever is on my mind. I realized why I went through this.

There are a couple of points that I need to clarify or elaborate on. The first thing I think is probably the essential point I’m trying to get across at the beginning of this video is this devaluation of the central bank.

We talk about changing the denominator because the denominator is going down, but it doesn’t come across. It was super clear what that is.

Now, you’ll also hear Michael Saylor talk about this, and I think he does a good job, but still not very clear. The real thing is that central bank balance sheets since 2008, whether we use the Fed or G4 central bank balance sheets, since the beginning of the crisis in 2008, they’ve been devaluing or increasing balance sheets by about 15% a year, and 13% after the beginning of 2008 because that started from a minimal base, the percentages move accordingly.

With that devaluation, we are trying to ensure that our investments exceed that 15% decline in the denominator, which is the increase in central bank balance sheets.

We are now AIming for a hurdle of 15%. That’s pretty hard to achieve even for the equity markets. 15% is pretty unheard of, but that’s what we’re looking for. We’re looking for assets to go up more than 15%, or at least hold their own against that 15%. If not, we’re getting poorer.

That’s the gap between rich and poor that I talked about because if you can’t buy those assets that are going up more than 15%, you’re not creating wealth. You’re just keeping up with the devaluation of the fiat currency.

That’s what creates the gap between the 99% and the 1% because if you’re not able to own assets that outpace the devaluation, you’re not generating wealth. A critical point. I don’t think I spent enough time talking about the interoperability level. As I describe it, we started this whole Crypto journey in 2013, at least for me, with Bitcoin, and then Ethereum came along.

Then we saw these other tokens; some survived, some failed, this extensive ecosystem. People say, well, this has a big case for that, this has a big case for that.

Then there’s a group of people who say, well, it’s all going to go into a protocol. A significant development is people who say, and you know what, it doesn’t have to go on a protocol. We’re going to build a layer that allows all these things to work together.

That is, I’m talking to you, I’m using a microphone that you don’t know what it is, that condenses the sound and records it on a system that you don’t know what it is, on a computer that you don’t know if it’s a Mac or a PC.

I’m using an Internet that you don’t know what kind of modem it is. You don’t know any of these things. I can have a live phone call with you or make a zoom call, and you don’t know, and you don’t care. I can send you an email, and you don’t know what system I’m on. You get an email.

That’s interoperability. That’s one of the critical features of the Internet and what has made the Internet so successful. That’s coming in Cryptocurrency as well, and it’s coming fast. We’ve seen on Real Vision Crypto things like Quant Network, Polkadot, ChainLink.

Those things are enormous because they allow different things to move in that ecosystem. We see in the gaming Metaverse where the token can go, or skin can go from one game to another to another.

These are different languages, different protocols, and some are on blockchain, some are not. It’s inspiring. The future wave is that you won’t know that some of these things are built on Bitcoin, or Ethereum, or anything else.

What you’re interested in is the end-use. We’re getting closer and closer to that. NFTs are one of them because many people, for example, who buy NBA slam dunk shots, are not interested in the fact that it’s on Ethereum. All they care about is what log it happens to finish on.

This is the first time I’ve seen a real example of this. That leads me to another story that I didn’t cover in the video that I alluded to, these Layer 2 solutions.

For example, we see some exciting things on the Lightning layer in Bitcoin, which uses the Bitcoin protocol but accelerates it. We’ve seen two significant breakthroughs there. One was Strike, and the other is Bottlepay.

They’re both slightly different, but what they do is have lightning-fast payment rails that are not about Bitcoin. They’re about I send you a dollar, or I send you a euro, and I start in dollars, and it happens instantly, they’re payment rails.

Many other protocols deal with the payment rails side, but it shows that Bitcoin can do that. These things are going to be interoperable. Because remember, we have a giant monster coming: Facebook Diem or the Diem Project. That means there’s going to be a universe on Facebook that has to be interoperable with everything else.

The central bank’s digital currency will be interoperable. Those layers, that interoperability, that’s a fascinating development that I don’t think people know how it’s all going to work yet, but it will come, it will come quickly.

I haven’t talked about money transfers yet either. That’s another many use case that’s developing quickly. People like Abra are building some exciting things. The third world has been unbanked.

As I mentioned in the video, we’re seeing a substantial quantum leap into the digital world right now.

We see that especially in countries like India, but it’s happening all over the world. Philippine remittances it’s a big market for the Philippines or down in Latin America. A lot of that is going to Crypto rails.

