“So the market is currently obsessed with inflation. It’s obsessed by the central banks. It’s obsessed with interest rates going super high. We saw a bill act coming out yesterday saying, you know, interest rates need to go up to the moon. I step back from the narrative and start looking at, okay, what is the reality of that? And I think the reality is that what we’ve actually done is utterly destroy demand. We’ve had the largest rate of change of interest rates in history and the largest rate of change of commodities in history. We’ve had the largest rate of change in mortgage rates. All sorts of stuff, a very perky dollar as well as a strong dollar, make a big difference to this. Those things tend to be financial conditions tightening. Conditions have tightened dramatically. The market is still looking at previous CPI prints. CPI is a lagging indicator; the forward-looking stuff of the business cycle is collapsing. And which is interesting to me, it fits with my secular framework, which is disinflationary slower growth over time with aging population demographics. All of this is coming together, which is why I’m paying attention right now. I think that it’s going to set up a whole bunch of opportunities. As the Fed pivots fast and the economy goes into recession much quicker than anybody expert”. – Raoul Pal.
In an interview with Delphi Media, Raul Pal, the co-founder and CEO of Real Vision and a global macro investor, went into depth about exactly where he sees the crypto market going in the short term and the economy in the long term.
The crypto market has been trading sideways for quite some time. It is currently trading at $29,517 per share at the time of writing. Down 7% in the last seven days and 5% in the last 24 hours. Ethereum is trading at $1,752, down 12% in the past seven days. It’s difficult to be in shape, when the market is changing every second, so there is Jet-Bot, a copy trading platform where you may earn 200 percent to 2,000 percent APY by using Binance trading bots, will help you stay ahead in the crypto game. People should take a break, while robots should work for a living.
According to Raoul, the crypto market isn’t looking exactly like other markets because adoption is still prevalent, but the next five to six weeks will be crucial for the crypto market. His outlook isn’t exactly bullish at the moment, but long term we can expect growth in crypto.
Read to what Raul has to say,
“People are waiting for this cycle’s final shoe to drop. I think the problem is the economy, like in 1974. It’s not a financial event, more of an economic event, and probably the biggest US consumer event. Now, in 2008 the Feds discovered the new trick, which was the balance sheet. Now if you understand the balance sheet, as you expand, it automatically makes the S&P and other risk assets reprise higher because the denominator’s fallen. That stopped the rot because the collateral in the system goes up in price and everything kind of resets. Every time the Fed has used the balance sheet since, it’s had exactly the same impact, which is an immediate turn in asset prices at an immediate turn once it was used in 2009.It had an immediate turn when it was used in the pandemic and it had an immediate term when it was stopped, when the market started to sniff it out in 2018. I don’t see any reason why the feds won’t do it again. So I’m anticipating a short, very sharp recession and a return to the use of the fed balance sheet direct transfer payments to give money directly to poorer people and the fed having to support some parts of the markets again. But let’s see how it plays out. The main point being, we’ve got the worst ahead of us. It’s not fully priced in by markets. It’s going to be faster than people expect. It’s going to be more severe than people expect. And then we can look forward. So that’s my pretty horrific story from here. How does it play out for stuff like crypto? Well, the crypto story’s still amazing, right? The crypto story is still a technological adoption curve. It’s still Metcalf’s law.
It’s been a slow year for adoptions, but adoption’s actually been sideways. People haven’t left the crypto ecosystem like in 2018, which is why we’ve had a much more sloppy sideways range. I think that adoption continues, and if it continues this way, you know, by the end of the eighties, by the time we get to 2030, we will end up with five billion people, or four billion people, using crypto. This chart’s actually been updated since, and we found that the rate of adoption was even faster last year. We had a 186% adoption rate. You can see what that’s like compared to the internet overall. It’s about twice the speed of internet adoption, and that’s truly extraordinary, and it tells us that going forward, even though the internet, as it becomes a more adopted network, the rate of growth comes down.
But the numbers become huge and that’s what’s important to the valuation of the MarketCap of crypto. So again, if we look at these updated numbers, even if we assume some slow down, whether it slows down by the same percentage change that the internet did after year six, starting at five million users, it started slowing down to 43%. If we adjust by the same amount, we get to 76% growth in crypto. We can still get to 2.8 billion users in the next four years. If we slow it down to match that of the internet, we get 1.2 billion users, and the internet at that stage was at 5 million.
