Raoul Pal and Vijay Boyapati: Swan Signal Live E30
Posted 9/24/20 by Brady SwensonRaoul Pal, founder and CEO of Real Vision and the Global Macro Investors, joins Vijay Boyapati, author of “The Bullish Case for Bitcoin”. Most of the conversation focuses on building our new financial infrastructure on top of Bitcoin and why Vijay Boyapati doesn’t believe that it will be built via Ethereum. But Raoul and Vijay also discuss the history of fiat, deflation, Bitcoin vs Ethereum, risks to Bitcoin, and price manipulation. As always Brady Swenson, Swan Head of Education, hosts the lively discussion.
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Summary
0:00 Introduction
1:46 What is the history of fiat?
8:17 Deflation
11:08 Role Bitcoin in the future
17:09 Thoughts of Microstrategy news
21:57 DeFi (Bitcoin vs Etheruem)
47:41 What are biggest risks Bitcoin faces
58:01 Bitcoin’s adoption Curve
1:03:57 Bitcoin price manipulation and regulation
1:06:22 Bitcoin transition to medium of exchange
1:07:52 Raoul’s friends are buying Bitcoin.
1:10:10 Wrap up
Transcript
Brady Swenson:
Hey everyone. Welcome back to Swan Signal live. Of course, this is a production of Swan Bitcoin at swanbitcoin.com. We have a monster show with you today with Raoul Pal and Vijay Boyapati. Before we dive in, just a quick word about what we’re doing here at Swan, we built the safest way to accumulate Bitcoin with automatic recurring buys. You can be confident when sending your friends and family to Swan. We’re laser-focused on accumulating Bitcoin for the longterm. We have no distractions from altcoins. We’re dedicated to Bitcoin education in our effort to help your family and friends become long term Bitcoin handlers.
Brady Swenson:
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Brady Swenson:
All right, today we’re joined by Raoul Pal. He’s the co founder and CEO of Real Vision Group. He’s an economist, an investment strategist, and publisher of the Global Macro Investor, a week, a monthly newsletter, right?
Raoul Pal:
Yup.
Brady Swenson:
GMI.
Raoul Pal:
Yeah, yeah. That’s it.
Brady Swenson:
Welcome to Swan.
Brady Swenson:
All right. And joining Raoul today on the show is Vijay Boyapati. He’s a software engineer and author of one of the most recommended introductions to Bitcoin, The Bullish Case for Bitcoin. Welcome Vijay. How’s it going, man?
Vijay Boyapati:
It’s going well. Good to be with you guys.
Brady Swenson:
Yeah, I appreciate it. All right. Let’s dive right in here. So it’s clear obviously to everyone at this point that we’re at an inflection point, a very important inflection point in modern history. The fiat money experiments of this era has reached its inevitable crescendo of debts just as the world’s economy is rocked by an economic shutdown as the result of the pandemic. So Raoul, let’s start with you. Can you set the stage for us here by summarizing your research on the state of the global economy and how our fiat money standard contributes to the risks it faces now?
Raoul Pal:
Yeah. This is a long story and this story started back in the 1980s. It was the Reagan, Thatcher years where it was decided that … I think it was Thatcher I actually started it. That she wanted to financialize parts of the economy that weren’t financialized. In the UK it was giving people the ability to purchase what were known as council houses. So that’s kind of housing projects in the US. What that did was turn a generation of creditors into debtors, and debt took off. The financialization of the global economy took off as Reagan adopted these strategies as well and credit became available for everybody. And the realization was that credit could use growth, nothing wrong with that.
But as things it’s developed over time, credit became a larger part of the economy. And by the time it got to Alan Greenspan, it had become the key driver of the economy. So now the federal reserve had to do something they hadn’t done before, which was trying to manage the business cycle. So before the business cycle just goes up and down, but they realized that if they weren’t careful, they would drive a credit cycle that was much larger than the economy could deal with. And that this fragility was basically baked in the cake because of what had happened with credit. So with that, they started using interest rates as a strategy to manage the business cycle much more actively than they used before.
That created the moral hazard and the ability to take more and more risk and more and more debt. So debt now became everything, and debt to GDP measures, whether it’s private sector debt, public sector debt, finance sector debt, all of this stuff exploded. And we’ve been living with that in a rolling format for the last 10 years or so in terms of trying to manage it. So what I’ve looked at and many of us had looked at is, okay, at some point there’s a logical conclusion and there are different conclusions you can reach, but at some point it gets to a problem. I don’t think the US defaults on its debts or anything like that, but it becomes to a point where it becomes so unmanageable that something has to change. And my view always was that eventually we’ll get to that time horizon.
So the time horizon seems to be now where the last recession was patched together, the global financial crisis, we avoided a recession in 2016, and then finally, we got a recession that was coming and then the pandemic laid on top of it. And now we’re going to be in something that’s probably going to drag on much longer. If you look at GDP growth, it’s probably kind of globally negative five to negative 7% year on year. And it’s very, very slowly getting better. In some cases, it’s rolling back down again as new lockdowns come. And that leaves a problem that to service all this debt you need cashflow, and cash flows have been impaired. Some people don’t have cashflow at all. So the whole parts of the tourism industry, whole industries have lost their cashflow, others got impaired cashflow, same with households. So the problem is, is that can drive insolvencies.
Now, usually the answer the federal reserve had have been to liquidity crises when there’s not enough money in the system at that short period in time, as we had in March and as we had in the global financial crisis. This time we probably got a solvency crisis and that can’t be dealt with by the central banks and interest rates anyway are at zero. That sure that’s likely to go negative, but there’s an inability to deal with this. So that means that the next way forward is going to be massive fiscal stimulus. There’s no way of absorbing that amount of extra debt really, particularly at these kind of interest rates. So the most likely outcome is it goes on the central bank balance sheet. That’s been the big change over the last 10 to 15 years, is the central bank balance sheet initiated by Japan, and then really blown up by Switzerland as well, Europe and the US and the UK meant that all across the world at the same time the central banks take all of the strain of the entire system.
What that does is in a fiat money system, you’re essentially creating more money. Now, a lot of money got crazy by credit, but this is central banks pure printing of money to try and stimulate economies. That’s what’s likely to come. Now, I know there’s a big kind of chit fight that goes on that the US dollar is going to collapse or whatever it’s going to be. Don’t think of it in those terms. Think of it as the whole fiat money system is just being devalued over time, because everybody’s doing the same thing. And if you can see that, and that is the rise of golden Bitcoin. So that’s basically what’s going on.
Brady Swenson:
Fantastic. Thanks for setting the stage there. That was a great rundown of a very long history and very complex situation. So Vijay, can you comment further on here? Take it from here and talk about what role Bitcoin has to play on the global stage at this pivotal moment in history.
