How to Trade Crypto Cycles with Raoul Pal

Between what's happening in technology and crypto, this is the greatest macro trade of all time. And it's not over yet. It is economically the most disruptive force we've ever seen. It is a nuclear bomb when it comes to deflation. People just have no comprehension how big this thing is. How do you allocate the capital between the two? This year, it's been technology stocks. Last year, crypto massively outperformed. So what do you hold over an extended period of time? A bit of both.

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Welcome back, everyone, to Empire. We have a very special guest. Couldn't have timed it better. Raoul Pal, welcome to the show. You need no introduction. You've obviously run Real Vision. You're super sharp on your macro takes, very involved in crypto these days. What's going on?

There seems to be quite a lot going on, but nobody can explain it. You know, where we are today— what day are we? We're on the 20th of November talking to today, and markets puking. And it's been in that weak trend. I've been looking at this for a while, and there is this mismatch of liquidity that's happening at a macro level that's causing a lot of the issues we're seeing right now. And that is, without getting in too deeply into the weeds of it, basically, because of the government shutdown, the Treasury built up its general account, and has not been able to really drain it yet. And there's no offsetting buffer because the reverse repos drained, and we've got QT going on. So, we've got this kind of sucking of liquidity out of the system that really has affected the highest risk assets further out the curve, and crypto is that. Technology has been kind of volatile because of the same reason, but it's been held up somewhat by buybacks, and also held up by the general— generally, I think 80% of all fund managers were below benchmark. Because they've missed tech, because all the way through, they said tech's a bubble, AI's a bubble, AI's a bubble, and they've missed the whole move. And so, that's dramatically affected performance. So, they've been performance chasing, which meant that NASDAQ outperformed for a period of time. But it's this liquidity thing. Liquidity, we found in our work at Global Macro Investor, using the total global liquidity explains 95% or 97% of NASDAQ's price movements over time. Since 2012 and 90% of Bitcoin's. So it is the most single most dominant macro factor and most of the explanations lie therein.

Yeah. Look, it's a great read. I mean, I want to go front and center. NVIDIA reported earnings, you know, Jensen Huang is equal as important as Jerome Powell these days. They beat earnings. Um, expectation was $54, $55 billion. They came in at $57 billion. Guidance for next year was very strong. Stocks down today. Question in investing is how much are things priced in? Like the Mag 7, most managers, even though they may have been underperforming, it's been still a pretty good year for most folks. Are we just in a general deleveraging risk-off cycle? People going into the holidays, they want to take profit, you know, collect carry for the year. Or is there something else going on in, in a 2026? Is, is, is there a broader kind of macro concerns that you have?

So on the macro side, the business cycle, which is the main driver of everything, has been very subdued for this entire cycle. And that's been driven by the high rates environment and the liquidity environment. If you, on a forward-looking basis, understanding all of the fiscal stimulus that's coming, plus liquidity stimulus that's coming and the probability of rate cuts coming, The chances are the business cycle is going to be a lot stronger going into the election year. Don't forget, we've got Scott Bessant running the Treasury. He's an ex-hedge fund manager. He understands this game very well. So I think on a forward-looking basis, it looks great. But what you've got is this liquidity air pocket that means that there's not as much money around. So the people's propensity to take money off the table is higher. People are nervous. I mean, we've seen the fear index in equities be down at like 8, which is insane considering the market's barely off the highs. So it shows you there's some pervasive sense of fear. And so any movement in the market kind of gets exaggerated very quickly. Um, and I think, you know, after the NVIDIA earnings, people just want to quickly take money off the table. And as you say, next week's a US holiday week, things start calming down as well. And if you've had a decent year, you do want to protect it. But normally end of the year is usually pretty strong. And considering they've got to drain somewhat of the TGA to pay for all of the employees they furloughed, etc., there's a reasonable amount of liquidity that will come into the economy over year end.

Yeah. Before we jump into 2026, I want to get your read on crypto. You talk about it, it being pretty directly correlated to flows. You know, Bitcoin has erased gains for the year. The stock market's still up. What's going on there? I mean, do you worry about, you know, that is crypto just reacting before and ahead of the stock market, or is there something more kind of specific to the asset class?

No, I mean, crypto, there's two different levels. One is go back to its liquidity. So liquidity has hit crypto more than anything else. And that is the FedNet liquidity that has shrunk. So it's hit that. But then we've got OG profit taking we've seen, so that continues. And that kind of makes sense. And you've got this pervasive opinion that the 4-year cycle is what it is. And therefore, you must sell in November and go— yeah, October, November, and go away and come back in 12 months' time. So, there's that pervasive feeling. And then there's, I think, somewhere there is some damage that was done during the the October 10th flash crash in crypto. Now, I don't know if there's a body there, but my guess is the balance sheets of some of the market makers are impaired. So it means that they can't provide as much liquidity as they have done, which exaggerates price moves. I think that probably makes sense. We're also seeing some unwinding of, of the token holdings by the DApps because of the construct that they've got. They buy back their equity. So, you know, that's ugly and that will probably continue. Price action continues like this. So you've got this supply going on, less liquidity around because of the Federal Reserve and the Treasury, and less liquidity in markets because of impairment after October 10th. Makes it just feel not great.

Yeah. Do you feel like you're getting paid enough to go far out in the risk spectrum? You know, crypto is at the farthest end of the risk spectrum. You know, it's been tough in crypto, even though, you know, if you weren't in Bitcoin or select few names like hyper liquid, you would have really been down for the year, right? I mean, some of these alts haven't even recovered all-time high. You talk about traditional hedge fund managers, you know, kind of catching up to the Max 7. How do you think about that into, you know, just being in crypto? Is it just only Bitcoin? Is there a room in a portfolio for, for alt and something else, or is it just not the right time to be going out and far on the risk spectrum?

