How Global Liquidity Cycles Drive Crypto's $100T Target | Raoul Pal & Dan Tapiero

How I actually think about this is I think the opportunity here is the space is $2, $2.5 trillion today. I think it's going to $100 trillion in line with other asset classes. That's the biggest macro trade of all time and the largest generation of wealth in all human history. That's the trade. How you want to slice and dice that, yeah, how you want to slice and dice that's up to you, what risk tolerance you have, but that's the trade.

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Good.

A bit bored, but fine.

Yeah, end of August. That's what we get.

But that's why Dan and I have been working on our tans. That's the only thing we can do.

You guys are looking bronzed, looking lovely. Yeah.

How did you get us to do this? I just looked at my schedule and I'm thinking, who schedules the end of August something? But you did it.

It's your block works pull. The problem with having you invested in us, Dan, is I know all the people inside your company now, so I know how to get on your schedule.

I see the downside.

Yeah. All right. So, so look, I want to— I want to like— nothing's happening. It's end of August, but I want to— I think everyone's wondering like, what happens the rest of the year? How much do the elections impact this? Like, what's really going on in crypto, global liquidity cycles? But actually, I wanted to start with a— I've heard you guys on podcasts together and every time it's like, oh yeah, we've known each other for 30 years. Yeah, we go way back. But I don't actually know the real story of how you two know each other.

What do you mean? The real story, Raul was my salesman. He was at Goldman Sachs and I was at, can't remember exactly where. Sofair or Steinhardt. No, Sofair was Asia. Yeah, and it's very straightforward. And back then, Raul, you know, there are very few really intelligent sales, doesn't exist, you know, brokers. And I was managing a portfolio and every day, you know, the salespeople from the various firms would send you a Bloomberg, it was the equivalent of email, like a Bloomberg comment. And so Raoul frankly put out the most interesting, most intelligent, and I'm not kidding, commentary. It was the pre-Twitter, where you had one page, essentially 8 sentences, to write something interesting to captivate the client. So that's like late '90s. And then I, you know, I thought—

Yeah, it was probably '97. Asian crisis.

Asian crisis. Something around that.

So you'd put something out and then you'd try to sell him the trade. And Dan would say, this is a smart guy. And then you'd call him up and say, you want to execute this through us?

Well, and Dan was kind of up for 24 hours a day at that point because he was trading, he was trading the Asian book and having to check in with everybody else. But, um, I then moved across to, um, GLG to run the global macro book. So then we'd swap notes because we were both doing similar stuff, and then we've swapped notes ever since. I started GMI back in 2004, and Dan was an early subscriber to that. So we've just kind of There's very few— without blowing either of our trumpets— there's very few pure macro guys. And Dan and I speak the same language. We understand there's times when we have completely different views. But generally speaking, we kind of understand the frameworks of how we think about things. We're very pure macro. And we don't try and conflate it a lot.

All right. Maybe that's a good place to take us in then, which is on Empire, Santi and I are talking about crypto cycles all day long. And where are we in the cycle? But what we fail to talk about, because we are not we're not the macro nerds that you both are, are the global— Macro savants, Dan, macro savants. That's what I'm getting. What we failed to talk about is like the global macro liquidity cycle. So maybe if Raoul, you could just tee us up with like, what is the global macro liquidity cycle? And like, just where are we in this cycle right now?

Yeah, so very simply, something I call the everything code is from 2008, We had a global debt reset. Now, as opposed to letting go of all the debts, what they did was cut interest rates to zero and said nobody needs to pay interest rates. Okay, that was a huge advantage to the system, and everybody reset their debts for this 3 to 5 year sector. So then the debt refi cycle, when they have to refinance the interest payments and the debts, drive the business cycle. The business cycle has always been the credit cycle. So now it's become almost perfectly 4 years. The only other time in history it was perfect like this was back in the '50s and '60s after World War II and the financial repression then. So there's financial repression going on, but it goes in this 4-year cycle. The 4-year cycle happens to be the crypto cycle, the US election cycle. It's all the same thing. So it doesn't matter what you label it, but there is a cycle that's going on. And we're just coming into it now, which is we've now got $10 trillion of, of, um, debt to refi. You have to refi the interest payments. Usually what they do is they inject enough liquidity into the system to pay for this because there's not enough GDP growth to pay for it all. And so we go on to the next cycle. So that's really what drives all assets right now. Everything is basically correlated. But out of that, there's one asset that does a lot better because it's got the secular adoption curve, which is crypto. Plus the macro tailwind of debasement of currency and the cycle. So that's where we are in the cycle now. Zoning into election year. Well, this is when they start giving out money. They also have a lot of refi to do. So it tends to be a very good back end of the election year. And then the following year tends to be very, very strong too. But this is a global thing as well. Every major central bank is refinancing their debts in the same cycle. The Europeans, the Japanese, the Canadians, the Brits, and the Chinese. Now, what you always look for in these refi cycles is who's the weakest link, because they're likely the ones to do the most stimulus. It's probably China this time around. Just came on the tapes just now. I think Felix actually just tweeted it out. There was a Bloomberg story that I've been talking about for a while. Is the US and China have agreed to kind of help each other. So we know the Chinese need to stimulate. What did they say? Well, they've said, let me see if I can find the exact tweet.

Yes.

It said, it was exactly what I've been writing about in GMI. They said, China's central bank says a meeting in Shanghai produced an agreement with the US Treasury to appoint contact people to deal with any future financial stress events.

Yeah, well, the Chinese don't really know what they're doing. I mean, that's the reality. Their currency is still more or less pegged to the dollar and the euro. They kind of outsource their monetary policy. They, I mean, you know, it's a big economy, but yeah, I don't think they have, you know, the best people at the central bank and the treasury there. So I'm not surprised that they're asking us for help. The entire commercial real estate sector is frozen, right?

And it's all dollar debts, right? So they've got a dollar shortage. And what they're basically saying here is the Fed will get dollars to them. I think this is one of the reasons what Japan has been doing in the yen as well, because the euro-dollar market is driven through the Japanese banks.