Vijay Boyapati:
Well, firstly, I think I would agree with most of what Raoul said, but I would sort of stop the timeline a little earlier. I think the fiscal anchor, the responsibility anchor, was sort of cut loose in the early ’70s when the US detached itself completely from the gold standard in 1971, partially detached itself in 1933, you couldn’t redeem your dollars for gold anymore. Where I think I agree with Raoul is this is in my opinion, the most deflationary periods since the great depression. Income streams to service debt have been obliterated across the entire economy.
There’s a very popular meme right now, money printed go bur, and I think it’s kind of misleading in a way, because money that’s printed is only inflationary if it makes its way into the economy. It has to be lent into the economy. The problem is lending is impaired because income streams are impaired. So I think there’s a greater risk of a deflationary period right now than an inflationary one, but typically deflationary periods are accompanied by monetary chaos. They’re very chaotic. And governments try to prevent deflations from running their full cost. Raoul mentioned that this is an insolvency crisis. I completely agree because of the impairment of income streams. But 2008 was also a crisis of insolvency. The federal reserve tried to make it seem as if it was a liquidity crisis, but it was an insolvency crisis.
Banks had lent to projects that ultimately the debt could never be serviced. They’ll be lending to people who had no income stream, people on minimum wage buying houses for like half a million dollars. It’s never going work. So I’m not necessarily worried about hyperinflation or a Weimar-type situation, but I am worried about monetary chaos. What Bitcoin buys you as an escape hatch, an ability to get out of the financial system and into a new financial system where there is no debt. The financial system will be built on a solid base, which is a limited supply on sensible monetary base, much as gold was in the 19th century under the classical gold standard. So what Bitcoin provides us is an escape hatch out of monetary chaos, which I think we’ll see over the next decade into something much more stable.
Brady Swenson:
Raoul, how about you? Vijay obviously made some good points there. Do you have anything to add in terms of how Bitcoin will play a role here in this crisis?
Raoul Pal:
I 100% agree with everything he said. I mean, the deflationary environment is exactly that. The question there is … because it depends how you define a lot of stuff here, but the increase in money, I understand there’s no money supply. And I don’t believe in inflation. I’m a deflationist by nature, but the overall purchasing power of fiat currency overall, I think, falls against other things. Bitcoin is two things. I think it’s the world’s best, most pristine reserve assets. And in a moment where there’s a lot of obligations owed on other forms of money, it becomes incredibly attractive as does gold, but what it offers over gold is it offers as a call option on the future. I think that’s the powerful combination that this has, that I think is truly extraordinary.
It is a tangible understandable … Well understandable in some respects, asset, that is a perfect reserve asset, but it has the upside of being the call option of a future financial system that is so desperately needed. And yes, at this point in time, it works as an opt out. You can ask anybody in Turkey. I mean, there was no surprise that the Turkish National Football side is sponsored by a Bitcoin brokerage house because people understand that they need to get money out. And that’s a perfect example of how right here, right now, it works for exactly the points which I raised.
Brady Swenson:
Yeah. In the last a GMI monthly newsletter you talked more about Bitcoin as a pristine collateral. How do you compare Bitcoin as collateral to bonds, which have typically been collateral in this fiat system? And what are the impediments? You talked about a yield curve needed for Bitcoin and needed to be established for Bitcoin to really take it to the next level in terms of a collateral. So what impediments to Bitcoin do you see? And can you talk a little bit about the yield curve in terms of becoming a preferred collateral?
Raoul Pal:
Yeah. So if you think about what collateral is, it’s something that you pledge or you lend out for somebody else to borrow. And the reason you pledge it is it’s a stable asset of which you can borrow against. So it needs to be something that has provable value. So the world runs on US treasuries as the bottom of the collateral pile. It’s not gold, it’s US treasuries. That’s what every central bank, every single person will accept. Now, the problem is with that collateral is when I lend it, I actually get virtually no money to lend it out. So the risk of lending it into the system is much higher than the yield that I get for lending it.
In addition, the problem is that collateral is over time the value of that money gets devalued by the increase. So in the old world of the business cycle, when there was a collateral shortage, which is the classic sign of a credit cycle, which is normal, it self regulates because the cost of collateral goes up and therefore the weakest borrowers default. But we’ve created a system where that’s not allowed to happen any longer. So the federal reserve forces collateral into the market and basically gives it away for free. So those lending collateral get no return on it and there’s never a shortage of collateral per se. Now there can be because if the banks don’t lend money, there’s a whole bunch of other systems around it, but really speaking, they’re trying to stop the business cycle i.e. the credit cycle happening.
Now, what’s interesting about Bitcoin is I think it offers an alternative because A, there’s no credit attached to it. Nobody can issue more of it. So you can’t kind of devalue the collateral and you can’t manage the business cycle. So you get back to what the gold standard used to do, which was allow the business cycle to operate normally and that gets rid of some of the larger excesses, not always, but mainly. So that’s a really interesting situation for Bitcoin and why it’s superior to gold for people who want to go back to the gold standard is everything of it’s divisibility, its transportability, and all of those other functions of it being digital. And also it’s stored on the blockchain that allows everybody to know where the collateral chains end up and who owns what, and even gold has problems with that. So you understand who owns it. It’s easily transportable. It is unique in the fact that it never differs. It doesn’t have to be a Sade like gold because it comes on the blockchain and you know exactly what’s what.
So as a collateral asset, it’s really good. So could that be accepted? Well, right now it’s pretty volatile. So it’s not a great collateral because it can go up and down. It’s what? 60 volt, and a treasury bond is nothing like that. But I’m thinking about the future. One of the reasons volatility is so high is as yet it’s not institutionalized so the markets aren’t deep. But also, there’s no lending market. So DeFi is the start of the money markets, but we haven’t got a yield curve further out. So I can’t lend my Bitcoin that I’m storing for, let’s say, 10 years. There is no market to do that and I’m not being rewarded for that yet. But eventually there will be a market which will create a yield curve. And once you create a yield curve, you can create all the other functions of financial markets off the back of it. And in terms of collateral, you can price it correctly.
Now, what becomes really interesting about Bitcoin is in a credit cycle, there’ll be a shortage of it because it’ll be expensive, and the price goes up, and that’s how you adjust the expensiveness plus the cost of borrowing that collateral should be pretty high because it’s pristine collateral. So because there’s no new supply, the cost of collateral goes up a lot in a credit cycle. That forces the weakest creditors into bankruptcy or restructuring, which means that we end up with less massive macro economic imbalances. So I really do think that there is a very big future for Bitcoin itself as the world’s reserve asset. I don’t think it’s ready yet, but it’s somewhere where we can go in the future.
Brady Swenson:
Yeah. Vijay, of course, you know about the micro strategy news. Twitter has been a buzz about it since the initial announcement in August from Michael Saylor that they’re moving the micro strategies corporate treasury over to a Bitcoin standard. Since then, they’ve also announced an additional purchase. And Michael Saylor’s been making the rounds including on Real Vision, Raoul’s show. Raoul interviewed him last week and I highly suggest watching that interview. So Vijay this move obviously adds to the Bullish Case for Bitcoin. I’d love to hear your thoughts on this news, what it means for Bitcoin and for corporate treasuries, maybe even sovereign treasuries moving forward.