So for me, it depends on your time horizon. I mean, I don't look at it in year-on-year-to-year gains. You look at it full cycle gains. Full cycle for me is the business cycle. So, it's not necessarily the 4-year Bitcoin cycle. So, you look at the gains over the cycle, and over time, they compound. So, here we've had a year which has been pretty lackluster. It's gone nowhere at Bitcoin level. But at Bitcoin level means that everything below that has underperformed. And I get it. It feels terrible. I've been lucky enough most of the way through. I haven't been in Bitcoin all cycle. I've managed to outperform it via just having the right asset allocation. Bought Solana at the lows and then switched into SUI when it had its run. And it's given a bit back. But generally, that's worked fine. I'm not a big fan of going too far out the risk curve. I have this whole don't fuck this up thesis. And a lot of it is every time you think you're really being smart at the risk curve, your probability of success is pretty small. So, I tend to stick with layer 1s generally, because it's definable. I understand the metrics, I understand what drives them. And then if I look at my wallet of shame from when I've allowed myself to FOMO in on stuff, I allow myself up to 10% of my portfolio to do that. I probably never even get to 10%, because it's just not my comfort zone. If I look at it, every single trade I did lost money.

What's been your worst trade?

I think I've lost near 100% in Smoking Chicken Fish, which was like one of the memes that I held, and I had a reasonable-sized position in it. And I thought, I can't get out of it because it's just going to nuke the market anyway. So, I rode it up, rode it down. But I treat it like a call option. I knew it was the highest probability chance it was going to be a zero. But you also don't really understand markets until you participate in the elements of it. You need to get a feel for what it's about to understand what memes are about, how DeFi works, that kind of stuff. So, to have a bit of capital that you know you're going to nuke to learn is a very good thing to do. Yeah.

Education as an investor, it's a good way to— I've certainly made my fair share. Talking a little bit about L1s.

I mean, the real key thing, and I tell everybody to do this, is like, That should only be 10% or less. Then it doesn't matter and just leave the rest to do its thing.

Right. Yeah, I certainly agree with that. Talking a little bit about L1s, look, that thesis, that trade has been very wild since the inception of crypto, like the infrastructure layer. You know, if you were early in Solana, early in Ethereum, early in SUI, say pretty much any reasonably valued, and I say that with air marks just because You talk about metrics. I would be curious to understand, you know, I put out a blog post over the weekend talking about like, how do we value these things? And of course the bear market sharpens the mind, right? And so I'm curious, how do you think about investing in a layer 1, even like Ethereum at $400 billion? It's only cranking out $1 to $2 billion of fees. Yeah, 200 to 400 times revenue seems widely overpriced. Certainly not a value buy in my mind. There's people that are calling Ethereum is going to go to trillions. I don't really see it. How do you think about that L1, L2 trade that you talk about?

So, I think using discounted cash flow models on crypto misses the whole point of what they are. And I think it's a fool's errand to do so. These things are priced off Metcalfe's Law, same as Amazon was, same as Google, same as Tesla, same as Meta. They all traded at massive valuations in early stages, because it's not about the cash flow. It's about the growth of the network itself, the value that the network absorbs. So, how do you value— at the simplest level, how do you value a network? It's the number of active users and the total value transacted per user. So, that's the way you can normalize every network down to that. And when you do so, it actually makes sense of all the valuations of the chains. It's actually really interesting. There's a few outliers within it. Things like Cardano will be an outlier, because there's very little economic activity on the chain, but there's quite a lot of holders, but they're not super active. But generally speaking, sort the networks by that, it works perfectly. So, once you understand that, you know what grows the network. It's adding actual real active users that are persistent over time, and the amount of economic activity. So, if you think of a system like Ethereum, Ethereum, you also count the layer 2s, because the layer 2s are activity built on the same network. And so, once you start looking at this, you understand Ethereum's value. So, the question is with Ethereum is, will more value be transacted on Ethereum in 3 years' time, 2 years' time? Probability is yes, because of the financial system, stablecoins, and all of the things we're seeing. Are there going to be more active users? Not sure, because it's not necessarily retail-based. And so therefore, you can still have the same number of active users, but massively increase the amount of value transacted on the network. So yeah, I think Ethereum over time probably does grow significantly in value.

On that point, I mean, a16z put out a great report, talks about the active users on-chain. That number hasn't really grown as much because we're sitting at 40 million active users on-chain. Across all networks. The vast majority are in the Ethereum broader ecosystem. On that point, you know, casino churn— it's almost like we're valuing these networks, um, as if they were enterprise recurring revenues, uh, but they're really not. I mean, the casino is very cyclical. And, and so again, like, I, I hear you. Just to put some measure to that, OpenAI likely IPOs at a trillion. It has 800 million users that are sticking.

The only economic value transacted on OpenAI right now is subscriptions. Correct. That's not a network model yet. They will unleash it and it will go to obscene valuations when there is economic activity happening on the network.

Maybe to put a finer point on the question, would you rather own OpenAI stock or Ethereum, ETH or SUI or SEI or I would rather own a—

currently, I would still rather own crypto, because the rate of growth of the total value being transacted is increasing significantly over time. And so, knowing what we know, which is once the Clarity Act comes, we will see a lot more economic activity coming on-chain from the financial system. Okay, that tells you there's a lot more juice to be squeezed out of this orange. While OpenAI, they're going to have to figure out a business model that works outside of just subscriptions if they want to be valued like a network. The reason Google got so rich is because they are truly a monopoly network model.