You know, I'm not, you know, the whole Raoul's explanation of the cycle. Is a little more scientific than my own, but it's very similar. But you know, Raoul, do you remember, look, it used to be for many, many years that every time the Fed tightened, the dollar rallied a lot. And then what happened was that the tightness of monetary policy got transferred around the world and the weakest link would blow up. I think what just happened with China is the Fed blew up China, right? It's not such a bad thing that we can control what happens over there with our interest rates, but the reality is the dollar went up a lot against the yen, okay, a lot. And it didn't go up quite as much against the dollar— I'm sorry, the dollar didn't go up quite as much against the RMB because there's a peg, quasi-dirty peg going on there. So Japan and the rest of Asia just devalued massively against China, right? So that hurt China. Also, dollar, uh, dollar's becoming more expensive, uh, pressured, you know, the leverage player out there, and that's China. The real estate sector is still ridiculously levered. So it's pretty much the same thing that we've always seen, Raoul. I mean, it was, you know, all of these crises over the years. And it's largely because China does not have a floating currency. They're not big boys. They try to be big boys. They say they're big boys on the global stage, but they don't even manage their own currency. It's kind of a joke a little bit. The peg is left over from before when they were communists and they never really adjusted. So they don't have a free-floating currency. It's not quite like the Arabs who are completely pegged to the to the dollar, you know, Saudi and all the Middle Eastern currencies. There's a complete peg there. But it's kind of funny, China is a $20 trillion economy and it doesn't have— can't manage its own currency. So as a result, they don't have their own monetary policy. And so, I mean, I think rates there probably are going back to zero, Raoul, don't you think? I mean, I was looking at— Yeah, or something, right?

Yeah, I mean, I was looking at the 10-year bond rate, which is actually a big influence on the crypto price, bizarrely. And 10-year yields in China are like 2.1% or something, and they just look like they're going to approximately zero. And we know this because this is the Japan playbook, right? When you've got an aging population aging as fast as that, you've actually lost control of your growth engine. So the natural rate of interest rates has to be much lower. And it shows, you've got a debt crisis.

Yeah, I think that took the edge off of the inflation bump here because China has been deflating, or let's just say in trouble for over a year. Yeah, so I think that helped also sort of works in a feedback loop, right? The Fed, they tightened, it forced to slow down there. And then that slowdown there helped take the edge off of the inflation And what we're seeing now is the flip side of everything that Dan's saying.

So the flip side is people start cutting rates. You start easing conditions. Bond yields start to fall everywhere. The dollar starts to fall.

That eases— The dollar is in a bear market now. That's right. I mean, it just kicked off a few weeks ago.

That's right. Now, it means it eases financial conditions for everybody. That drives the business cycle. As the business cycle picks up, People have more earnings, they invest stuff, markets go up. And that pattern has always gone on, the business cycle.

There's one extra little comment with China, though. They really— talk about not knowing what to do. I mean, look, Jack Ma disappeared for 2 weeks. What was it, in '15 or '16? I can't— well, when was it? Maybe it was a little later than that. And they became openly hostile to capitalist behavior. So that doesn't help things. You know, I, I have to say, they really brought their own pain onto themselves. I was in Hong Kong in January, and I was meeting with investors and getting a lay of the land a little bit. And the only thing anyone could talk about there was that, uh, there were some mainland Chinese commercial real estate bonds that were trading at 80 cents on the dollar. And supposedly they had the backing of the government. The government woke up one day and decided that they were not backstopping those bonds. The bonds went to zero overnight. I forgot which entity this was. And I was hearing there was one Hong Kong family lost $1 billion in one day on that. You know, look, it's, it's, they made the bet. They like sitting with yield. But the reality is, you know, Investors hate uncertainty. And, uh, when you have a government that controls things so much, uh, and does some wacky things, you lose confidence. And I don't know whether it's the end of the, the Exodus cycle, but the last 3, 4 years, all the big foreign money has been leaving China. And I think they actually have a capital account deficit for the first time ever in the last few months. Well, you'd have to check that. You're closer to that, all that old macro stuff than me now. But, uh, but I, I think, you know, China puts itself on the global stage as a power, and, and it is, but we forget that, uh, they're new, uh, to this game. They're very new.

Yeah. So, so, so the, like, this global liquidity cycle that you guys keep mentioning, and I, I mean, great, great points on China. Who is— is this a free market liquidity cycle? Is it a central bank setting the liquidity cycle? Is it the Fed? Is it elections?

It's a combination between governments and central banks. There is no— these are not separated entities anymore. So one group needs to refi the debt and add new debt. The other group has to make sure it's managed. So the Treasury and the Fed—

Yeah, but individuals are involved in making decisions. in terms of how they allocate assets as well. I would say it's a dirtier, uh, a dirtier combination of the authorities, but then the global investor pool or investible global investible capital, uh, does have a reflexive effect when the markets get moving. So I mean, I wouldn't be sure, but trillion dollars now in, uh, in T-bills, right? I think is the number in money market funds and T-bills. So I think it's a combination. Jason, I know you're trying to figure out because liquidity— what is liquidity? What— how does the cycle work, right? Um, and so it's this very funny combination of people interpreting economic data in the future placing bets today on what the future will look like, the market's moving in a certain direction, and then the market's moving in that direction actually starting to impact the underlying economy. And I mean, that's the reflexive cycle.

It's very, it's very reflexive and self-fulfilling. But then like the Fed is basing their decisions off data from a year ago.

Well, you see, liquidity in the US is Fed net liquidity, which is the Treasury general account, which is the Treasury. Which is the reverse repo, which is somewhere in between the Treasury and the Fed, and there's quantitative— and the use of the balance sheet. So they're all three joined at the hip, and they manage that liquidity flow to manage this process. And Dan's right, because they know is once they start unleashing the spigots, then the reflexive buildup happens. And guess what? It generates capital gains. They get capital gains tax. It starts financing deficits. It's kind of This cycle is the clearest I've ever seen macro in my life because it's so cyclical. Now, does that last forever? Probably not. But right now, it seems the most clear I've ever seen it. You don't have to worry about the shutdown I used to worry about.

Well, I think it's so clear because the rate was artificially put up, delayed when they put it up. They overdid it. And now it's clear as day, everything is slowing. I was a little early. On my call for them to cut and a little early on the growth slowdown. My view on the inflation slowdown, which really, I mean, inflation peaked, you know, 20 months ago, dropped all last year, all of this year, and they still have the rate at 5%. It's madness. It's bananas. And now we're going to feel it. I mean, now you're starting to feel it. The companies, some of them are missing. You're not feeling it in crypto land. We don't have to get there yet. But, um, uh, because— but in the traditional economy, I think you start to see that unemployment rate move to, you know, what do you think, bro, 5.5 here, uh, maybe, or maybe just 5.