Vijay Boyapati:
Well, what I take from a micro strategies investment is mostly that’s a precedent for companies. Again, removes the stigma associated with … I’ve been interested in Bitcoin since 2011. And in the new days, there’s this huge stigma around Bitcoin as this tool for allowing people to trade drugs online and other illegal activities. That stigma lost it for a number of years. I think that stigma is mostly gone and I think this is going to be an extra step to moving towards institutionalization of Bitcoin and making it so that other public companies can feel confident that they can invest without that stigma attached to it.
I wouldn’t take too much from … Michael Saylor is a guy who has a history of very odd bets. I say that in a good way. He made $30 million selling the domain name. And what I also take from that is he had a past history that gave him a good mental model to understand Bitcoin. He understood digital scarcity. He understood that you could have something which is scarce and it has value. So he was already primed to understand the value proposition of Bitcoin. I don’t think that’s the case for the CEOs of most public companies. I think this process is going to take a little more time than people might anticipate, but it’s a good first step.
Brady Swenson:
So Raoul, I know you’re thinking about the impact or the meaning of this move from micro strategy has probably evolved since your initial announcement in August. Have you been bullish on this move from the beginning or have you become increasingly bullish because of this move or maybe it doesn’t really matter as much?
Raoul Pal:
I think it’s possible now since we know what to expect. I’ve called it the world’s biggest front running opportunity. And essentially we know that out of $200 billion market cap, it’s not even an asset class. It’s noise. If you think that FX trades 4 trillion a day, I mean, this is nothing. But we also know that it’s attracting a lot of attention as many people have the light bulb moment and that eventually leads to the price rise. As the price rise, the market cap is going to rise and more and more people will come in. We’ll see as soon as the Bitcoin ETF comes out, the RIA community will come in. As soon as the market cap goes up further, the pension plans will come in. So we know that this is a process. So this is just a marker stone.
I think Michael, brilliant though he is, I don’t think he’s going to persuade many corporate treasurers to do it because he comes from a very far away understanding of what this is. He comes from the rabbit hole. When really, if you’re going to get Apple’s corporate treasury to do this, it’s all about diversification of the portfolio as an asset. I think that’s going to come. I don’t think we’ve done enough work on that as a community yet to show how good it is as a diversifier of returns. I think that is where the real value adds for treasury. Sure, could Jack Dorsey try and do something and the few people who love Bitcoin? Yes. But until the investment banks probably go out and tell people how this diversifies their return stream, it’s not going to be copied in great strength yet, but that’s all coming. These are just marker stones on the way of where we know it’s going.
Brady Swenson:
Yeah, it’s still a relatively early. As we say, it’s early until it’s not. And at some point that infliction will hit on the asymptotes and the race will be on. So I want to also talk about, or go back to the DeFi, which you mentioned earlier Raoul. And in last months, GMI, you also talked about a revolution in DeFi. You said that it’s even possible that the Ethereum ecosystem in due course could be worth more than the Bitcoin ecosystem, just due to the scalability of its application. Again, you say it doesn’t compete with Bitcoin. It compliments it. So you can talk more-
Raoul Pal:
Yeah, people-
Brady Swenson:
Yeah, go for it.
Raoul Pal:
Yeah. People get in such a stew about this in their tribalism. I don’t think of Ethereum as a currency, and I know the Ethereum 2.0 guys will say, “Well, it’s going to be and it’s going to be in scarcer supply.” I just don’t think that’s its value proposition. I don’t think yet that Bitcoin’s value proposition is the ecosystem. I think it’s too valuable a collateral to do that with. I think its place will become as that pristine kind of foundational stone of this whole new financial system.
Ethereum, to me, feels like a platform, a system, a layer. So could that be worth more than the underlying? Of course, it will. Because if you think the derivative market is worth a lot more than the underlying treasury market, so they are different things. But it’s all past this world, much like central bank digital currencies are part of this world, much like even private block chains are part of this world. Everyone needs to get over this. They are all parts of the same world. That doesn’t take away from Bitcoin. They are not in competition. So if we look at in market cap terms, we’re looking at the wrong thing. So that’s how I kind of think about it.
Brady Swenson:
So Vijay, I would like to get your thoughts on DeFi and the role Ethereum might play as it relates to Bitcoin in the future. Are they playing a zero sum game here or not?
Vijay Boyapati:
Well, this is the one area I think I probably differ with Raoul, and you can count me in the tribe for sure. I am deeply, deeply skeptical of Ethereum. I work in the industry and I am exposed to hundreds of these altcoins. Most of them honestly are complete garbage. They are copycats. Ethereum is not that. It’s not a copycat. It is trying to do something interesting. But I also think Ethereum is fundamentally flawed in that it’s trying to bite off more than it can chew. It’s trying to solve a problem in computer science that is an open question. To me, this is an experiment.
Can you have a distributed database, a Turing complete computer that can scale? I think the answer is no. I think this is essentially impossible. They’re running the experiment right now and trying to see where this is possible, but I think ultimately they’ve been trying to do this for the last five years, figure out a way to scale Ethereum. I have not seen any meaningful progress on this front. And as soon as you get any meaningful number of transactions on Ethereum, the whole thing is going to fall apart.
Now, Bitcoin doesn’t suffer from this problem because Bitcoin, I completely agree with Raoul, it’s a collateral system. It’s a monetary base. And ultimately, it’s going to be used for settlement between large financial institutions. I mean, that’s not what it is now. It’s mostly owned by retail, but zoom ahead 10, 20, 50 years into the future, it’s going to be a means of settlement. You don’t need Bitcoin to scale in the same way that Ethereum needs to scale. The number of settlements that happened between financial institutions every day can easily handle by the Bitcoin blockchain.
Of course, you can’t get every coffee payment on the Bitcoin blockchain. That’s not what it’s for, but settlement can happen. And if you need greater settlement than is a available with the block space on Bitcoin then you can always go to the lightning network and institutions can create payment channels between each other. I also think Ethereum is not a system that is going to attract major institutional investment because it really is too much of an experiment. I mean, Bitcoin’s value proposition from my point of view is that it has a credible monetary policy. And again, unlike Ethereum Bitcoin has faced a real test about whether it’s monetary policy can be sustained with the 2017 network split. Would the market follow the legacy chain or not? If it didn’t, if the market went with the new chain, the chain which said, “We’re going to increase the block size.” To me, that completely blows out the value proposition of Bitcoin, which is that it’s immutable and that you can trust the monetary policy.
I have no trust whatsoever in Ethereum’s monetary policy. I have no idea what they’re going to do. They can decide that it’s better to set the inflation rate to 10% a year, because that makes it easier to do smart contracts. You have enough gas or whatever it is. I mean, I have a lot of problems with Ethereum. I think another one fairly significant is Vitalik Buterin is a systemic risk to Ethereum. I would never invest money in something where something bad happening to him, and I do not wish anything bad to happen to him. He’s a smart kid and I wish him all the success in the world, but he is a systemic risk. If something happens to him, that’s going to be a huge blow to a theory. He has this founding Sage role Ethereum and he also helps direct development.