Yeah. As it relates to monopoly, you talk about Google, like unclear. Do you think that these networks, the network effects, you have to believe that they have capture, value capture in terms of attention of your Facebook and the incremental user adds value. The L1, L2 value leakage, you could argue L2s are going to capture most of the value. It's like they're capturing federal tax as a state, whereas Ethereum should be capturing the vast majority of the revenue, but it's not.

Does it? Does that make the United States more or less valuable to have lots of states generating revenues and economic activity and their own set of laws. It generates more value.

It does. The US federal government captures 30% of the tax dollars and the states capture anywhere from 0 to 10. So even you have a city like New York, the New York state captures a lot of tax revenue.

Yeah, but you are just thinking tax revenue again. What is the value of the state of California? When it comes to it, it's the business activity that happens within the state of California. And that's not necessarily all tax because these companies are global. They run their taxes through Ireland and all of this other stuff that they do around the world. But the economic value of California is gigantic. So, it is different because you got to look at it like a network.

In that case, would you rather own— and like real estate in San Francisco, would you rather own an application on top of Ethereum like Aave or some of the DeFi protocols, some of the deep-end protocols versus the underlying L1, L2 token?

Again, I'd rather own a network than I would a cash-flowing business. Cash-flowing businesses compound at certain rates of growth. And it's generally not proven to be the case that they outperform a network. Networks have been the enormous breakthrough that we've had since 2000 from the internet. And the ability to scale networks is unprecedented, and the value accrual, there's no surprised that all of Mag7 basically is a network. They're all network stocks. And so, I still think that even though it looks attractive to use discounted cash flow models to look at cheapness of DeFi, you just won't make as much money over time because of how a network multiplier works. And I know that's counterintuitive to most people. Yeah.

I think the other argument here is, look, it's an easy thesis to understand. People have done well in the infra trade and If you were a fund manager and you were early in that, you would have done phenomenally well. But now you're seeing applications like Polymarket really pop off. You know, it's, it's, it's probably the most breakthrough application we've had in crypto. I was an early investor. You know, it's $15 billion valuation relative to Ethereum's $400. Again, playing this exercise of what would you rather own, again, would you rather own Polymarket stock or would you rather own Polygon? Because it's deployed on Polygon, counter to most people, but— or Ethereum.

I don't discount the applications layer. And the applications layer of— again, I'm going to go back to the same thing. What Polymarket is, is a network. Why? Because they're embedding it everywhere on everything. So, you've created a growth dynamic within Polymarket that makes it really quite attractive. So, I like the applications layer, but it's much harder trade. You have to have a VC mindset. You have to understand what you're doing. Maturity at the applications layer, there's very few. So, we've got some DeFi maturity, Aave, Uniswap, not being great stewards of capital over time. Polymarket's uninvestable unless you're a private market investor. A lot of the ones that launch tokens, the token economics nuke them. To start with. Um, and it doesn't help. So it's not been an easy trade to get the applications layer, but as you're rightly suggesting, at some point the applications layer becomes more profitable than the infrastructure layer, but I'm not sure we're there yet.

Yeah. It's like, I'm not trying to overly rationalize to your point, like something like Cardano, right? I mean, it has no revenue and, you know, there is a memetic component. I mean, Bitcoin, I think is quite different. And I'd love your take on that. You know, it's, it's pretends to be digital gold and nothing else, right? It doesn't pretend to be. Doesn't— you're not going to value it off of fees. And the same with the— you know, you don't value gold off of fees, right? Non-existent. However, you know, when you're trying to be NASDAQ on the blockchain or the world supercomputer, at some point it catches up to you, right? I mean, and, and so you have to deliver.

The question is, is the network being underpriced, overpriced, or fair value versus the activity that's in place? Generally, I've found that they generally trade fair value to In general, they trade fair value to activity. So then the question is, is activity going up or going down on that network over time? And it becomes— that's the simple bet, which is because these are networks with tokens, the token number tells you the story generally.

Last point on this before we move on, but when you think about activity and value capture, shouldn't it eventually show up in fees? Like, if you have MEV and you have fees generated, like, it's directly correlated with the amount of users. That number hasn't grown. So like, if you don't have more users— and I get institutions might be coming— there is an argument where someone like Stripe is launching their own blockchain. So does that totally derail the thesis that the network effects you're going to have in Ethereum is just non-existent because it's open infrastructure that someone can copy and capture for themselves?

Yes, I mean, that's a risk. I mean, it's absolutely a risk. It's absolutely a risk with marketplaces and Amazon. It's absolutely a risk with Uber and cars. It's absolutely a risk with everything. So, you know, our job as investors is to assess the probabilities of that risk at all times. You know, what— you know, networks that look like they're going to succeed often don't. And that's not— I mean, that's our job. That's literally our job is to figure that out, is, you know, what is going to be persistent over time.

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You talk about 2026 potentially being a good year with rate cuts and potentially more liquidity in the system. Um, when you think about overall kind of portfolio construction, how are you positioned kind of going into next year? Crypto probably is a good part of your portfolio, but on a relative basis, do you feel like you're, you know, getting compensated enough, or are you more interested in other parts of the market? You know, just credit, bonds?