But either way, it's going to be sticky because of the AI changes and technology. This is not going to mean revert. I think that the all-time low of employment is in as a percentage of the overall population.

Well, you have a bigger structural view about, you know, that's a much bigger structural view, right? The displacement of workers through AI.

Yeah. I mean, this is the— look, the simplest way I can put it is this is the biggest deflationary nuclear bomb we've ever been given. And people don't understand it yet. They're still arguing about, oh, you know, secular inflation, the '70s again. I'm like, are you fucking kidding me? You don't understand what's about to happen.

Well, productivity also explodes, which is good. Yeah, but I think people find new forms of work. I'm not that negative because I'm negative on work per se.

Yeah, I think it's like because we're retiring a load of people that are going to die, we're replacing with more and more robots and AI. So you actually increase GDP growth. How it gets distributed Who the hell knows? We'll figure that out when it happens. But I don't think we're going to lose jobs yet. I think the next 10 years is probably about having superpowers where we can do stuff with AI. All right.

Let me ask you guys what is probably a really dumb question. Polly Markets showing 50-50 odds for Republican and Democrats in November. Does the US president impact the global liquidity cycle as you guys see it, or it's Look, one of them might accelerate it, one of them might delay it by 3 or 6 months. But at the end of the day, like, this stuff is almost pre-programmed.

They all have to finance the same deficits. There's no way around it. There's no way you can use austerity to get out of this anymore. It's way too big. So no, we— and we've seen it. Every political party since 2008 has done basically the same thing. So I don't think it makes a difference. Dan, do you think it makes much of a difference?

Well, I mean, it can shift capital flow. The bulk of capital global capital pretty much stays, I mean, moving based on certain cues that we talked about, whether it's data or policy. But look, I mean, it's very clear if Kamala wins, she's less capitalist, pro-markets than Trump. I mean, look, Trump, for whatever you want to say, the only president in my lifetime that actually knew where the S&P closed every day at 4 PM. I'm a free markets guy. You know, everyone has their priorities of what they care about in politics. For me, free markets are at the top, and he's not a free markets person. So if you're an investor, you know, maybe you're a little worried more about the US and then maybe you shift capital to Europe or maybe Asia or somewhere else. I don't know. But the cycle, as Raoul was describing it, as I think you're talking about, no, that's at the moment now it's kicking in, right? There are leads and lags. You can be early by a year seeing it, but no, now it's really going to kick in. The dollar bear market, watch the dollar. The dollar trades $7 trillion a day. People forget that. Global currency markets, it really is sort of a reflection of how easy or tight dollar liquidity is. And so now the dollar will enter into a bear phase, um, and I think that's going to be positive for, for all assets here. It'll also take pressure off of, um, the countries that were hurt by the Fed, um, policy hikes.

Hmm.

Okay. Does that make sense?

It does make sense. I'm just trying to think about then Yeah, I'm trying to think about what the next— so like if I hear you guys correctly, there's almost— and I might be trying to put this in a box too much, but like there's maybe 4 stages of this liquidity cycle. We just started to get the dollar turning over. Like, so maybe as I hear it, we're like just ending the second stage.

Yeah, remember I talked about macro winter, spring, summer, fall. This is macro summer. The dollar's falling, rates are coming down. We've got to refi all the debt. I mean, this is usually as good as it gets. The ISM starts picking up, the business cycle picks up, it becomes reflective, investment capital comes in. That's crypto.

I don't know if the business cycle is picking up. It can't pick up before it slows down. Like, I think, you know, I think liquidity goes into the markets first. And I think that that's— and then the economies pick up because the markets have picked up. But I don't, you know, I know you're showing some of those ISM things. I think they're going to be a little more delayed than you're showing in your—

Could well be, but the NASDAQ's at all-time highs. Markets are all-time high.

Yeah, markets I think keep going.

What do you think about this? I saw this kind of go viral maybe yesterday. Chamath tweets, tell me we're in a recession without telling me we're in a recession. And it was a ZeroHedge tweet saying on Wednesday, the Bureau of Labor Statistics will downward revised jobs for the April 2023, March 2024 period by 1 million.

So it's the same thing that happens every single year. And I mean, Chamath is obviously a very smart, successful guy, but he's not a macro guy. I mean, we've had for 30 years, every year they revise it one way or the other. We're in a slowdown, they revise it down. In bull phases, they revise it up. Yeah, I mean, it's always that.

And the market kind of knows it, so it's a non-market event. It's not— growth has been sluggish and therefore liquidity has to rise. And so the market kind of knows this stuff. Markets are much smarter at this kind of stuff than people, you know, investing advice from Chamath, but maybe not the, uh, macro, uh, global market advice.

He's a tech guru, right? So, all right, so then the question becomes, look, You young guys are very funny, you know, because this is, you know, you're trying to figure out what drives all these things, right? And the funny thing is, is that it really more or less has stayed not the same, but it's very similar. And when it changes, it rhymes.

Um, anyway, I mean, what I'm trying to figure out is how to run a business is what it comes down to. Like, I don't trade like you guys.

You should be long right now.

Yeah.

So don't make it hard on yourself. Be stable on your Bitcoin and your ETH, right? You know, your business should be booming. You have conferences and data and news, right? Yeah. You don't hire too many people, Jason. That's not a good idea. Figure out how to use AI so that you don't have to bring on expenses. Right.

That's right. I mean, basically, if you think about it, as the business cycle picks up, which it will, earnings pick up, therefore the events business picks up, which means sponsors spend more money on advertising, which means subscription stuff picks up, and before you know it, the whole thing works. So that's what lies ahead. You've gone through all the tough times. Well, we all have. What lies ahead should be good. And as Dan said, we all have to be much more careful about adding people because people can be replaced by efficient processes with AI. Well, Jason, you and I were talking about this the other day. I mean, it's like, okay, the world is changing fast.