The other thing I would say is that I think when Ethereum was put to the test it failed. The DAO hack is an example where they said, “We’re going to roll back a payment that happened on Ethereum, because we think it’s harmful.” That just completely shows that this system is not immutable. And if it’s not immutable, then just use a database. Block chains are inherently inefficient. You only use them when you’re solving a problem with social scalability. If you’re not solving a problem with social scalability like rewriting the monetary system, it’s just much more efficient to use the database. I personally have not seen a good example where something built on Ethereum could not be done better with a database. You look at the history of Ethereum, you go back to when it was originally sort of marketed as a world computer, and then it was DAPS, and then it was ICOs, and now it’s DeFi.
I see this as a narrative chasing vehicle and as good at narrative chasing because it’s turing complete. You can do any kind of computation on it, which some people think is a good thing. It certainly makes it good for narrative tracing, but I look at the history of Ethereum and I think this is something that has been responsible for massive capital destruction. You look at the development time and investment in DAPS, not a single one of them would have been in the top hundred on any app store. Look at ICOs, how much capital is completely blown up by ICOs. And now you look at DeFi. And my last comment about DeFi is that the centralized finance makes reference to something in the real world, whether it’s a mortgage or a commodity market or something like that, the decentralization loses its value because states can come in and regulate those things very easily. I don’t think there is any value to decentralization before.
So I have a lot of problems. I’m summarizing all of these in one. In any one of these things, I could spend some time writing or talking about it in greater length, but I am very skeptical of Ethereum. I think it’s an experiment. From my perspective as a computer science, I think it’s an experiment that will fail. It’s an experiment, which I didn’t think any of the brilliant computer scientists have managed to solve over the last 50 years, how do you scale a distributed database that needs consistency? It needs consistency because otherwise you’d lose capital. So I’m skeptical. This is honestly with all respect Raoul because he’s a brilliant thinker. I think I agree with him on everything except for this. I just don’t see this working. I think DeFi is going to fall apart again just like the ICO craze did. I think a lot of capital is going to be lost in this next world market with the menu that comes with it.
Brady Swenson:
Raoul, I know that you are really kind of just diving down this rabbit hole and trying to understand what’s going on with Ethereum and DeFi. There’s a lot there, a lot of history. I wonder, given what Vijay said here, if you think that these kinds of financial applications could be developed on top of Bitcoin and Bitcoin is the preferred money. Do you think that the future of DeFi is on Bitcoin instead of Ethereum maybe?
Raoul Pal:
No. I actually don’t. Look, you can via the lightning network other things create other less solutions, but I kind of disagree about the whole Ethereum thing and I’m not a weeds guy. I’m a probability guy. I’m a macro guy. Is there a probability after all this relentless testing that goes on on Ethereum and it’s not gone away with all the businesses that fail and all the businesses that succeed, is there a probability that it adapts into an ecosystem that has true value? Well, if there is, it’s probably undervalued. What is that value? I have no idea, but I deal in future probabilities. I think there’s a future probability that things work on it because when we talk about the failure rate of tokens, of course, because they’re all new. Nobody has got a bloody clue how this stuff works. It’s much like VCs who have mentored the internet who invested in the internet in the ’90s. Most of them lost money and that’s okay because out of failure builds success.
So I don’t know any answers to any of this and none of us do, but I think there’s a probability and I think that probability is real because there is an adaptability to the ecosystem. Now, could that happen on Bitcoin? Sure. I’m much longer Bitcoin than I am Ethereum. So I’d be delighted. It makes no difference to me, but I’m interested in the overall thing. The DeFi space, I think most of this fails first time around. I think people are asking the right questions. I don’t think they have found the right solutions yet. I don’t know. I do know that we haven’t gone through a risk cycle, so nobody actually knows what the yield is.
You don’t know what the yield is once you’ve been through the up and the down cycle, and then you can have a yield look back because it’s certainly is not the yields people think it is. It’ll end up being somewhere closer to market rates. And over time, those yields will get arbitraged back down to where money market rates, banks, and traders enter the market and arbitrage the two lending rates. So I don’t know where it’s going. Can Bitcoin do all of this? Yeah, it’d be a bloody shame if it did. It’s like building a full derivative market on Bitcoin. It would be a terrible shame, because then you’re just recreating the mess of another financial system all over again. Yes, it’s on blockchain, which helps. So I hope not, is my answer. I’d rather have two systems.
Brady Swenson:
What do you think is the probability of a derivatives market being built on top of Bitcoin given the different monetary properties it has in the fiat system, which obviously I think it’s much easier to build derivatives market on top of? What do you think about the chances of derivatives being built on top of Bitcoin? Do you think it’s any less than it would in fiat system?
Raoul Pal:
Sadly, no. We’re going to do it. Look, derivatives are good. They will lower volatility. They’ll bring more entrance into the market. They’ll give us new products, better trade. Look, I’ve been in derivative market my entire life. The only thing that I’ve ever seen that is nearly as big as what Bitcoin is, is what the derivative market was. I mean, it has changed everything and it became the monster by the end of it, but incredible. I mean, the world can exists. We’re humans. We’ll create the same thing. They did it in gold in the past. It’s not going to go away. Humans love credit and we will create it any way we can. I mean, everybody thinks the gold standard didn’t have booms and busts, and depressions and recessions, and deflations and inflations. It’s a lie. It’s a false narrative. They had all of those things and they had massive credit cycles too. So there is no panacea, nothing is going to solve human’s issue with greed.
Brady Swenson:
Fair, fair. Vijay, any reaction to that?
Vijay Boyapati:
No, I agree with that. There were certainly credit cycles under the gold standard and I sort of view these things as orthogonal via the derivatives market and the monetary base. I think it’s totally possible and much more likely that Bitcoin will be the monetary base and derivative market will be built on top of that monetary base. I don’t view crypto as an asset class or view it as an asset race. I think Bitcoin is like Hussein Bolt for the 50 mile headstart. The network effect is much stronger, the amount of resources devoted, the mining energy that’s put into Bitcoin, the brand. You’ll never hear Ethereum mentioned in a mainstream publication without Bitcoin also being mentioned. I just think Bitcoin is way too far ahead. It’s a race and I think Bitcoin is going to win.
I mean, if you think about the Bush case for Ethereum is that you’d have some sort of financial system built on it that’s valuable enough that you would need Eth to invest in that financial system. I just don’t see that happening. I think these things that are being built are kind of cute, the DeFi stuff that’s being built is cute as an experiment. I just think it can’t taught scale.