So, there's two parts of this. One is how I'm personally positioned. And number two is how, let's say, the Global Macro Investor or Real Vision Pro portfolio is positioned. I'm more risk-seeking. I'm pretty much 100% crypto. And I'm comfortable with that. And I've been that way for years and years and years and years. So, I don't really worry about that. But generally speaking, the portfolio has been split between crypto and tech. Um, since December 2022. So we managed to get most of the lows or around the kind of lows period and have held those positions through and through, um, adding in stuff like solar, um, and a few other themes within it. Um, and because I'm a business cycle investor, that's how I think about, about it. I won't really change that until I see the business cycle peaking out. And that's generally how it's worked for me over time, is extending your time horizon actually increases your returns as opposed to worrying about the next 3 months, 6 months, unless you're hitting a cycle peak or top or bottom.

Going back to the business cycle that you keep talking about, you look at, you hear earnings from companies outside of the AI space, Chipotles of the world that give you a good read on what's happening in Main Street. It's not great. Sentiment's not great and fundamentals there are not showing up. How does that compute in your thinking?

It's exactly what the ISM is telling us. The ISM survey has been below 50 the entire cycle. It's the lowest, it's the longest period of below 50 ISM. So that's no real economic expansion in history now. And so that is exactly the K-shaped recovery because what we've got is this massive CapEx boom going on in the hyperscalers and the AI space, some government spending. And then other than that, the economy is pretty flat. So you're seeing it everywhere. You know it from everywhere. It's one of the reasons why retail haven't come in crypto, because they don't have any disposable income. You know, real wages are still pretty low. Economic activity for most businesses is not great. And this is the thing that Scott Bessant has been talking about. Is how do you increase Main Street activity? And that is what has to happen. That's the rate cuts. That's taking taxes away, not paying taxes on tips and things that run the basic services and the basic economy of which most people live in. So I think the read of Chipotle or whatever is dead right. And that is what I think the Trump administration will focus on to get— to try and get the midterms through. And that— I think they really understand this game.

Yeah. Uh, since most of your portfolio, or a lot of it, is— continues to be in crypto, or has been in crypto for a while, um, you know, we've seen the DApp phenomenon crop up. Um, there has been some forced selling from some DApps. Um, how do you think about that? I mean, could that pose some systemic issues, like continued forced selling, just given the structure of a lot of these DApps was not your typical MicroStrategy. It was just more precarious. What's your read on that?

I never liked the DApps to start with, because A, a lot of the incentives are not aligned. So really, it allowed people to get exit liquidity on positions that were locked up and stuff like that. So that I didn't like. Overfinancialized structures, always make me nervous. These look like closed-end funds and they can trade at discounts for whole periods of time. But then you've got this issue with they sell the underlying to buy back the shares. And we're starting to see that. And I think that can continue in a down market. I think these things trade like perps premiums or futures premiums. So they have negative funding over extended periods of time when the market's like this. And the dynamics are not great. So if we love the run-up because of the DAX we're buying, you're going to love the rundown as they're selling. It's a bit of a mess. And I'm surprised the market allowed this to happen. But how they allowed it to happen was not a great way either, because these things were bought by hedge funds. They bought the pipe. And they just took out— They'll take a 5% turn in a month, walk away. It's a 60% annualized return. They don't care. But what then? You dump it and then there's no buyers of this stuff. So then they go to a discount and then these people are then forced sellers. So it's a mess. Should never have happened.

Yeah. Yeah. You know, you're wrapping a liquid asset into equities. It's still an illiquid asset and it dries up really quickly.

Yeah. I mean, some of these will end up doing well. If they manage to become ecosystem investment funds that have— can capture forward value. But selling shares to buy more of the underlying cannot just be an entire business model, right?

Yeah, no, that's absolutely true. I mean, at some point, in particular, that a lot of these like forward strategies and whatnot have said, we're going to utilize DeFi, we're going to earn some sort of cash flow on validating or staking. A lot of it's not there, and you couldn't have sat there and justified any premium to NAV for essentially a very liquid asset. You know, a lot of these were locked tokens, right?

Yeah, that's right. Now, different if they'd set up VC vehicles that have longer-term time horizons that could add added value on top. But, you know, they haven't, they haven't added a lot of value yet.

Yeah. I think some of the best investors constantly re-underwrite their, their thesis, right? And as you think about this cycle, we've seen probably gone the, all the headlines of you could have dreamed up, right? You have even JP Morgan launching a deposit token on public infrastructure base last week. You have Larry Fink to Stripe to pretty much everyone just enter the space. This idea that crypto is a scam is no longer in question. And, you know, there's only very few people that argue that, that discount the potential. What's different? Like, what are you re-underwriting this cycle? Uh, we characterize this as the institutional cycle. What are some of the KPIs, key things that you're looking at when you're underwriting your thesis again and again and like, hey?

Well, because my thesis is entirely built on liquidity and network adoption. So that is what I'm always testing. So, you know, is something wrong with that thesis? And the variability around the correlation to liquidity is driven by these other factors. You know, who's the buyer, who's the seller, and why, basically. So I concern myself less with that and more observational when it comes to that. But the real question is, is the thesis right about liquidity? Because if that explains 90% of the price movement of Bitcoin, I need to get that right because it's the single most dominant factor we've ever had in financial markets. So that's why I spend all of my time thinking about that. And then you overlay on top is, is my asset allocation right? I.e., is the network that I'm betting on or the token I'm betting on, is it having the growth that I'm expecting? From it? Because if not, you need to have a serious conversation with yourself about, you know, do you have a bagholder bias? Do you have all of those things? So really, I spend my entire time testing those two hypotheses. Is my asset allocation right? And my allocation to the asset class right? Which is based on the liquidity thesis.

