‘So let’s say I’m wrong and there’s more pain to come, which a lot of the crypto markets think, so let’s say the downside is 40% from here. Okay, that’s a decent selloff from here. What is the upside? Well, every time you’ve gotten to the bottom, it’s around 10x, maybe more, and depending on which token you choose and how well you allocate your capital, 40% downsides, 10x upside, that risk reward is enormous.’
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‘It’s actually more than 10x, but it’s only happened a couple of times where it’s truly a true bottom of two standard deviations below right, but that’s 40x, you know, a little bit above, it’s huge right.’
‘So that’s one of the best risk rewards you’ll ever be given in your career. What’s amazing about crypto is why it generates so much wealth is because you get repeatedly given these. And that’s why technology has done amazingly for people as well. Technology investment. That’s right, people have this mean reversion mind frame, and they think it’s all over. The reality is that it’s always going up to the right just within these volatile bands.’
Macro gear Raoul Pal says that digital asset markets could be gearing up for a major trend reversal to the upside if one main metric is any indication. Pal says crypto markets are mostly driven by the liquidity that comes from M2 money supply.
In a new interview with Bill Barhydt, the CEO of Abra, on his YouTube channel, Raul Pal says Ethereum is set for a series of supply shocks that could help the second largest crypto asset by market cap vastly outperform bitcoin once again.
The CEO of Real Vision said that Ethereum’s shift to a proof-of-stake system, which is tentatively said to happen in September, will likely eliminate significant amounts of cell pressure as participants take their coins off the market and stake them for yield.
He also mentioned that there wouldn’t be any price drops by miners to cover their operating expenses, unlike with proof-of-work blockchains. According to Pal, there will soon be a supply cut of enormous proportions as miners will no longer be present. A total of one or two billion dollars a month is not sold. However, after the sell-off, there will be no constant pressure from miners who have received the Ethereum rewards .
‘So what have we got going on underneath? We’ve got a gigantic supply shock. What is the supply shot? The small supply shock is that right now, every day, miners are selling ETH. They probably sell about 80% of everything they receive because they need to pay for their cash flow, electricity, and other expenses, so they stop. That’s about one or two billion a month, okay.
But then after that, we’ve also got the fact that staking’s coming. Currently, approximately 9% of all ETH is staked. According to estimates, it will rise to around 30%. What does that mean? It means that 30% of the ETH comes from exchanges, DeFi, and CeFi, and is untouchable.
You’re removing a gigantic amount of supply from the market, and it’s locked in for a year, so you can’t do anything about it. Yes, you can copy trade crypto using wrapped um, you know, and state ETH and stuff like that, but it’s just the same thing, so you’ve got this, so you’re taking that out of the market, so you’ve got a huge supply chain.
On the other hand, you’ve got a massive demand shock, which is, firstly, a lot of institutions wrongly didn’t like bitcoin because of ESG concerns. Proof of stake gets rid of that. Additionally, it now has a yield, so that’s something that institutions love. So now you’ve got to make one asset allocation decision, which is, I believe, in this Web3 technology world.
Where do you allocate bitcoin or ETH? It’s going to be ETH because you’re going to get something between 6-10% yield. That’s right, so that’s extraordinary. You’ve got this deflationary issue of burning the tokens based on network activity. So that’s another massive supply shock. There’s less ETH around every year because it’s getting locked up. You’ve got no miners put against this massive demand shock, and we’ve got the macro cycle turning. I look at this and think, “Holy cow, this is a massively imbalanced supply and demand situation.”
You’ve alluded to why? Do you still hold bitcoin?
Barely, which I’m sure everyone despises, right? Not because I don’t like Bitcoin or don’t think it will go up. I just think it goes up less. You know, we’re looking at this as a technology in a network adoption model. So you want to back the network that’s growing the fastest and has the greatest number of applications. That’s the safest and easiest allocation. That happens to be ETH.
Other earlier stage tokens, whether it’s Solana or Avax or whatever, are getting earlier on the adoption curve. So you get that accelerated phase, so they’ll probably outperform, but if you’re just thinking the safe easy bet, we’re now looking at the internet. The money of the internet is ETH. Currently, nothing is exchanged. I mean literally nothing.
The money of the internet is DeFi. It is built on ETH. All of this is being built on stable coins, and each has a yield. Yes, it’s not fast enough, so people go to other chains for that. It’s a bit more expensive; people get other chains for the broad encompassing of the space. This is the simplest and easiest bet to take.
Will you make additional crypto allocations to the Solana in smaller amounts to potentially look at that 100x upside given where they are in the adoption curve, or is there no point given the numbers we’re discussing?
I just don’t think I’m good enough and I don’t have the ability to spend all the time in the space, so that’s one of the reasons I started the asset management firm. So I can allocate it to hedge funds whose job it is to do that.
Yeah, but I do have a few bets. I have a small basket of like DeFi, you know, Uniswap and stuff like that, you know, Aave or whatever. I also have the only other bet I’m taking really is Solana. I’ve started to build a reasonable position in Solana because it has the next highest number of developers in the network activity. It’s clear that their mission seems to be to use it as a blockchain for the masses: music, gaming, all of that kind of stuff. I think the next phase is that the next 200-300 million people are going to come out of mass adoption and not from crypto heads like you and I have been around for a while. I think Solana is a reasonable bet.
The chain breaks. It’s not perfect. All of this stuff is nothing’s perfect and that should be the price. We all understand that.’
The former Goldman Sachs executive says that the charts support his hunch that ethereum is about to outperform bitcoin. He believes that ethereum and bitcoin are about to break out of a multi-year descending channel, which will make ethereum a far more appealing bet for macro investors.
‘I think a lot of this activity is starting to get very interesting if I start looking at prices. We’ve talked a bit about bitcoin copy trading, but if I look at the chart of ethereum versus bitcoin, to me it’s very close to breaking out of this downward channel, and, as you know, I’ve been overweight on ethereum for a long time now and it’s paid off very well, and I expect it to have another leg higher. So I’m more interested in ethereum than bitcoin.’
What do you think? We all believe that Ethereum will outperform Bitcoin, even though we are heavily invested in both assets. Recently, we have been buying more bitcoin than ethereum. Maybe we should be investing more in ethereum. What do you think?
[This article is a transcription of a video made by Savvy Finance]
[Original video: https://youtu.be/oXxluKk44r8]