Raoul Pal:
Why could it not be like a share price? Let’s assume it’s Google, right? Let’s call Bitcoin treasury bonds and Ethereum Google, right? To compare the two is not the same thing. Why could it not be the share price? I.e. what you’re buying is a share of a future expected returns of that platform. They’ll be saying it’s money. They’ll be saying it’s a reserve asset. Two entirely different things. Could it not be that?
Vijay Boyapati:
I don’t believe so. I mean, I think they’re both competing for the same reservation demand. That’s how money gets its value from reservation demand.
Raoul Pal:
I think it’s suggesting Ethereum’s money. Who’s saying it’s money? Why is it just not-
Vijay Boyapati:
It’s acting as a monetary base on its own system. It’s the way that you can do anything on Ethereum. You need to get hold of it. That’s how it gets …
Raoul Pal:
I don’t think that’s money. I think that’s a slot on the blockchain and you pay for your right. That’s okay. I buy theater ticket and it gives me a seat. I mean, I don’t see why we have to think of Ethereum as money. I don’t think it’s money in any way, shape, or form and should never be compared to Bitcoin. I just think it’s like Google verses treasury bonds. They’re just part of the same universe of securities.
Vijay Boyapati:
No, I didn’t think so. I think they’re both forms of money competing against each other. All monies get their value from reservation demand, which is the desire to hold it. Ethereum gets its value, its price level from people holding it, not doing anything with it. I think people are convinced that there is value in holding Ethereum because someone else might use that Ethereum in the future for some application. I don’t buy that at all because as I have said, I don’t think Ethereum can scale. Once you get to doing finance at any kind of scale, Ethereum falls over. It’s already falling over. If you look at the fees on Ethereum right now at the very most nascent part of this DeFi revolution, it’s falling apart. You’re going to need to scale this thing if it becomes like a global system for finance. You’re going to have to scale it a thousand X. I don’t think it can scale 10X. I don’t think they’ve solved these problems in computer science to make this work at anything more than an experimental scale.
Brady Swenson:
So Vijay the purpose, do you think that there is any other purpose for a blockchain aside from money or an ultimate purpose? Let me put it that way.
Vijay Boyapati:
I do not. No. I do not, because block chains are massively inefficient. They’re a broadcast system, so they are already a hundred times less efficient than doing it on a database. And you do something that inefficient if you’re solving something that makes society as a whole much more efficient if you get social scalability out of it. And if you’re replacing money, that’s an example of that. You are making society much, much more efficient if you have a better monetary base. Yeah, the problem of scalability is also important as well. I think Bitcoin, when you’re dealing with a reserve asset, you don’t need it to scale in terms of transaction. So it doesn’t matter if Bitcoin has a fixed block size because it’s going to be used as a reserve asset in the future. I think that’s something that Raoul and I agree on.
It was very important to me in 2017 that this huge debate happened and that it was ultimately resolved. The market resulted in favor of Bitcoin as a reserve asset, not Bitcoin as a payment system. I don’t think any other cryptocurrency has faced a test anywhere close to as important as that for Bitcoin where all the most powerful companies in the space tried to change Bitcoin in their favor to make it so that transaction fees were low, which was good for their business. It was completely rejected by the market. That was a very, very powerful sign. I think that is the thing that makes me more bullish about Bitcoin than I’ve ever been since the beginning of 2011. I think it’s no longer an experiment. I think this is a real reserve asset, and I think that’s going to be recognized by the market slowly and surely over the next 10, 20 years.
Brady Swenson:
Raoul, do you have anything to close up? We’ll wrap up this conversation. Just any closing thoughts on I guess the probability again, that Ethereum will find a use case, and ultimately it’s not money.
Raoul Pal:
Yeah. Again, just to state my place clearly because most people misunderstand this. I do not think of Ethereum as money. I don’t think of anything like Bitcoin. When it comes to reserve asset and the purity, I’m a Bitcoin maximalist saying there is only one. As Vijay said, it passed that test. I sold out. So I was long from, I don’t know, 200 bucks and I sold out into that huge rally seeing what was going on and like, “I don’t trust this. I don’t know what’s going to be the outcome.” The outcome was the fork and it all went to the existing blockchain. And that was brilliant. And as Vijay said, I think that was the big test. So I don’t have any doubts in my mind what Bitcoin is. I’m really interested in the whole digital asset space. I am involved with all sorts of people where I’m talking about the future of music industry, the future of supply chains, all sorts of things.
I don’t think that’s a good use of the Bitcoin blockchain, but I do think it’s a good use of blockchain. Yes, blockchain absolutely is a database, but it happens to be pretty good for certain reasons. It doesn’t have to be efficient because it doesn’t have to be a social one. There can be other variations and uses for it that I’m already seeing everywhere. Just the ability to have the recorded ownership, even amongst a group of trusted parties in blockchain form, is actually quite useful. So I’m not worried about that. I’m incredibly bullish on the digital asset space.
I don’t buy any tokens. I don’t do any of that stuff. I’m interested in a macro level. But I do see a huge opportunity for future investment in long, short strategies in tokens, because I think there’s some really interesting businesses out there. But most of them get written down because it’s a very behavioral wash in, wash out strategy. I think that’s very interesting. I think there’s going to be a lot there. Again, it’s nothing to do with Bitcoin. It’s nothing to do with the competition. It has nothing to do with the currency. They’re just different things. They just both happen to be digital and they both happened to use blockchain. That’s all I think.
Brady Swenson:
Vijay, it looks like you want to have one more response here.
Vijay Boyapati:
No, no, no, no.
Brady Swenson:
I think this is a great conversation. It’s very useful. I know Bitcoiners and Ethereums want to hear it from the two of you. I think it’s a fantastic conversation. So if you want to keep going, please do.
Vijay Boyapati:
Honestly, I’m just listening and honest, Raoul is a brilliant thinker and he’s entitled to his opinion. I disagree and I’m sure we both have our money where our mouth is. I’ve had the opportunity to invest in the Ethereum since the very beginning. I’ve not taken it because I’ve given the reasons I have no conviction in it. I see it as an experiment. I can’t put my money in something that I think is an experiment that I think is going to fail.
Raoul Pal:
Yeah. And just so I’m clear again, just because everybody in the Bitcoin space gets all wild about this stuff. The biggest bet I’ve ever taken in my entire life in putting into one thing is of which I have about 20% of my entire allocation to the entire space to Ethereum. Everything else is Bitcoin. Because again, I am not thinking of them as competing assets. Bitcoin is my bet. That’s the big bet. I’m interested in digital assets for different reasons. So again, before anybody … I could see the comment section, it was like, “Oh my God.” There is no dissing about Bitcoin. It is my single largest bet. I’m incredibly, wildly, ridiculously bulletin that GMI piece, the article actually was called the world’s best trade.
Brady Swenson:
That’s true.
Raoul Pal:
That’s the point I’m trying to get across here. I’m not conflating the two. I’m not an Ethereum guy over Bitcoin. I just think they’re totally different things.
Brady Swenson:
Yeah. You’re interested in the probability that there may be a probability of future value of the project.