Yeah. On that, double-clicking, look, ETFs have been a huge liquidity influx. Um, it's slowed down, you know, essentially when we saw that huge sell-off in October, you saw massive outflows. Um, does that— you know, you had record— you know, you had a lot of ETF flows coming in. Bitcoin hits an all-time high, it's down to, you know, off its high. Particularly Ethereum has struggled even though you've had an ETF, even though you have the Tom Lees of the world really go out there and raise billions of dollars. Do you sit there and say, gosh, like, we couldn't even hit all-time highs, we're gonna really break past that for Ethereum, and, you know, even with this, you know, new mechanism of an ETF? And do you, do you sit there and question maybe there's something else here that, you know, again, liquidity is there but prices are not moving in the direction that you want?

So again, liquidity has been relatively lackluster so far this cycle versus every other cycle. And that's given us relatively lackluster prices. So I don't really have an issue with that. If I overlay US total liquidity on total market cap of crypto minus Bitcoin, it's pretty much identical. So it's telling us liquidity has not gone to new highs yet. So crypto hasn't gone to new highs. And that's total liquidity, not rate of change. So yeah, I don't really It's not something that's concerning me in that respect, I think.

Yeah.

You know, and also, people don't realize that enormous amounts of those ETFs is actually just arbitrage. So they hold the spot and sell the CME futures. Some are doing the perps, not many do the perps, but that trade is gigantic. And that's where a lot of the volume comes from. So the total actual buying by institutions and retail, significant. But again, if we go back to the business cycle, people's free cash flows in the normal world outside of tech have not been great yet. And so therefore, you can't recycle those cash flows into markets. And so if my thesis on the business cycle is right, we will see that rise significantly. If it's wrong, we won't.

Yeah.

Yeah.

Basically saying your rate cuts, The Trump administration is going to be very focused on fixing that coming in next year. More cash flow into Main Street, that should really drive like fundamental inflows, stickier inflows to the asset class, not just this like hedge fund arbitrage game that you've seen in DAX and ETFs.

Yeah, agreed. There'll be real investment because people have kind of positive cash flow, which they don't really have right now.

Yeah. And by the way, you all relate the fact that we're in a very positive way positive regulatory environment. So crypto, when you do have that excess cash flow, it's not only easier to express your positive view on crypto in the public markets, but it's also from a regulatory standpoint, you could see more and more businesses, more folks just kind of—

We've seen exactly the same phenomenon happening in VC markets. Outside of the AI bet, VC has been slow in raising capital. And the reason being is, A, people are still trapped in previous vintages and not being able to get out. We're starting to see that free up. But there's just not enough money around. So we're not seeing huge inflows from family offices, et cetera, into VC. We're not seeing it into the hedge fund industry either. And it's the same issue. There's still not enough liquidity around for people to reinvest in the sorts of rates you would normally see.

Yeah. Just putting it a kind of wrapping up the discussion of the business cycle. What are the main things that you track? You talk about Business Manufacturers Index, any other things that you're really paying close attention to as you think about constantly re-underwriting your thesis?

So we probably track in real time about 1,000 charts, of which we break down the business cycle to forward indicators, lagging indicators, um, and, and, um, and indicators that indicate where you are today. So when we look at— we look at a whole bunch of different breakdowns and rates of changes and all of that. So, the work we do on this is huge, but all the work we do starts with the very top level is demographics is the driver of everything. We overlay demographics with things like debt to GDP, labor force participation rate, debt to GDP. All of these things show exactly where the economy is and why over the extended period of time, where trend rates of GDP growth are. Then it shows that all of this excess debt is being financed by liquidity, debasement of currency. Then you come to, okay, where you are on the business cycle, what's forward-looking for, um, liquidity. And forward-looking liquidity is financial conditions. Financial conditions lead liquidity by about 6 months, um, and that's giving us a forward-looking lead on that. So we follow that very closely. Our financial conditions index is, uh, kind of a regression of the dollar rates and commodities, uh, that leads well. Then we've got the global liquidity. So that's of all the regional liquidity based on both the, um, the government liquidity and their M2 numbers plus their, um, bank liquidity. So we map out all of that, then we map out all of the business cycle elements, which gives us forecasts for where inflation is going to go, where the business cycle itself is going to go, um, what's driving those. So we do kind of a huge ton of work on that, then we overlay all the asset prices onto it So we then look at, okay, what are the asset prices pricing in right now? So gold is pricing in current financial conditions. So it's actually leading versus, let's say, Bitcoin or the ISM. So that we kind of do this kind of multi-work from multi-decade secular trends down to where we are in the business cycle, you know, yeah, on a regular basis.

Going into the year, you would have read a JP Morgan report say, hey, look, at some point we're going to mean revert. You've had pretty good couple years in the public markets and, and, you know, in crypto at some point you got to mean revert. Uh, whether you look at the earnings of the S&P, you know, they're above the historical average, that at some point normalizes and comes down. How do you think about that overlaying this? Yes, we likely get rate cuts. Yes, the Trump administration will be very motivated, focused, election year. How do you— I mean, at some point gravity plays its part.

So last time I checked, the equity market's been in a secular bull market for the last 100 years. So at a basis, there is no cyclicality unless you're a commodity trader. Fact. Secondly is when earnings come down or markets come down or valuations get repriced, it is always when rates are going up or liquidity is being withdrawn. So it never happens when liquidity is entering the system or rates are coming down. So that is the business cycle element of what drives the business cycle is the financial conditions start tightening, that starts tightening growth, and eventually that happens. We're not at that stage yet. So yes, of course, valuations come back down. Valuations over time keep rising as well, much to everyone's chagrin. They don't understand it, but that's driven by the fact that P versus E The P is driven by debasement. So, as you lower the denominator, the P keeps going up, but E is basically GDP. So, if you look at the entire earnings of the stock market, it's basically got to be GDP growth, roughly, or nominal GDP growth. But P grows by debasement, and that's currently 8% a year on average. So, the P of market keeps rising. Which is why everyone keeps saying everything gets more expensive. But it's actually explainable, and you can normalize those factors, and it's not wildly expensive. But by the end of this cycle, I'm sure it'll be more expensive. And then you'll get the period of time where liquidity comes out. So then people are either forced sellers or they take profits.