I was just going to say, even we are doing a lot about how to— I mean, our whole business is changing because of it. I mean, I have a whole crack AI team that the whole firm will be restructured. And what I'm hoping is that we actually are able to lay out what we figure out to some of our companies. We can share some of the things that we're doing, but we also get to see what the other companies are doing. So as you know, you guys know, we invested in 24 different businesses in the digital asset world. One of our companies, Ledn, L-E-D-N, they are the only CeFi lender that survived 22 and 23, the whole debacle. Those guys, uh, they faced a near-death experience, uh, Q4 '22, Q1 '23. They really leaned out, they really got super lean and went hardcore into, uh, bringing AI to helping them run processes. And so we've been, um, and remarkably, they went from a company yeah, in deep trouble to actually net profitable now. And I think they'll probably— I mean, the revenues this year certainly will be, I don't know, $40, $50 million. I'm actually not sure what the total will be, but it's incredible. Their profit margins just exploded and they were able to do that as a result of the bear market. The bear market forced them to do that. And so we have a bunch of companies like that that use the bear market to really streamline. Yeah. And the crypto guys, they're very smart guys. They're the ones that are the early adopters for all new tech. Right.

So, yeah, yeah, yeah. We saw the same thing. It's like you— I mean, you lean up in the bear market and you figure out how to make the business more efficient. All right. Take me out of the operators. Seat and maybe into the institutional investor seat. Like, you know, Dan, you're obviously running this big crypto portfolio, but imagine you're back running a macro fund and you can allocate to bonds and US equities or international equities or crypto. Or, you know, you—

Did you see my tweet today? No, I didn't see your tweet. I put something on LinkedIn because— listen to this, Ro. You're on LinkedIn, but I was reading on LinkedIn the Citibank Private Bank Global Family Office survey came out yesterday or whenever, and one of the guys on LinkedIn posted— could not believe it— global family offices apparently surveyed in this, in this piece. There it is, 28% cash or 20% cash They're 50% in fixed income and cash. Look at this allocation. Okay. Hedge funds are not interesting anymore, as we know, except if you're in the top 1%. Commodities, 0.7%. And I wrote, my goodness, gold hit an all-time high. Gold. Gold hit an all-time high last week. And they have 0.7% in commodities. And of course, zero in crypto. So this is pretty incredible, Jason Yanowitz. You know, I don't know how much of a reflection this is of a global reality, but Citibank is a large institution and global family offices manage a lot of capital.

So Dan, let's say you were running the money, managing the money for these family offices. How, what is the dream portfolio going into this next stage of the cycle?

Well, it just depends on your risk tolerance. I think for those type of people, minimum.

Dan and I are the wrong people to ask.

No, but I make people ask me every day how they should have their portfolio allocated, I would have— you have to have at least 10% in blockchain, crypto, Web3, digital assets. And I always say you have a breakdown, you have some Bitcoin and Ethereum, which are the core assets of the space. And then I think you can have a venture fund and then you could have a growth fund, which is what we are, or a little later stage, not as speculative, but I think is really going to come into its own now. As companies that we have start to go public and potentially start to tokenize their equity. All sorts of good things are going to happen on that front. But I think how you decide to break it up, you know, maybe you do a little Solana because Solana is a transition asset. I think it's transitioning away from a venture project to becoming a core asset. Not quite there yet. And I don't know, Raul, maybe you want to make a pitch for SUI. As a venture asset that's potentially moving into— not quite.

No, it's like Solana was last cycle. You know, there's a few of those I think should be on people's radar screens because they're serious people with serious experience.

I don't make those bets.

Same question to you then. Not before getting into Solana and suing all that crypto stuff. Like, what is, what is your portfolio allocated? I know it depends on risk tolerance.

Mine's 100% crypto. So I'm the wrong person to ask.

So you're 100% in crypto?

I have been for 5 years, 6 years. And Dan is, without getting him into trouble, he's reasonably high.

Dan, what is your personal portfolio?

Yeah, okay.

He's not going to answer that.

Very high. I don't want to scare my wife away. Our 25th anniversary. Your wedding anniversary is in a few weeks.

We'll have you on afterwards.

I don't want to hear her— she shouldn't hear what our allocation is.

If I was that— but if I was that family office group, you know, what would be the right allocation for this point in the cycle? Well, as Dan said, it's a reasonable chunk of crypto. Most family offices I see start at like 1% and end up at 20% over a cycle. So I think somewhere 10% plus works well. You want to be heavily technology because technology is in a secular bull market. You can probably own bonds finally for a bit, make a bit of money there.

Yeah, but whatever I would do in bonds. So I'm still a big proponent of gold and I'm still very involved there. And I think, you know, you get this move, let's say, in the 10-year to 3%, you know, and you get the move in the short end to 2-something. Gold will be up at, you know, $3,000. So I use gold as a proxy.

Makes sense.

Or whatever you want your, uh, cash or fixed income allocation to be. But you can see that's, that's less. And then I think you have to have a big chunk of NASDAQ.

Um, yeah, it's so straightforward to do, you know. You can get your technology investment. The NASDAQ has been producing 17% returns annually since 2011. I mean, that's huge. While the S&P does 8%. So I mean, Bitcoin's at 147%. So it's a, it's a whole different game. But yeah, I mean, I would just be growth orientated, all in on risk. That's what it should be. What Dan has raised the point is fascinating, because these big family offices are the complete opposite. They are super risk-averse and you're like, well, and this is the reflexive thing that Dan talks about as well, is these guys are all going to end the cycle over their ski tips long again. Oh yeah, that's how it always works, right? They're just not there yet.

Yeah, they're going to come.

