Raoul Pal Bitcoin – The Biggest Opportunity Of Our Lifetime
So much money essentially stimulating our way out of a recession, a crash trying to eliminate risk and that being a reason, people are moving to cryptocurrency because were seeing whats happening with the dollar. Like you, just talked about were seeing the dollar get devalued. I mean is that why people are moving to cryptocurrency, because theyre worried about the value of the dollar or do they just want to say screw you to the government into central banks? I think its its all of the above, but if you think of it again, im a macro guy at heart and i look at bond yields we used to people used to have bonds. We dont now because theres no yield. So, yes, the system owns them, but as individuals theyre not interesting to us so thats taken the bond market. The biggest largest source of investment on earth has just been taken out of the equation, its just not relevant to us. You might loan cash and the fed decided well, we cant allow, because all the companies are so in debt. We cant allow the credit markets to blow up, because that would be a house of cards, so they started buying credit. So credit now doesnt react to the business cycle, so thats taken that out and then weve got the currency markets. So now were not talking about the debasement of fiat currency overall were talking about the dollar versus the yen versus the euro. Thats been flat for six years now, because the governments dont want it to move, because if the dollar moves too far, it blows up the world again.
So what weve got is very few avenues to actually make money now real estate, sure but its expensive. For most people and also banks, dont want to lend necessarily unless youre rich already so what avenue youve got left youve got the equity market. All time record high valuations, okay moneys going to keep going in and itll get more crazy in valuations, but is that the best bet or is it the market that has a 2 trillion valuation that could go to 100 trillion and is the future of the entire Financial system and global business model it kind of makes sense for people to start reallocating assets. I mean cryptocurrency. Is it an investment or is it money because you know when i keep cash or buy gold? I dont look at that as an investment. I look at that as money that im holding or saving, but it sounds like youre looking at cryptocurrency as an investment im. Looking at both some people philosophically want to use it as money, thats, okay, im pretty happy using the us dollar for transactions. I dont have any savings in in a bank account right now i mean im 100 allocated to crypto, which is an aggressive risk strategy, because this is a 70 volatility asset, so its extremely volatile, but its the right point in the risk cycle. For me to take that risk, but, generally speaking, some people want to get out of this system entirely, and i get that and i respect that others just want to use it to offset what the central banks are doing and making sure that their savings grow still.
While operating within the current system because its bloody hard to buy a house with cryptocurrency right now, so if you said 100 of your assets or your savings are in crypto, how do you buy things then? Because i cant go to amazon and buy anything with my ethereum well, the secret is why i can take that risk. As i have income, the the really important thing about risk is to set up yourself to take risk, so you either have nothing then take as much risk as you want, or you build up an asset base. You own your house, you have an income, so you can cover your cost of living and then your excess savings. You can then risk, if you want to, because you can always make it back over time by your investments and nobody can youre not going to lose your house so setting yourself up for risk. Taking takes time, it comes later in life, but you suddenly occasionally get an opportunity like this. Now this is the biggest ive ever seen, but it does come across from time to time where you can swing the bat and take the big bet. I like how you said that, where theres a time and place for risk where you know, if youre trying to build yourself, youre, saying maybe dont, take 100 of your money and put it all into cryptocurrency, build yourself first yeah. But you saw the opposite too. People who had nothing to lose, which was the millennials and gen z in march to june 2020.
Well, they had nothing to lose and they got given a free check, so theyre like sold it lets, go and buy some options and then yeah and they learned about risk and a bunch of them made a ton of money from it and it paid off. But yeah had they lost that 1200 bucks. It was free money anyway, so that was intelligent risk taking, even though it looked like it was the crazy wild west. It was actually pretty smart. You know with all the talks now of the stock market being a bubble. The real estate market, potentially being in a bubble with all the cheap money, all the cheap debt out there do. You think that that could affect cryptocurrency and cause a potential cryptocurrency crash. Cryptocurrencies are cyclical assets, as many assets are. Most assets are driven by the business cycle, crypto, currently less so its driven by this cycle, driven by bitcoin itself, bizarrely called the harving cycle when supply gets reduced every four years um and tends to then lead to a speculative bubble, and then we tend to get A bear market, it also usually coincides with when the central banks have finally stabilized an economy after a bad period. So um we saw central bank printing in kind of 2015 1617. That was the period where bitcoin did well last time. Then the worlds economy recovered bitcoin did less well. So it tends to be the slight inverse of those central banks.