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I appreciate you're a long-term investor. You have a great tweet recently. It says, uh, look, you need to follow the don't fuck it up rules, um, take a long-term view, um, you know, it is a secular trend, crypto, it is a new asset class, still very reasonably early. Um, you know, you talk about, you know, these 80% drawdowns which are very normal in crypto. Do you think that we're in that environment where we peaked in terms of Bitcoin, we're gonna go down to, you know, $50K levels, $40K levels, or, or is this just sort of like a correct minor correction on what is more of a longer-term trend here? Do you think we'll continue to see these type of drawdowns in crypto?

So those drawdowns, again, are driven by liquidity. And Bitcoin is the— crypto is the most affected by liquidity of all of the risk spectrum of assets. So it tends to go down. It's also an earlier stage network adoption model. Like Amazon went down 95% in its first cycle, stuff like that. Over time, networks as they get adopted have less volatility because there's more economic activity and less And it tends to be stickier over time. So my guess is the next time we have the liquidity down cycle, which I think is more likely to be 2027, we will see less of a drawdown in Bitcoin than it was previous cycle. And we've seen that pretty much every cycle that it's had less of a drawdown. My first cycle, I think Bitcoin was down 87.5% back in 2013. And then it was down less in the next cycle in 2018. Whatever. So it kind of fits to me that over time, but when you go further out the risk curve, so if you've got a newer token that's smaller, it's going to fall 90% as they always do. So I don't think that changes anytime soon. It's just the question is, is are we starting it now, which is what some people think because they think that the 4-year cycle in crypto is the most dominant factor. And I would say no, it's driven by the debt refinancing cycle. So it's just two different ways of looking at it. And you know, from what I can see, we've got $10 trillion of debt to roll over the next 12 months. If you're rolling $10 trillion of debt, you're going to need some liquidity to do it. So in which case it's hard for the market to go down.

What you're saying is it's a business cycle. Don't overcomplicate it. If you believe that's going to be, continue to be strong, crypto should continue to be strong.

And so at basic level, yeah, if the, if the business cycle is okay, crypto is going to be okay. And if they're tightening conditions, the Fed usually tell you like, we're going to tighten rates. It's usually a pretty good flag that liquidity is going to come out of the system. So, you know, you can keep it as simple as that.

Yeah. Um, how often do you reposition your portfolio on the margin?

I, the last time I changed an asset allocation in my own personal portfolio, was 2024 when I switched Solana for SUI. And then I'd done any other trade since then. I've added— I've added risk or added money into the trades. But no, I barely trade. I barely trade. The other side of the equation is I've spent a lot of money allocating to digital art. Which is a long-term investment thesis of mine. So once, you know, when crypto prices are strong, I take some money off the table, put it into long-term holdings, which I think are going to be an interesting longer-term investment. That's like a 10-year bucket. But so yeah, I really, really don't trade. I used to. I ran a giant hedge fund and I traded a lot. And I realized when I set up Global Macro Investor back in 2005, the reason I left the hedge fund industry was because It made no sense to be using a monthly P&L to trade macro risks, which are by definition, several years. And so, I went to prove that that is the case. And it's proven to be the case that you just extend your business cycle and marry it— your investment horizon and marry it with a business cycle, your returns compound, or if you're in a strong secular trend, you don't do anything except buy when the market goes down.

Yeah, let's talk a little bit about portfolio positioning because I think that's where a lot of people really screw up in crypto especially, which is you get really excited about this secular trend, it's reasonably early, you see a lot of the potential, and then you go all in, you know, 100% of your portfolio is in crypto, and then 20% drawdowns, you're paralyzed, you're freaking out, you don't have more money to deploy. You talk about taking profit, like a lot of times you can get the thesis right, but if you get the structure wrong or the positioning wrong, you're going to put yourself in a really bad position to do dumb shit along the way. And so, you're going to, again, likely going to fuck it up. How do you think about overall portfolio construction and structure here?

So, my journey in this is a decent journey, which was when I first did it, I had a decent-sized bet in 2013 when Bitcoin was $200. And I wrote the first macro strategy piece on how to value Bitcoin back then. It was a decent size, but not that big. And I wrote it off and said, listen, this is a highly speculative asset, could go to zero, or it could go to $100,000. And that was my thesis back then. And it went up 10x, then fell 87.5%. And I wasn't fazed, because it's like, I'm in this trade for an extended period of time. Ended up selling out in 2017 and then saw the downside of the cycle. And then by the time I got back in again in 2020, I grew my position size significantly. So it was a much larger part of my liquid net worth. And then by the time we got to 2022 lows, I'd then gone to pretty much 100% of my liquid net worth. Because I'd learned how to manage the volatility psychologically. I also have cash flows because I have businesses that generate cash flows for me that allow me not to require the use of that capital in short term. That's what's happening to people is their time horizon shrinking, and their need and desire for instant gratification is increasing, because it's becoming harder and harder to buy a house or to have kids or do anything. So, it's really shrunk people's time horizons and the instant gratification, which is why leverage and speculation are becoming a normal part of life now for most people. And so, that makes it very hard to have conviction in something where you actually need the money to put a deposit on a house or down payment on a house or whatever it is. So, you can't be risking all of that. So yeah, you know, I own my houses, so I, I don't need to worry about that. So I'm in a stronger position. I get it. You're either young, just extend your time horizon, just keep piling money into it over time. Or if not, you have to shrink your trade size if you can't sleep at night. I mean, yeah, nobody likes it when their portfolio goes down 50%. But, you know, if you're in crypto, you better get used to it because it's part of it. And as long as you're not too far out the risk curve, You basically have to say, is this thing I'm investing in, this network, is it going to survive? Does it have Lindy effects? And is it likely to grow over time? If you can honestly answer that and prove it by showing some work that you've done that the network is vibrant, then you'll do fine. But most people don't do any of that stuff. They just hear a tip on Twitter or YouTube, end up buying some fucking token because somebody once said this can go to the moon.