Hey everyone, Jason Yanowitz here. Just wanted to take a quick break to talk about something exciting in the world of blockchain. The Stellar Development Foundation is hosting their 6th annual Meridian Conference this October 15th through 17th in London. It's a 3-day event where the brightest minds in Web3 come together to discuss everything from tokenization to DeFi. If you're a developer, builder, policymaker, or business leader looking to make an impact in transforming global systems through blockchain, this is your chance to join the conversation. You'll get to network with the forward thinkers who are defining the future of this space. Head over to meridian.stellar.org and use the code BLOCKWORKSPOD for early bird pricing. Now let's get back to today's episode. Hey everyone, we all know that there's a massive shortage of top senior marketers in crypto. We've seen it over and over that teams are constantly struggling to get their go-to-market done right. That's why we're excited to have partnered up with Renault Partners, the premier go-to-market advisory firm for early-stage crypto teams. They help top founders tell their stories better and build great non-technical teams. They advise founders on all things marketing, including tight brand positioning, community building, social media, and building A+ internal teams. Don't just take it from us. They work with some of the top projects across Solana, Monad, Base, and many more. If you're a founder or a VC looking for support for your teams, I highly recommend connecting with them. Get in touch with their team by heading on over to renaudpartners.com or giving the co-founder Jeff a follow on X. Check out the links in the description below. Hey everyone, wanted to take a second to talk about MyPrize, the first multiplayer casino where you can watch, chat, and play together with your friends and favorite creators. Getting started is super easy. Use a credit card, PayPal, or even crypto to play over 500 games from classic slots to live table games. Join the MyPrize community now and use referral code EMPIRE to get $20 for free when you make your first deposit or purchase of $10 or more. Head on over to myprize.com/invite/empire. Link will be in the description of today's episode. For a lot of Empire listeners, your crypto is not just another number on a screen. It's part of your future. I know Santi and myself feel that way. Our security sponsor of this episode, Harpy, takes this responsibility seriously and is the only wallet security tool that shields users from both on-chain threats and sneaky off-chain signature attacks. If you've ever been in that situation where you're moving quickly, you approve something on-chain, you realize that the address might be dubious address, or you're really hoping that you could take that back, Harpy has you covered. Harpy can redirect your assets to your self-custody vault, ensuring they remain completely under your control, safe and sound. With Harpy's always-on monitoring, you're not just detecting threats, you're actively blocking and recovering compromised assets from malicious transactions before they can even confirm on-chain. Harpy is the only wallet security solution that protected 100% of its users from attacks like the Ledger one in Q4, which was an off-chain signature attack. So if you're serious about protecting your crypto investments, it's time to make the switch. Secure your wallet for free at harpie.io/empire. That's harpie.io/empire. You want it to be even easier? Just click the link in the show notes. Well, do you try to trade the crypto? So let's say we go into a ripper of a bull market and Bitcoin's at $150 and ETH hits $10,000 and Solana is hitting $1,000 and everyone's going crazy. And, you know, the arenas are getting called the Coinbase Arena. Are you trying to sell or are you just holding through all of this?

Generally, every time I've sold, it's been a mistake. And actually, what you should do is look forward to the bear markets and add to them. Really, I mean, you know, I first bought Bitcoin at $200. If I'd have just kept that position, I'd have been much richer. It's stupid, right? But you get absorbed by this cycle mentality. Now, By all means, de-risk a bit, take some lifestyle chips off the table, do something, but this trade is much bigger than a cycle. And you think you're going to sell at the high and buy at the low, you've got another thing coming. You won't, and you'll miss it.

I have some targets in mind. I mean, like I always, even in 2019, I remember talking to Raoul and— I thought we were sort of 8,000, 9,000, 10,000 Bitcoin, and I was thinking around 300,000, 350,000 within 10 years. That was sort of a nice place to take some profit. You definitely don't reduce the whole thing, but—

But what would you put—

I would call some life savings. What's that?

What would you— the issue is I get to is, OK, let's say Bitcoin's at 400,000. Yeah, you take money off. What the hell do you do with it?

Well, you know what, look, having managed money for so long, uh, you ask that same question to yourself all the time because you have a great idea, great bet, it goes to where you think it's supposed to go, and you always think, what am I going to do with it then? But there are always new opportunities if you're open to them. So look, this is the big one. This is, as I've said many times, sort of the biggest macro investment opportunity I've ever seen of all time. It is. And, um, and so, but even so, you know, you have to risk manage a little bit. Um, I, I think we're gonna have some companies that are going to be going to have their IPO or be public. I mean, Circle's already announced, eToro's announced. You have companies out there discussing it, uh, you know, Kraken. Jason, I think you talked about with Ripley on one of yours. So there are a bunch of other companies as well that, uh, probably, you know, so there's a natural exit for some of, uh, my positions, uh, that meaning I, I will— I'll have no choice but to sell when they go public, and the funds, uh, would at that time need to return money to investors. So, um, but I, I think, yeah, it's hard to put like a 10, 15-year, you know, number on it. I know Jan Van Eck, he had some crazy number recently that he put out there for any 50, was it? Or 2040?

2040, I think.

Yeah, that's, I mean, that's very impressive. Uh, but I just think in terms of total dollars and value, and you know, gold is a $15-20 trillion asset. We know all the other values. Bitcoin could easily be a $10 trillion, uh, dollar asset. And I think today it's what, 1.5 to so easily, you know, easily could get to $300,000 to $500,000, which is sort of where I thought, like, rationally it made sense. Could it do much more than that?

Absolutely.

Um, but I like to have a roadmap, and I like to, uh, know where I'm going. And in my experience, when I've ignored, uh, a target it's been a bad idea, um, generally speaking. I mean, yes, Raoul bought Bitcoin at $200, okay, he sold it at $2,000, and then it went to $18,000, and he probably wanted to kill himself, uh, but he got a shot to come back at $3,000, $4,000, $5,000, $6,000, $7,000, and he got a shot in. Um, but I don't worry about what I miss, right? I'm never worried about what I'm missing. That's just not a proper way to—

How I actually think about this is I think the opportunity here is the space is $2, $2.5 trillion today. I think it's going to $100 trillion in line with other asset classes. So, that's the biggest macro trade of all time and the largest generation of wealth in all human history. That's the trade. How you want to slice and dice that? Yeah, how you want to slice and dice that's up to you. What risk tolerance you have, but that's the trade. When I first did the first piece of work on Bitcoin back in 2013, I said it was worth a million bucks.

Yeah.

And I don't think that's wildly wrong. If Bitcoin's at a million, yeah, the space is somewhere close to my target of $100 trillion, or maybe it's $50 trillion. It doesn't matter. It's just gigantic.

Yeah, you just have to stay with it. Look, it's, it's a very— it's, it's a dastardly space in the sense that, you know, there are a lot of young people in it and there's a lot of speculation and there's a lot of garbage. And there are, you know, there are bad actors in the space also. And because bad actors are drawn to, you know, crazy opportunity like this, it's just— it always is that way on the edge. And I think young people are susceptible to the emotional swings and they get blown up. I mean, I can remember being in my 20s and 30s and having, you know, being down $30 million in a week or whatever it was and being unhappy. But I had a lot of episodes like that. And so it just— it doesn't really affect me. Anymore. And I say this, I say civilians, so people who didn't have to live through many, many failures like I did and like Raoul did, you know, emotionally, personally, you blow yourselves up. And I feel like that's why when the market does some consolidating like now, all the young guys are, you know, in panic and why aren't we rallying and this and that. Oh my God. Oh, I hate this space. It's terrible. And I'm thinking we're at $60,000.