We’ve seen Ripple and XRP with some of their use cases, we’ve seen Lightning working on that, we’ve seen people like Abra building wallets for that space, we see a lot of focus on that. That’s another gamechanger.

It’s different than a lot of these other things, but it’s going to change the world. It’s happening, and it’s happening very quickly. As people get connected to the Internet through 5G, 6G, and Starlink, and all the other satellite Wi-Fi, we’re going to see some significant changes and what it means to be a bank globally.

I think that also leads me to another thing that I haven’t talked about: We tend to focus on the West in the Crypto world. It’s been very US-centered with a little bit of Europe, even marginally Europe, everybody talks about the West.

When you talk to people in Asia, you realize how incredibly advanced the Asian Crypto ecosystem is. All the volumes are coming out of Asia.

Yes, there’s a bit of laundered trading between exchanges, but really what’s happening is extraordinary things like a company in Malaysia that has currency restrictions is trading with a company in China that has currency restrictions, and then to get the bureaucracy, the slowness of the whole system and crossing the ringgit/RMB cross rate by actually doing it on Tether.

Well, it doesn’t have to be Tether, but Tether is the standout winner in this space. Payment rail trading is taking place on stable coins.

This is huge. We don’t understand this in the West, but it’s happening in every other country we see.

That’s where you get these weird countries that use a lot of stablecoins. The narrative in the West is, oh sure, it’s just capital flight and money laundering. But it isn’t.

It’s a business based on a Crypto solution. It’s mighty. Private and institutional investment is also much more advanced in Asia.

The use of leverage and the sophistication of Asian traders are far ahead of where we are in the West because they are allowed; their regulations allow them to do it.

That’s why the significant users of Binance and BitMEX, and FCC are all in Asia because people can understand how these products work.

Koreans and others understand selling puts to generate returns and the risks involved very well because they’ve been doing it for years as part of structured products. There’s a structured product market there that’s just developing.

We had some videos on Real Vision about it, but I think it’s essential to understand how advanced this all is in Asia, how big these exchanges are, and why the volumes are enormous. There are some actual use cases and accurate understanding. Do not take your eye off the ball either.

Finally, I want people to understand that we see a massive increase in options trading in the equity market, speculative activity, and activity in Cryptocurrencies. These things are theatrical in this shift.

I’ve been thinking about this. One of the things that have become clear to me is that if it’s the same group of people that have suddenly become more speculative, that’s something different. That’s change inactivity.

What we’ve done is the enormous increase in the financialization of the Millennial population. If you look at the massive growth of Robinhood, the massive growth of Coinbase, these 56 million accounts that Coinbase is coming out with, and you see that globally, this is a younger population that has just become financialized.

Why? Because millennials, just like their parents, just hit that 30– or 32-year mark where they get their shit together and start saving. This recession that we had was the one, and who knows why, but it was the one that brought them all into the financial markets.

This gradual change in volumes and speculation and opening of brokerage accounts has nothing to do with an excessive speculative bubble building up within an existing group of investors.

It’s about new investors. Remember, if we go back to the history of inflation: The reason for inflation in the ’70s and ’80s was this massive increase in baby boomers who went right into the workforce and bought everything when they got their first salaries to a massive increase in prices.

As I mentioned earlier, that doesn’t happen in the inflation scenario with millennials and boomers offsetting each other. In the investment world, this creates a substantial new source of demand.

It’s inspiring for people like us at Real Vision. It’s inspiring for the Crypto industry. It’s inspiring for the financial industry as everybody is trying to catch up now and create the right product for the right world, which looks to me like it’s a much more optimistic world.

Cathie Woods ARK Invest has done so well that young people are investing for the future. We see it, and we should encourage it.

Anyway, thank you. I hope the footnotes helped. I just wanted to get some of those points across. Remember, we’re all trying to make up that 15% number, and that’s the reason we’re focused here.

When the Crypto market gets to the stage where, let’s say, central bank printing tapers off, the Fed starts tapering, global central banks taper off, the economy grows, we’re probably going to see this traditional Crypto cycle, Crypto goes away.

Again, this point will be the beginning of the search for other assets that can offset this average 15% depreciation of fiat currency. Anyway, thanks for your time. I hope you found it helpful.

This information is from Raoul Pal’s excellent YouTube video that is embedded on the page above. You can also find it at the following link on YouTube:

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