Yeah, it's really a great take. Look, probably the best advice there is have uncorrelated sources of cash flow that allow you to fund your lifestyle so that you don't freak out that you can— you know, you should be liking an asset once it goes down 20, 30, 40, 50, 80%. If you liked it at $100K, you're gonna love it at $20K. Make sure you have money. Then and there to deploy into the trade.

And even that I've got wrong recently, because cash that I have is in a bank here in the Cayman Islands. I've got to get into a crypto account. There's days it takes to sort that out. And I didn't keep it in stablecoins. And I should have done that because crypto opportunities come really quick. When 10th of October came, and some things were discounted like 80% because of a flash crash, I couldn't do anything about it. It took me 5 days to get money in the market. And so even at that level, you need to set yourself up well for these opportunities. But you're right, primary importance is income. It always is. And then you want to cover your Maslow's hierarchy of needs at first, make sure you can afford somewhere to live. And then depending where you are in your life, that percentage of your earnings that you put into your investments.

Yeah, yeah. Charlie Munger said something great, which is rule number one, uh, don't lose money. Rule number two, uh, don't forget about rule number one. And then he also said never interrupt the compounding.

So if you can see that, that people don't understand because they think don't lose money is like stop losses, I can't lose a single penny, I'm never gonna have a drawdown. It's not that, because you can't compound without volatility of returns. And compounding actually requires you to buy lower at lower prices over time. So, you know, my personal P&L in crypto, because I put a lot in in 2022, was at all-time highs before the market was. But people don't understand that when you should be looking forward to the drawdown, if your idea is I want to invest in this a particular thing over, over an extended period of time. And we've seen that Tesla investors have done very well from doing that. They have fundamental belief in the stock. So when the stock is down, they buy more over time and they really compound wealth.

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Maybe transitioning the conversation a little bit into AI, just because it computes into everything that's going on. You know, the vast majority of the public markets has been AI-focused. Um, what is your kind of thesis, current thesis on, on AI?

Because I do so little trading, I spend— and I've got all the framework in place for the macro stuff that I do. I spend most of my time thinking, reading, doing, writing about AI. And so this is the greatest discovery humanity will ever make and the last discovery humanity will make.

Say more.

Well, after AGI comes, it is not us making the discovery, it is it. This is the scaling of intelligence to infinite, infinity. Intelligence is what we have been paid our careers for. Our intelligence goes to zero in value over time. Doesn't mean we go to zero in value, but that particular aspect of what we do. So, it is the most profoundly disruptive technology the world has ever seen. It is of civilizational level importance. Of the importance, it is the largest game of nations we will ever see played, because nobody can allow the other side to win this. So more than nuclear proliferation, this endlessly scales. And so, you know, I know people didn't like it when Sam Altman talked about government backstops. There is absolutely a backstop. There is not a single way the US or China would allow their industry to not succeed. So that's how big this is. It is economically the most disruptive force we've ever seen. It is a nuclear bomb when it comes to deflation. People just have no comprehension how big this thing is.

Yeah, I would agree with that. Uh, you talk about US-China and the political aspect of, of AI. We've seen hyperscalers and the amount of huge CapEx going into, uh, just energy resources. China is building the most amount of nuclear, um, reactors, way more than the US. How do you think about that? Or, you know, If you have a, if you have a good, reliable, cheap source of energy, it will be a prerequisite to own and be a leader in this AI revolution. In that, do you agree with that? If so, how do you think about who wins here and how do you ultimately translate that into an investable thesis?

Like, so almost the fundamental principle of the universe is to convert units of energy into units of intelligence. Literally everything we do and everything the planet does is basically that. So there is a flywheel here and the flywheel is very clear. It's energy, compute, intelligence creates more energy, more compute, more intelligence. This is the spinning flywheel of all of evolution and everything to do with this technology. So when you're looking at the different elements of the flywheel, we've got NVIDIA and others working on the compute side. But we know that that's not going to get us to the next level. We're going to go to whether it's biological compute or quantum compute or a combination of the two. That's where we're going. And we're seeing signs of that. On the energy side, that's our most pressing need right now. We, we can manufacture enough chips, but we don't have enough energy because you're going to stress the grids. So again, we go back to this is the most important race of all time to win. So look what China did. Yes, they're building nuclear, but they scaled more solar in 12 months than the entire solar supply of the rest of the world. They're telling you what the fastest source of energy is. The fastest, cheapest source of scaling energy is solar. The most efficient form of energy is nuclear. But nuclear takes— the South Koreans are the fastest to build nuclear plants. They're about 6.5 years. But once you add planning permission and everything else, it's still an 8 or 9 year cycle. So if the US says, oh, we're going to just rely on nuclear, we've got 9 years and not enough energy. So it has to be solar first. So solar is the only thing that you can scale fast enough. You've got the battery technology to be able to now reduce reliance on the grid. You're not removing from the grid entirely. What you're going to do is take, let's say, 60% of the new energy requirements off-grid. The grid will supply the rest. Then it's natural gas. So you can get a natural gas plant up in about 2 years. So natural gas. So solar first, you can get that going in 12 months or less. You've got then natural gas behind it, but you need to be near pipelines. If not, you've got to lay pipelines. Planning commission could take years. So this is why Texas is hyperscaling energy right now, because they've got plenty of sunshine, plenty of natural gas and low regs. So that's— and then nuclear comes behind it. But you have to start that nuclear thing now because you need it for 10 years' time because there's no way you're going to power something moving towards ASI without a combination of nuclear and the sun. I mean, I'm a big believer in the Kardashev scale anyway, which is 99.9% of the entire gravity of our— so of our universe is our sun, you know, of our solar system for sure. So all of the energy held within that is more than enough for our needs. We just need to figure out the technology to harness it.