Raoul Pal:
Yeah. If I believe that if Ethereum had a much higher probability chance of success, I would have a higher weighting. I don’t. Because Bitcoin to me has an almost guaranteed chance of success. I also happen to think that from a number of other reasons, there is a potential that Ethereum could be valued more. Doesn’t make it a better asset.
Brady Swenson:
Yeah. Yeah. So you’re Pareto-long Bitcoin, 80, 20. I think you’ve mentioned this before, but just to get it on the record here, would you share your distribution in your whole portfolio? Long Bitcoin.
Raoul Pal:
Yeah. So all of my liquid available assets, that’s the money I’ve got to be able to either save or invest, I am currently 60 something. That’s 65% in Bitcoin and Ethereum of which the Ethereum is only 20% of that. I am about 5% cash and a bit in gold, and sometimes trading strategies. But really over time, once Bitcoin starts getting some price momentum … it’s going to, and I don’t use leverage on stuff like this, because this is your whole lifetime savings kind of stuff that you’ve got available. I will get up to at least 75%, maybe 80% long in this strategy of everything that I have and available investing assets. So I can’t tell you how bullish I am.
Brady Swenson:
That’s GigaChad, Michael Saylor level. it’s getting close to it there, Raoul.
Raoul Pal:
Yeah. Yeah. So again, when you try and pick holes and say, “Well, Ethereum … ” Forget all of that. Just look what I’m doing. What will you think I’m saying?
Brady Swenson:
Yeah. Yeah. All right. That was fantastic conversation. That’s one of the main topics that we were getting a lot of requests for when we made this pairing. I think that was a very worthwhile conversation to have on the record. So let’s start with you Vijay. I’ll like to hear from Raoul on this as well. What do you think are the biggest obstacles to Bitcoin becoming successful at whatever level you want to say? Maybe you could take it through some different scenarios all the way up through Bitcoin becoming a global reserve asset. What are the obstacles that you see that Bitcoin faces?
Vijay Boyapati:
I mean, in terms of risk, I think the first thing needs to be acknowledged is there’s always protocol risk. This whole thing is built on cryptography. It’s not like gold where it’s a physical thing that we know is part of reality and we’ve understood it for thousands of years. The protocol risk has diminished substantially over time. And that’s partly because of Satoshi’s decisions. He was very, very conservative in the cryptography Bitcoin on. It’s very old, it’s being tested for a long time, and it’s well established and understood. But in terms of risks to Bitcoin becoming the world’s reserve asset, I think there’s only one risk that matters at all and that’s a state attack. If and when a state attacks, Bitcoin cannot survive. To me, this is a question of whether or not Bitcoin gets enough political capture in time for a state attack to come because I think it’s going to be inevitable.
Bitcoin becoming the world’s reserve currency is going to disrupt so much of how the world works and append to power structures across the entire world that a lot of entrenched interests are going to want to sort of come down on a Bitcoin. The question is whether they realize this before it’s too late, so you can think about the internet in the same way or another example I actually give is Uber, the car riding app, where Uber would go into markets and there’d be these entrenched interests, the taxi lobby. And they would fight really hard to get their local and state governments to regulate Uber and make it behave in the same way that the taxi cabs behave. Uber had the benefit that they got into these markets and they got enough political captured very quickly. They had a very strong natural lobby from their drivers and also from their users who didn’t want Uber to be a taxi company. So the local city government or whatever would start trying to regulate Uber and then they’d have this massive people petitioning their local government saying, “No, we don’t want that.”
And to me, the question is whether Bitcoin gets that captured in time for a state attack to happen. It really has to be a global coordinated nation state attack to harm Bitcoin because we’ve seen China try to ban Bitcoin. It doesn’t really do anything because the network continues to function and people continue to trade Bitcoin. So I look at this and I think how long is it going to be before we have enough people with enough ownership of Bitcoin and people in Congress who own Bitcoin. There are already a few people, but it needs to be a much greater number. I think there was a paper written somewhere about how it’s somewhere around 30%, where if you get a minority who’s really in favor of something and that minority grows to somewhere around 30%, it’s very hard to stop them passing something that’s in their benefit.
An example of this was the legalization of marijuana in various places in the US. Marijuana was illegal for a long time, but over time, people became more and more comfortable with the risks involved with their fellow citizens smoking or using marijuana that, that minority was able to overturn these rules. So I didn’t think we’re there yet. I think you can see already from the establishment, the faintest inkling that Bitcoin is a threat to the establishment … There was a piece in the Wall Street Journal a few years ago saying, “If Bitcoin becomes the world monetary base, it’s going to hamper the central bank’s ability to manipulate interest rates.” It’s like, “Yes, that’s the point.” So they’re recognizing this as a threat, but they are not acting on it.
The narrative that sort of goes around DC right now is that we don’t want to hamper innovation. We’re very pro innovation and pro Silicon Valley mindset. But I view this as kind of a conflict between the banking system and the people who would lobby in the banking system versus Silicon Valley type people who lobby for innovation. I think Bitcoin is going to get to the size in the next cycle, this coming cycle, or the one after where it poses geopolitical risks to nation states. And they are going to pay much closer attention to it than they are now. When Bitcoin reaches the size of gold, that has very, very powerful geopolitical implications. Gold is an escape.
Gold has always been in an escape hatch, but it’s a very inconvenient escape hatch. It’s much easier to regulate golden than it is to regulate Bitcoin. It’s much easier to confiscate gold. Gold has problems because of its inherent physicality of centralization. If you have a substantial amount of gold, you don’t keep it on your mattress. You keep it with a central custodian because you don’t trust the security of your mattress. And that historically allowed nation states to go and confiscate that gold. They said, “Oh, all the Gold’s in the banks. Let’s just go and confiscate the gold.” This is what happened in US in 1933, which allowed Franklin Roosevelt to de-link the dollar from gold.
So Bitcoin is much more powerful than gold in that sense. When it gets to the size of gold, I think that’s going to cause a lot of consternation amongst people in power and nation states. And we’re going to see this cycle perhaps, or the next cycle for sure nation states coming after the point, in my opinion. And the question is whether it will have been distributed amongst the population enough that we have a vocal and powerful enough lobbying group in the population who don’t want their savings to be confiscated, who don’t want Bitcoin to be attacked, and will lobby on its behalf.
Brady Swenson:
Raoul, over to you. Obstacles faced by Bitcoin.
Raoul Pal:
I think the obstacle is the same obstacle of that, right? That’s a jewel device. Vaping came around and it kind of changed everybody’s lives because it massively lowered the risk of illnesses driven by smoking. But what happened is it rose so fast in value and it became so big that the immediate threat was regulation. But how is that regulation going to change anything in the end? I don’t think it will. All it does is it’s the speed bumps. There are speed bumps to go through. Vijay is right, I mean, the battle will happen at geopolitical level, but there’s an issue there with that too, is some state goes to ban it. Another state will go and use it as a reserve asset. So it’s going to be very difficult because it’s distributed naturist. It’s like a virus, right? It’s very difficult to get rid of.