So when the business cycle is looking good, you might want to own more equities than your own crypto, but when youre in this early stage, where the central banks probably going to print more money, youll want to own some of this, so it has its own cycle. It has huge downside, but the upside is even bigger, so in in financial market terms, we refer to as the risk reward, so the average annual return of bitcoin is about 120 a year, so its its 120 a year in price appreciation, and i think the worst Down year in the history of bitcoin was 45, so almost every day you enter the bitcoin market, its a two for one risk reward now that that really works over a longer period of time a few years. But if you look at a charter bitcoin, it always does this its an exponential chart. So you need to put it on a log scale and what happens magic happens when you put onto a log scale exponential assets on a log scale makes sense it trades in this beautiful range on this upward trajectory now that range on a normal chart looks massive. Like down 70 up 700 percent, but when youre on a log chart its like – oh i get it now. This is just a more volatile asset, but the rewards over time are amazing, thats interesting now. One concern that i have about cryptocurrency is its entirely on the internet, its very digitalized, or it is completely digitalized, and if you saw what happened, i mean we talked about this with facebook.
Recently, facebook instagram whatsapp were shut down for half the day. What happens if the internet gets shut down or if its a cyber attack on on cryptocurrency? And now you cant access your money, so the nature of the distributed network, the nodes in cryptocurrencies means theyre all over the world. Youd have to shut the entire worlds internet down. There is no single point of attack its not facebook. Facebook is one company, so there is no single point of attack, so it makes it extremely hard to stop thermonuclear war could do that, but your crypto still doesnt disappear, because the blockchain will always exist and as long as youve got it on your cold wallet stored, It cant be taken away, so it is kind of nuclear proof just because the internet goes down for a bit and you cant make a payment, well figure it out with barter, because if the internets gone down, none of the banking system works around the world. Youve got no way of making a payment, so it its its simply not a crypto problem, its a world banking problem. So all cash payments, because 90 of every payment on earth or 99 of every payment on earth is done electronically, so that thats kind of not an argument for crypto but whats amazing with crypto, is theres no single point of attack, so theres no cyber hack. That can hack the bitcoin blockchain its impossible to do or as impossible as it possibly could be.
Are you worried about what chinas doing, though, and putting on regulations on cryptocurrency, and are you worried that that could potentially happen in the united states? If the central banks and the federal reserve bank say people are getting too much power with cryptocurrency and then they put on more regulations, i think it will get regulated and just because apple is a security that is regulated, doesnt make it make it less attractive. And many people own apple, so it doesnt have to be the wild west. There can be an element of regulation. Yesterday, last night i spoke to the chief fintech officer for the monetary authority of singapore and he explained their approach to regulation, which is, i think, what everybodys going to adopt in the end, which is we cant just keep using these 1934 securities laws and tell you What you can and cannot buy, what were going to have to do is give you a warning to say this is risky, and are you sure you want to do this? We are not comfortable with this, because it you could lose all of your money. That is a much better approach and giving people the freedom to do what they want. Regulators are still struggling with this now. The issue is, you know its currently a two trillion dollar market cap. My fear is by the time we get to like march of next year. This is going to be a 10 trillion dollar market cap regulators.
Cant go back and find all these businesses tell you its illegal. What 10 trillion dollar industry uh so theres going to be? A grand compromise regulation is going to be part of the space but theyre not going to force you out of it. China is a autocratic regime and they have forced people out, but guess what it still goes because its on the internet, its impossible to stop. You just need to circumvent it, so chinese people just go abroad, so they just have it in singapore and they hold it. In singapore they only access it by singapore. They go back to china, theres nothing, they can do.