Yeah, you need— it's complementary, right? Solar has been good to complement the fragility of the grid, and then you have nuclear to just be a more reliable powerhouse, but it takes longer. But Overlaying all that and the conversation around AI, and you talk about you're mostly invested in crypto, but you have some pockets of technology. How do you think about the ratio of, one, the combination of the two theses, crypto and AI, and then more so the proportion by which you position your portfolio?

AI is not the most easily investible theme, really. We've got hyperscalers, but you're buying other cash flows in other parts of the business. It's not clear about Nvidia, but It's scary to be in a very, very crowded big bet. I get it. It's a great trade. I have no issue with that. But the nexus of AI and blockchain is huge. We're basically— blockchain is the technology rails by which all of this will operate. It's the new layer to the internet. As we roll out millions and then billions of agents, agents again need payments. They need payment for what? Energy and compute, the same flywheel. So, the energy and compute costs need to be paid, and maybe there's a profit margin if they're set up as businesses. And the instantaneous requirement for payments requires blockchain rails. Also, in a world of such deflationary forces, you need to have the ability to have scarce assets. Because in a digital world, nothing is scarce. So, blockchain solves digital scarcity, which is a really important factor as we become increasingly digital. So, these technologies are incredibly important. And they interact together. How do you invest in it? Your job is to basically look at one chart versus the other and say, what's going to outperform over time? It has been, if you look at it, Bitcoin has outperformed— or the NASDAQ has underperformed Bitcoin by 99.97% since 2012. So, it's been a one-horse race right now. I call it the supermassive black hole. Will that always be prevalent? Maybe not. But it's very difficult. There are some clear winners that have done better. So, NVIDIA has done well over that time, stuff like that. So, again, all I do with that bet is this is all the same thing. The world is about to become more digital tomorrow. And these are the two mega horses in that race. How do you allocate the capital between the two? Depends on your risk profile and depends on what has got the relative kind of attention thrust or momentum at any one period of time. This year, it's been technology stocks. Last year, crypto massively outperformed. So what do you hold over an extended period of time? A bit of both.

Yeah. I know as we look to wrap up, I'd like to get your thoughts on just general profit taking and what computes in your mind around that.

And Generally speaking, I'll profit take towards the end of the cycle. Now, there's always a risk that you don't get that right. So, how I try and think about it is to reduce the psychological stress, and maybe your stress is you take what's known as lifestyle chips off. So, well before the end of the cycle, when you're sitting in some nice profits, you just force yourself to take some off. And that can fund the lifestyle things that you might need, that you will regret not having later if you miss the cycle, or you decide to run it through the full cycle, through the downside as well, which I've done most times, because I prefer to do that. I prefer to buy and add in lows than trying to time it. So lifestyle chips is important. Nobody can dictate when you should take your lifestyle chips off, but you know how your P&L feels to you. And how upset you'd be if the cycle had ended then. And that's that psychological barrier you need to get through. And Lifestyle Chips, let's say you take 25% or 30% off, stops regrets. You might have regrets of taking money off early, but it's never the worst thing to have done. Um, and if not, if you want to take more off, like I'd take off significantly more risk or tell people to take off more risk once the business cycle is peaking, because that's when returns go down. Will I do that or not? Yeah, I'll probably reduce some risk. But listen, this is the— between what's happening in technology and crypto, this is the greatest macro trade of all time. And it's not over yet. So to try and get too cute with it is hard. And I'm able to stomach the volatility and have the cash flows to do it. So I don't need to do it. But for other people, yeah, just manage that risk because it's not easy.

Yeah. Well, look, this has been a phenomenal discussion. Well, I don't know if there's anything else you'd like to touch on before we wrap, but yeah, a lot of really good advice here for folks. And keep it simple. It's a business cycle. Follow the business cycle. Try to understand it. Go study it.

Yeah, that's right. And it's worked forever. I mean, you put the year-on-year rate of returns of the S&P against the the, uh, ISM over the last 100 years, and it's just obvious.

Yeah. Um, so, so basically, if you're going to write an algorithm, is ISM below 50, add. ISM above, what is it, 60, 75?

We have— call it 50. Anything above 57, 58.

Yeah, sell.

Just sell or start taking profits.

Lifestyle chips.

Yeah, that's right. Keep it that simple. And it does work. I mean, just do that as an asset allocation model. It kind of works.

Yeah. Raoul, great to have you on. Anything else you'd like to add before we wrap?

No, all good. Yeah, if you want to find me, obviously everyone knows where to find me on X or on Real Vision. So look forward to it.

Amazing. Well, what a treat, Raoul. Thank you so much for your thoughts and looking forward to maybe having you in 2026 or 2027 before the business cycle is over.

Yeah, exactly. All right, good luck out there, everyone.

Thank you.