I mean, this recent panic was crazy to me.

It's so stupid. What? What? We're $2,500 on Ethereum. I mean, I can remember clearly Ethereum at $100. People bought Ethereum less than a dollar. The amount of wealth that's been accumulated in the space Yeah, amongst people, let's say 38 and younger is gigantic at these prices. These prices are enormous. Solana was a dollar in January of '21, right? I think it was like a dollar, maybe $3, whatever. It's 150. I mean, who are we kidding? What in the old world is up 100 times?

But Dan, it's gone sideways for 3 months. Oh, it's all over.

So I'm just saying the young guys especially on Twitter and this and that, you know, they're living in every moment. And that's what this is actually. What do I do? I'm answering your question about these are the most difficult markets to trade that I've ever seen. You have to make a decision. You're either going to be a hodler, you're just going to buy, hold your position and go away. And if you really want to trade it because you need the adrenaline and this and that, you know, you need a staff of 10 or 20 around the clock and all kinds of different people. Very few people that I know, you know, are certainly our age, 50 and over, are that active.

His—

no, I would say Novo is still active. I saw him a few weeks ago in his office and he was, you know, he was hitting it like, you know, we got to have one of these chats, you know, for his to bring it. It should be the three of us. Is all his viewpoint.

And I mean, um, you know, I know as Dan does, a lot of macro people have moved almost entirely into this space. I don't know a lot. Well, there's a few, but none of those people trade. Literally none of them.

Except Novo.

Except Novo. It's like, you know, that, uh, what—

he said he needs his hits. He needs his hits.

But, you know, speaking to another guy who's very, very famous in the space— not in the space, but just as one of the greatest traders of all time. I mean, he's like, oh, fuck that. I never trade this stuff. I'm like, but you're one of the best traders of all time. He goes, this is far too difficult to trade because it's just much easier to hold on and you can make money and build a business.

So that's that person. I don't know who you're referring to. Likes crypto as a just long only. I'm holding Bitcoin and Ether.

He's taken the biggest I think of people who've come into the space, he's taken the biggest bet of all.

Yeah, I know who you're talking about.

You know who I'm talking about. He's taken the biggest bet of all.

Across the whole spectrum of things. It's not just all in Bitcoin like Saylor, who's just all in one thing.

He's doing what you and I have been doing.

Well, does his last name rhyme with coward?

We won't call him by that.

We shouldn't say any names.

Um, what— Dan, you talk to these guys all day long because you do fundraising and stuff like that. What is the, um, what is the pitch these days? Is it, uh, you know, Bitcoin's a hedge against chaos? Is it it's better technology? Is it better money? Is it a bet on innovation? Like, what, what are you, what are you pitching these days?

Well, I don't know what you mean really. Pitch to who about what? I think, or if you raise money or you talk to the big LPs. Yeah, but I mean, so we're investing in these you know, growth stage, uh, more developed companies in the space, not venture capital. And right now, uh, we raised a bit of money for one specific opportunity. There's a bit of a unique situation in the secondary market for companies that are, you know, again, sort of at the growth stage, not seed, pre-seed, or even A, there have been almost no rounds the last year in BC, you know, larger companies, companies doing a few hundred million in revenue. There have been no rounds, no equity rounds. There were 2 or 3 smaller rounds recently, but they're more venture. So we raised a bit of capital to make investments into companies that we already own and companies we know. At ridiculous valuations. I'm buying, you know, between 60% and 90% discounts from not just previous rounds that were done, but from where we think the value is today. And there's a— because of the FTX debacle, believe this or not, you know, you had many traditional crossover private equity funds come into the space. Famous ones— Silver Lake, Thoma Bravo, and Tiger was active, Coatue, Temasek. They all came in, they pushed valuations up, they invested a lot of money into these larger businesses at very high multiples, 50, 80 times revenue. And what happened with FTX is that many of them were invested in FTX. They lost quite a lot of money. There are other investments like, take for instance, OpenSea, which was at $13 billion 18 months ago or whenever it was. You know, you can buy in the secondary for $1 billion. You know, many of these equity in this— much of the equity in the space is down like that even. But that's a business that's had problems. There are companies that we have, believe this or not, where the revenue and profits are higher today than at the peak in '21. Yet I can buy in the secondary because there's distressed selling still at 50 to 80% discounts. So you have an employee, an ex-employee, C-suite, you have venture investors who invested in these companies 5, 6, 8 years ago. They just need any liquidity. For their investors, and they will sell almost at any price. So as far as I know, we are the single largest buyer in the secondary for these companies. Um, I've already put in between all four funds over $600 million to work in the secondary. So it's a completely non-functioning market. Um, and I think it's that way largely because the larger growth investors, PE investors, they're not— they're not— they've left and they're not interested really in coming back. They were duped by a bunch of guys. And look, a lot of companies raised— like even a great company like Fireblocks raised at 50 or 70 times revenue, right? It's very hard to make a return when you're in, you know, as an investor, when you invest at those multiples, we tended not to pay more than around 10, 11 times. And even that was generous. So our focus, my pitch to people who I'm speaking about for our funds is, look, this is a specific opportunity that exists today because there's a liquidity hole in the later stage. And, you know, I bought a— I'm buying a company now that will do over $1 billion in revenue this year, and I'm buying it at 2.5 times revenue. This is a crypto business that will be up, you know, over 100% this year. So, I mean, That's crazy. Yeah. You know, so I'm happy to, to just focus on that. I'm not— look, I'm, you know, a16z and Polygon and Pantera and Polychain, all those guys, you know, the venture portion of our world, right? You know, the TGEs and the, you know, the pre-seed tokens, all that stuff has been very active. Right? But that's just not what we do.

Do you think you will do that, Dan, one day?