The mining issue about, can the Chinese take control of Bitcoin because of the mining? Well, I think that the US has got a lot of plans and we’ve seen that by using, let’s say, excess gas supplies in Texas to run cheap mining. I think sovereign states will do stuff like this. So I think there are checks and balances within the system, but I do think these were all speed bumps and we have to go through them all. Each one we get through will test its resiliency and prove its resiliency over time. So yeah, there were lots of battles to fight and the war hasn’t been won, but I think the probability of the war being one is extremely high.
Brady Swenson:
Excellent, excellent. Vijay, I’m mindful that you have to take off here in a few minutes. Do you have any closing words for the audience?
Vijay Boyapati:
I just echo what Raoul said. I assigned a very high probability to this. I view this in sort of longer timescale than some of the people who I would say are in my tribe, Bitcoin maximalist. I’m very, very bullish on Bitcoin over the period of 50 years. I think it’s going to be greatly beneficial to the whole Bitcoin for my grandchildren. I am not sure how these cycles are going to play out over the next few years, but I almost have a sense of an inevitability to this. It’s distributed, decentralized nature makes it just as Raoul said, like a virus. It’s a very, very hard thing to kill and it would take a coordinated nation state attack to kill Bitcoin in my opinion. I think it’s a fairly unlikely event. I think you’re going to have a patchwork of nation states trying to attack it at various times and that will improve its resiliency.
So I view Bitcoin as the most important innovation to money in a thousand years and money is the biggest market on earth. So I think it’s imperative that if you’re paying any attention to this space you have some allocation to Bitcoin. It should not be zero. This is a very, very disruptive technology tool, very, very big market.
Brady Swenson:
Excellent. Thanks so much Vijay for joining us today. Good luck and have a great day.
Vijay Boyapati:
Thanks guys. It’s great speaking to you, Raoul.
Raoul Pal:
Yeah. Great to speak to you too.
Brady Swenson:
Raoul, we’ll stay on with you for about 10 minutes if you’re willing.
Raoul Pal:
Sure.
Brady Swenson:
All right. Great. Yeah, Vijay is not in the business as you are of actually trying to make those predictions of how these cycles will play out. I’m curious what’s your current thinking for this next cycle? The next couple of years.
Raoul Pal:
The problem is now is none of us can approach this without thinking of plan B’s work. We’ve kind of all poisoned ourselves and I wish we hadn’t because we’re all losing objectivity, right? We all think it’s now our God given right to see Bitcoin goes to 250,000 in this leg. I believe that I look at the charts and it kind of looks right to me. Somewhere in the back of my mind this worries me a little bit, that we’re all holding onto one person’s work. And much as I love him and I love his work, it does concern me.
So I don’t know how it plays out. My guess is as he predicts and I see that from a number of different levels, but really the level that I look at it from is what is its adoption curve? Forget retail. Retail’s in it. There are more retail that will come in. But the really big part of this is, as we talked about, it’s the increase in market cap sucking in others, and that’s all coming, whether the Bitcoin ETF comes and that brings in the RAA space and that allows the pension funds to buy it. But it’s still too small an asset. But wait until it gets to a trillion dollars and that’s only five X increase. Then at a trillion dollars, it becomes an interesting asset. And then it starts attracting the corporate treasurers and then it starts attracting governments.
So I think it’s all here and it’s all coming. I see that reflexive cycle that George Soros talks about building here into something that could be surprising to the upside just by the nature of those people involved and the supply constraints of Bitcoin itself. So I actually think, and this is not because I want to sound crazy bullish and amazing, it’s actually because I see this reflexive cycle setting up, I think the risk that it could be much higher than plan B expects. Maybe it starts slower. Maybe it doesn’t happen in the same way, but it feels like it could be bigger because I just look at the size of the participants who can could into this. And that would be the shock.
Brady Swenson:
Yeah. Well, speaking of plan B’s work, do you think that a model that doesn’t take demand explicitly into account like this can be used to predict the future? It seems to have great correlation with the past price action, but if we don’t take demand into account.
Raoul Pal:
Maybe inherent within the modelist demand being the thing that drives the price and it matches or it overwhelms the supply at various points. It feels that yes, you don’t model them on, but Christ, I’ve seen a million Wall Street analysts and they’re all shit at that. So forget all of that. There’s just something simply elegant about it that I think it takes the assumption of demand within it. It’s like I can show you a price chart and there is no supply or demand in that chart. In fact, no mathematical formula at all, except where the price went. But I can get a better odds than tossing a coin by using a chart. So you don’t need all the inputs. And usually it’s overly detailed people who look for these things and then miss the woods through the trees.
You need to see the forest and not the bloody tree you’re in front of and people get in this way. So I’m with plan B on this, is it doesn’t matter. That will drive, I think, the excess move over his model or beneath his model, will be supply and demand, whether there’s a big supply coming for some reason because somebody wants to sell it, Satoshi sells his coins, whatever it is, right? I think that’s just part of the function of where it goes, but it’s value seems to be intrinsic in that and the stocks are flow model and based particularly, one that was really interesting, is when you base it around other assets. So when I first saw this and he said, he’d been easy against gold. I said to him, “Listen, I think you can value gold and you can value silver and you can value all these other assets. And when you all relatively valued them all, it makes sense.”
People don’t understand that either, is gold is a fantastic relative value asset. Oil, gold equities, real estate, they all have relative values. That’s what makes them assets. And over periods of time, they get out of whack. And then eventually capital goes into the cheaper asset. So things like farmland is an asset. There’s a problem as technology drives price down of crop drives productivity up and prices down, but farmland’s extremely cheap versus the price of gold, or the price of oil, or the price of equities. So you could see that that would be an attractive proposition for, let’s say, a pension fund or an endowment with a longterm time horizon. That’s what makes these things assets. What he’s basically said is Bitcoin fits within that framework. So over time it’ll get overvalued versus property, in which case, great. Sell some Bitcoin, buy yourself a house or it gets undervalued and you sell your house and buy Bitcoin (or whatever it may be), but that’s what assets do. So I’m really interested in that.
Brady Swenson:
Yep. I was talking with Max Keiser the other day about the maturity of the Bitcoin markets that would instill the kind of trust that Michael Saylor has acquired in order to make the move that he did, that level of trust. And you’ve been writing about Bitcoin for a long time since 2011. So you know this, in the past the price action in the markets has been very manipulated. I wonder now what you think, like how in the past has the Bitcoin price been manipulated and with the additional, like the regulations that we’re seeing, the the more reputable exchanges that are being built around Bitcoin, do you think that there’s less manipulation of the price now and will that price action be a lot more real moving forward?