So you can see the dramatic increase, and this is what increases the value of crypto. This is Metcalfe’s law. This is network adoption, and what we’re also finding is technology, each one at a time, comes at a faster speed. So bitcoin’s adoption was extremely rapid. Ethereum has been much more rapid.
I think some of the other layer ones, like Solana, have been even more rapid than bitcoin. And I expect that to continue because the base layer was there. Bitcoin was adopted so fast because the internet existed. The reason Ethereum was adopted so fast was because bitcoin had existed and had been adopted, and the same with the other layer ones. The same with NFTs, which were even faster in adoption, if we think of the value accretion to the board yacht club, for example. It’s probably the fastest value accretion to any asset in all history. It’s about 25,000% in a year, which is truly extraordinary. So that’s kind of what’s going on, and if network adoption models are the key models, I’ve spent a long time looking at this because a lot of people still don’t really understand it, and I thought, how can I model this in a way that makes sense to an idiot like me?Because Metcalfe’s law is a complicated formula where we don’t have the simple input, we can just put it into a model, so I went through all of the different things on the chain and the various factors and found that I could best describe the price action of bitcoin, while looking at the total transaction volumes in dollar terms versus the number of active address. And that makes total sense. A network of two people transacting a billion dollars a week is nice, but it’s not a network.
The same billion dollars a week transacted by a billion people is incredibly valuable. So bitcoin transacts more volume than anything else, and it has a lot of active addresses. And what’s amazing is that it’s the same two charts even though the numbers are wildly different. The two charts mirror each other perfectly. It tells you that price is actually a great indicator of network adoption. So it doesn’t give you a lead, and I’m working on rate of change models and other things to give us some leads on this, but it tells you that crypto’s generally well-priced by the market. It’s very efficient in what it does. Don’t forget, price is not an input in the model and it works for every single crypto asset I’ve ever looked at.
So here’s Ethereum. It works perfectly, exactly the same. And it works for, I’ve seen it in all sorts of things, from polka dot through to XRP. People don’t want to believe that. They want to believe that crypto is all about network adoption models that are unique to that particular crypto. No, it’s the narrative that builds the network and the utility of the network, but they’re all priced the same way. So net-net. How does this all come together? It all comes together in, what I think, is a dramatic risk that happens over the next 4-5 weeks. Much like the end of 2018, those of you from the crypto markets will remember bitcoin fell 50% over that period and put in the low.
I think we’re starting to see that kind of scary price action. The equity market, as of today, has put in a DMACC indicator daily low, but this is around the month and rebalance effects, and we know the month and rebalance are going to be one of the largest ever meaning pension fund rebalance. Their portfolios have to buy a lot of equities. They’re doing that. They probably need to get it done before the long weekend in the United States. After that, I think crypto is telling us it’s all going to roll over again and we’ll see the big sell-off. I expect bond yields to continue to rally as they start pricing in the probability that the Fed has to pivot and the economy’s gone too far and inflation is broken. I then love to see oil break. I’m not 100 sure of that one.
But I think it’s likely, it’s mapping very very well to oil in 2001 and all in 2001, almost identical price action. You can overlay the charts and it collapsed 45%, much like it did in 2018. So I think that’s probably coming that changes the narrative and eventually the Fed, sometime in June, will go to a meeting and we’ll monitor the situation and maybe we won’t yet that asset. I believe, i see tech crypto and probably gold actually start to outperform along with bonds rise ashes and some.
Well, the big question is, what is it going forward? Is this going to be a longer recession, in which case everything rallies and then comes back down again, the Fed will have to do a lot more? That’s what brings the fed balance sheet in as the markets roll over and the economy looks terrible. I’m not sure if my best guess is my base case. The scenario is a v-shaped recovery from an absolute cliff edge. But it could be something more drawn out, in which case we’ve got a much nastier equity bear market to come. But we’ll wait and see. It’s a pretty grim prognosis, but I think this is the opportunity I’ve been looking for.”
[This article is a transcription of a video made by Only The SAVVY]
Original video: https://youtu.be/tgPY0Ulp_9E]