No, I don't, because I don't like having, like, being in an area where there's so much competition. I mean, do I really think I'm a better technology investor than Marc Andreessen? I mean, I don't see that. So why would I even bother? I think that area is so crowded, and all the young guys, all they want to do is just trade these tokens. Um, you know, even, even analysts, young guys that I have, they all just, they want to make 100x, and we're trying to make a 5 to 10x over a 10-year fund, right? We're not— for me, like, that's enough. And I think we're going to be able to do that, um, with a lot less risk than exists when you are—

I don't know if you're aware, Jason, I've also got an asset management firm that's a crypto fund of hedge funds, so called Exponential Age Asset Management, Expan. And the other part of this cycle is there's no secondary liquidity in crypto markets. It's bizarre. So what you get is all these early stage people, they dump the tokens, and then there's a few Asian trading shops, a few market makers, and a bunch of retail. But there's literally $10 billion of professional capital in crypto markets. And Dan and I grew up in the hedge fund industry, and that's a hedge fund stream. There's not enough capital in the space, means lots of opportunities. There's all these dislocations from new tokens coming out, going down 80% because people get liquidity. And these hedge funds can sort out through all the shit and say, hey, this is actually a good opportunity, stuff like that. And really, that whole thing is getting us from the— the idea of this is to get us from the $2.5 trillion to the $100 trillion, give it to the, you know, 12 of the best, 14 of the best hedge funds in the world, let them do the allocation.

Yeah, we're not a hedge fund. I think Raoul's strategy is a good one, uh, because it is so difficult and it does feel to me like the equivalent of the early '90s in the traditional hedge fund business.

Um, I just think that, you know, being able to own It's nice to be in spaces where there's very little competition. We have virtually none and you have virtually none, right?

It's nice. Yeah, because we can— I always say we can screw something up and no one's there to eat our lunch. And, uh, there are always going to be difficulties, uh, but yeah, I also— the venture mentality is, is very different than the, the macro investment.

It's hard for you and I to do VC. I just, it just doesn't feel right. I can't do it.

I don't like having anything go to zero ever. I'm not, uh, I can't just sort of spray and say, yeah, that's a great idea, uh, here's 1%. I mean, I can't keep track of 99 investments.

I'll do it. I just know I can't do it. I like to have big bets and focus on them. I can't do that. Oh, I've written 78 angel checks this month. I'm like, what the fuck? I can't even keep on top of the paperwork.

I know, I know. Dan, do you—

what do you like more? Do you like what you do now? The growth style?

Well, there's no comparison now. I mean, the opportunity— look, when I first started in the macro hedge fund business in the '90s, I mean, it was unbelievable experience. There weren't that many hedge funds and there were only maybe 10 really real macro hedge funds. And we were actually, interestingly, like we were making the news in a way, you know, with these devaluations and, you know, governments didn't really know what they were doing and we sort of did. And I mean, that's an incredible position to be in as a very young guy. I mean, working at Tiger for Julian, in the early '90s and seeing the way that he sort of interpreted and analyzed the world and how he invested in it. Like, I was 23, 24, 25. I mean, you know, there's a level of excitement there, uh, that's, you know, unbelievable. Um, but after that, there's nothing that compares to this. I I think having a shorter-term timeframe, like, I, I love what Raoul's doing. I, I do think that hedge funds, um, can be, you know, it's very difficult to navigate, um, you know, the liquid trading markets and at the same time control your volatility. So fund of funds is a nice way to do that. I like, look, I have a 10-year view that's clear. And we're moving towards it and to be long cash flowing businesses that are able to still make money through bear phases. I mean, I have one company in the portfolio I just saw the other day. They actually made more— they were making more money in '23 than they did in '22, which is, which is pretty incredible. And now they just had a record quarter and So I like being able to, being able to sit through an 80% correction in Ethereum, long a company that is going to make more money during that period. I mean, that to me is the holy grail. Okay, maybe it goes up, you know, 20, 30x eventually and I underperform. But as an older guy, I don't really care about underperforming. I don't think we're going to be the number one performing fund in the space, and I don't care about that. I care about having, um, the best sort of risk-adjusted, you know, best asymmetry, most greatest asymmetry in the investment, because I know how easy it is to lose money, to blow up. I mean, I've lived through all of that. So my funds are the way they're a reflection of how I feel most comfortable sitting long without worrying about a disaster or a blowup or having your business threatened or— not every investment is going to work out, but the portfolio that we have, very powerful over time. So, I prefer that. I prefer that. It's a little bit of delayed gratification. In the old world, you know, you get compensated, uh, at the end of every year, which is nice. This is, is not so much that way. But look, there are always trade-offs, um, you know, there are always trade-offs.

You don't have to stare at a Bloomberg screen all day. That's a big trade-off.

But yeah, no, that's It's true. You get used to that.

Probably a lot more dealing with people in this business, though. You got the portfolio companies and you got the founders. You got the whole team.

And yeah, yeah, that's true. I mean, we have 12 board seats. I mean, that's a whole lot.

Don't I know it, Dan?

Don't I know it? You speak with pain, Jason. You speak with pain.

No, I would know. Dan's amazing. Ro, give me your best prediction for like— we've been talking like big macro cycles and like, you know, 100-year visions and stuff. Like, give me your best prediction.

No, no.

For what happens the next 12 months in crypto. Like, what is the next 12 months?

I don't want to give price predictions because the internet is an ugly place and you just get beaten over the head by it. So there's no point.

But listen, my view is definitely new highs.

Oh, yeah. Look, the whole space goes up a lot. I think over 100%— Solana does maybe 10x from here, and Bitcoin does 5x or 4x from here. That kind of stuff. Typical bull market. And then there'll be— the main thing that I'm starting to think through is there is always another layer 1 race, which is early stage when you don't have proven network effects. That bet is actually a good bet. It's not one you go all in on. But that bet was the Solana bet of last cycle, the ETH bet of the previous cycle. So I'm starting to think through that because I don't trade, don't do anything. I just sit with my portfolio. So I'm thinking through that because I reckon there's a really good trade to come. And it's a lot of fun, but it comes very quickly. And it usually gets overvalued and then goes down 95% afterwards.

So I'm going to make it easier for you, Jason. This is easy. Uh, everybody out there should just think, think about this very simply. We're essentially at the all-time high at Bitcoin, okay? Essentially 60, 70, to me is the same number, and the interest rate is 5, okay? We went from 0 to 5 and we're back at the all-time highs. So as we move from 5 back to 2.5, just on that alone, just on that one thing, forget everything else, you're over $100,000 easily just on that one thing. Forget about all the millions of things going on in the space that we didn't talk about. Every, you know, new development, just that one thing. I think that should give people a lot of confidence. You know, that if there's another wipeout like we had the other day, like you said, uh, they should be buying and holding. Uh, but there is tremendous innovation going on now. Yeah. Um, the activity on-chain has really exploded.