Raoul Pal:
That’s just a question of time horizon. In my time horizon, it’s not manipulated. If you’re looking at daily, whatever sure there’s big players. Well, there’s big players in every market. Soros moves currency markets around, is he manipulating it? Well, not necessarily. I’ve seen all sorts of stuff. You’ve seen program trades from pension funds. You’ve seen stocks being put into indices. All of this stuff, it kind of manipulates markets, but once you zoom out of time horizon, it’s irrelevant. So I don’t see it being a manipulated market. That’s one of the reasons it’s a 60 volatility asset. That’s its biggest problem over time. Good thing is the volatility skew to the upside because the upside tail is so much larger than the downside tail. However, that’s an issue. So that stops anybody who use risk adjusted returns based on volatility of allocating large amounts of capital to it.
That’s why you have a lot in treasuries because they have a 3%, 4% volatility. So you’re going to have huge amounts of money in it. So as all participants come in, the volatility of Bitcoin will come down. That’s how all assets work. As it comes down, more money goes into Bitcoin. More money goes into Bitcoin, volatility goes down toward its natural to volatility. And let’s say gold is around 20 to 30 vol. Equities is probably natural volatility, unmanipulated at probably 20 to 40. So kind of similar to gold. And treasury bonds are much less and currencies are about eight. So it’s going to find its range and it’s probably going to be in that 20 to 40 range and that will be understandable enough for everybody. That’s actually quite volatile for a reserve asset, which is why equities aren’t reserve assets. I only think until we get to the 21 million coins and we develop into future state, do we get to the volatility where it really is the true reserve asset and its volatility collapses down to below 10%.
Brady Swenson:
Right. And at that point you see Bitcoin adopting the other forms of money, the other roles of money, the medium of exchange, and maybe even unit of account?
Raoul Pal:
Yeah. That makes logical sense at that point, right? Because I literally don’t want to send you money in something that can give you 5% in minutes because I can’t pay you what you’re asking me if you’re anchoring in a different currency than me and Bitcoin’s our medium of exchange. So right now it’s just not very useful for that. We’ve accepted Bitcoin for Real Vision before. It’s a pain in the ass, because your product’s worth more and less in the currency that we have to pay our staff in. Now, I can think of everyone saying, “Yeah, we just think of it in Bitcoin terms.” Yeah, well, my staff don’t get paid in Bitcoin. They get paid in US dollars because that’s to pay tax in dollars. So it doesn’t work yet for that, but that’s all to come.
Brady Swenson:
Yeah. The demand for the money as that goes up. It’s a cycle to move from one currency to another and we’ve done that many times through history, changed reserve currencies. So if it plays out that way, we’ll just see another transition.
Raoul Pal:
Yeah. I mean, there may be another transition before Bitcoin, right? I have a feeling that there’s going to be central bank digital currencies, and there’s going to be global baskets of digital currencies, regional baskets, trade baskets, like a commodity producers basket et cetera, et cetera. I think that’s coming. But I think that all leads to the logical conclusion, which is that Bitcoin wins in all of that.
Brady Swenson:
Agreed with that. All right. Last question for you. This is a bit of a fun one. George Gammon was on this show last month and he’s down in St. Barts, and was telling us that the buzz at the fund manager parties is you talk about equities, you talk about the fed and macro for a while, but then as the party sort of winds into the wee hours the topic of choice is always Bitcoin. So I know that you’re down there in the Caribbean, Cayman, I believe. What’s the talk down there with your friends when you’re hanging out?
Raoul Pal:
Well, I’m actually on an Island of 140 people right now. But here’s something: I’m in little Cayman. I’m having some work in Grand Cayman. The audio visual guys are installing some UTV, blah, blah, blah. And he wrote to me, he goes, “I’ve been watching your videos on Real Vision and I’ll accept payment in Bitcoin.” I said, “You’re not having any of my Bitcoin.” But we have audio visual guys who are accepting payment in Bitcoin. And my yoga instructor were saying I could pay her in Bitcoin. It does worry me a bit. Out of my hedge fund friends, I mean, everybody’s interested in this. It’s a matter of time horizon, how much pain people can take. I’m a bit amazed actually that it’s not gone further up yet and it’s the correlation with the dollar. I don’t understand the supply side of the Bitcoin equation. Where’s all the supply coming from right now? Because we don’t hear a two way street. Right? There’s not like a queue short community, “We’re short in Bitcoin.” So where the hell is this selling coming from? Who did Michael Saylor buy all his stuff from? Even he said that.
Brady Swenson:
Yeah, he was surprised.
Raoul Pal:
I hear some stories about one of the … I can’t remember what it was … a specific situation that generated a huge amount of Bitcoin that needed to be realized that maybe that’s the reason that it’s being sat on, but it looks like it’s sat on. It’s currently correlated with the dollar, correlated with gold, correlated with risk assets. I think that correlation is passing. It will change. But you have to wash out some of that speculative stuff first, and maybe you have another stub down in price. We clear it out a bit, break some people’s shorter term faith, the traders community, and then we go up.
Brady Swenson:
Excellent, man. I’ll let you get back to it. Thanks so much Raoul for your time. This was a ton of fun. Great to talk to you.
Raoul Pal:
Yeah. Really enjoyed it. Thanks so much.
Brady Swenson:
All right. Take care.
Raoul Pal:
Cheers.
Other Episodes
Episode 8 –Andy Edstrom and Ansel Linder
Episode 9 –Rockstar Developer and Jeremy Rubin
Episode 10 – Bitcoin TINA and CK Snarks
Episode 11– Gigi and Knut Svanholm
Episode 12 –Adam Back and Preston Pysh
Episode 13 –Alex Gladstein and Matt Odell
Episode 14 –Robert Breedlove and Tuur Demeester
Episode 15 –Isaiah Jackson and Max Keiser
Episode 16 –Gigi and Udi Wertheimer
Episode 17 –Aleks Svetski and Jimmy Song
Episode 18 –Stephan Livera and Marty Bent
Episode 19 –Mark Moss and Ben Prentice
Episode 20 –Samson Mow and Parker Lewis
Episode 21–Lyn Alden and Jeff Booth
Episode 22– Robert Breedlove and Cory Klippsten
Episode 23 — Saifedean Ammous and George Gammon
Episode 24 –Jameson Lopp and Eric Martindale
Episode 25 –Preston Pysh and Andy Edstrom
Episode 26 –Lyn Alden and Nic Carter
Episode 27 — Erik Townsend and Yan Pritzker
Episode 28 — Max Keiser and Tone Vays
Episode 29 –Preston Pysh and Andy Edstrom
Links
Swan Bitcoin
Swan Bitcoin — the best place to buy and invest in Bitcoin
Swan Signal Telegram Chat Room
Raoul Pal
Real Vision –Raoul’s media company
Global Macro Investors –Raoul’s Investment analysis company
Vijay Boyapati
This blog offers thoughts and opinions on Bitcoin from the Swan Bitcoin team and friends. Swan Bitcoin is the easiest way to buy Bitcoin using your bank account automatically every week or month, starting with as little as $10. Sign up or learn more here.