And, um, and again, we haven't really started. When we start to see just straight-up user applications, we're starting to see gaming starting to happen. I think that's going to be a big breakout. But we've got so many of these consumer apps, the old movement of Web2 to Web3 or old internet to new internet, that's going to come at scale. And I think we're going to really start kicking it off this cycle.

There's the biggest activation of permissionless this year is a gaming, 60 by 80 gaming lounge. It's Futureverse, which is a 1RT company actually, and Alluvium, are showing off these games that they've been building for years. And now that— now they're real, they're live games, they're actual games that you can go play.

Yeah.

The other one that's just come out is Off the Grid.

Yeah.

Which is huge.

This Futureverse is— you guys connected with?

Obviously. Yeah, yeah, yeah. We're— we twisted Aaron's arm enough to get him to fly out from— it's 20 hours later.

New Zealand.

New Zealand.

Yeah. So really, well, that's good to know.

Yeah, Aaron's making the trek. So, so right now there's a lot of talk about this election. I know I started to talk about it at the beginning, but, you know, it feels like it's complete doom and gloom if the Democrats win and crypto is going to be pushed out of the US and all the founders are going to have to move.

Jason, please ignore all this nonsense.

So that's, that's, that's— it's a leading question, Dan, to get you to say that.

Yeah, what are they gonna do? Oh, come on, that's not real.

The point being is that's not real. So we've been in this space for so long and we've had China ban it 3 times, India ban it twice, the US be pro it against, the Europeans hate it, and it's made No fucking difference.

No difference. It's over, Gensler. Gensler could become the president and it wouldn't matter. It's finished. Like, it's decentralized. It's all over the world. If the US wants to, you know, get in the way of innovation for 4 years, somewhere else will pick it up. Look, do you remember in 2021 when we all said, oh my goodness, If China, you know, bans Bitcoin and they kick out the miners because all the Bitcoin's being mined in China, it's over for the space. It's over. It's over. The thing went down for like a few days. Yeah. I mean, every time Europe comes out and they're going to put right, it's all nonsense.

It's noise.

It's telling you I cannot, I can't believe how many times It's just powered through all of the human stupidity out there. And Gensler is the greatest representative of that human stupidity. I mean, seriously. So good luck. You become Treasury guy. Good luck to you. You know, I just, I just look at all the hand-wringing that goes on. I think it's part of the, you know, The emotion.

Yeah, the bull market's job is to throw— is to try and throw you off. Right. I mean, this is a clean macro case for a secular bull market that continues. So your job is just not to get thrown off by the FUD. I mean, people find every reason not to do something when all you have to do is buy it and then not do anything.

It's like this is the digitization of money and value. It's really straightforward. I don't know that anyone is going to stop that. It's just like the internet. It's the same thing. That was for ideas and information. People were afraid, oh, dissemination of ideas, the whole world will come to an end. The world didn't end. NASDAQ went up, you know, 50x, right? It's the same thing. So Gensler and whatever It's not going to matter.

I quite like talking to you guys because I think there's this view of macro guys where, you know, very complicated people. They're looking at how oil's moving here and Asia's doing this. And they're actually inherently pessimistic.

They are all mid-curvers.

Well, when I talk to you guys—

They're all mid-curvers. They just overanalyze everything.

Yeah, but when I talk to you guys—

You got any words? Oh my God.

Dan goes— Daniel, it went to 5% and Bitcoin's still at $60K. Think of— I mean, there's a nice simplification of what's happening here. And I think if you spend too much time on Twitter, you get caught up on, you know, a third—

Yen carry trades and how that affects the Bitcoin. It's like, guys, just stop.

This is COVID all over again and the world is ending.

And tomorrow is more digital than today.

Yeah.

Or rates are going to come down. I mean, the two really simple things. Equal, you know, answer.

Yeah, we're gonna lose Dan. He's laughing at the people on Twitter too hard because the yen carry trade—

I've heard that phrase at least 10,000 times.

I was actually thinking of you, Dan. I was reading these Twitter threads from guys I knew, I had no idea what they were talking about. I was actually thinking about you, Dan, being like, I wonder what Dan's thinking reading these things.

Yeah, nonsense. It was one of the things that saved us from investing in FTX was I heard the guy doing a podcast and he was talking about macro. I think this 30-year-old guy trying to talk about macro and like getting involved in these like things. I'm like, this guy is— this is bogus. I didn't think he was necessarily as big a fraud as he turned out to be, but I thought he had fraudulent nonsense coming out of his mouth about macro. Uh, people tend to want to read into— there is a lot of complexity, but sometimes there isn't, and people want to read into it like, well, it's also the Chinese manipulating the gold price.

You and I have been around for a long time, and what you end up learning, because we've both gone down that route as well, is really you learn how to extrapolate all the noise and say, what are the dominant factors that matter?

Right.

And if not, you get caught in this trap of everything feels like a dominant factor. And then you're looking for the linkages between the gold market and some Indonesian central bank who's going to do some grain swap. We've all been there, Dad. We've all done that before.

I know. You know why, Jason? It's because we have lost money betting on that crap.

Yeah.

All of us have. Let me tell you something.

The only way to any sort of wisdom is through massive amounts of failure. So I've already bet on the yen carry trade thing, whatever, long, short.

Saudi depeg, we've done the Saudi depeg.

Saudi peg. I mean, there's all kinds of nonsense. The Hong Kong dollar peg, that's the greatest money suck. I stopped that one thankfully in '97 or '98. But people still go on about that. You know, I'm just saying. Yeah, you know, you, you know, I'm drawn towards simplicity because that's where I've made money.

That's right.

And this is business about making money. That's what this is. And it's interesting. And, you know, it's part hobby, but, you know, there, there are other things that happen in life, right? I'm saying that I'm drawn to the things that make me money. And the process that makes me money because this is my business, right? Not because I feel like it, not because I'm drawn to how interesting understanding the yen, whatever. It's all nonsense. I'm drawn to the things that are going to make me money. And those, those things tend to be simply explained. Yeah, it's true.

Gents, good chat. This was the, this was the optimism and the hopium at the end of the summer.

You know, everyone's This is two old blokes complaining about the new macro people. It's quite funny.

Hey everyone, big thanks for watching today's episode. Wanted to just quickly remind you about the Stellar Development Foundation's 6th Annual Meridian Conference this October 15th through 17th in London. This is an incredible opportunity to network with the forward- thinkers who are defining the future of this space. Head over to meridian.stellar.org and use the code BLOCKWORKSPOD for early bird pricing.