Raoul Pal Explains Why He Went All In On Crypto

Raoul Pal

But my big discovery, and why I really started loading up on Ethereum, was another chart. It was an understanding that **Metcalfe's Law** was the primary driver of all crypto markets and, in fact, almost all of the tech stocks that we've known today.

Shaan Puri

right

Raoul Pal

And once you realize that these are basically networks, and once you realize that crypto are networks where you own the networks, Facebook is a great network stock. It works perfectly on a log chart and it's exponential. It does all the things as you imagine. You can value it in Metcalfe's Law terms. But the fundamental difference is that shareholders and network users are not aligned. The shareholders make the money while the network users get the utility. Along comes crypto. You marry the network user with the owner. Okay, now you've got network effects upon network effects. This is like behavioral economics.

Shaan Puri

So, for those who don't know, you basically were at Goldman. You started your own hedge fund and then, similarly, you retired, correct? You retired pretty young, at 36. But, I mean, now you have a company, so you're not fully retired and kicked back. But no...

Raoul Pal

I've got 4 4 jobs I'm doing right now so

Shaan Puri

Right, but you did have a break in between, correct? So, like, I think it was 2004 when you sort of retired from the hedge fund, and it was like 2014 or something when you launched, you know, Real Vision. So, what was going on in between? Were you doing nothing, or were you doing other projects I just don't know about?

Raoul Pal

I was writing *Global Macro Investor*, but that is a monthly publication. I don't know why all of you guys do weekly newsletters or daily newsletters; that's hard work. So, I wrote monthly. It's big; it starts off at about 35 pages a month, and then due to inflation, it gets to about 130 pages a month now. But I write it in a weekend. So, wow! When I was living in Spain, I wrote one weekend a month. Sure, I need to monitor markets and talk to people, but it was a part-time job. What I'd done is kind of opted out of the rat race. I moved to the Mediterranean coast of Spain. I was growing fruit and vegetables in my garden, along with almonds and olives, living the beach life in Spain, on the side of a mountain in the middle of a national park. I was having a great life. In the end, you start missing intellectual capital—the people around you—because most of the people most of the year round in a beach town in Spain work in a bar or restaurant, or they're in real estate, which is fine. But you feel very isolated when your world is global macro.

Shaan Puri

Totally! So, describe the moment because I think a lot of people listening to this... Just so you know, I don't know how much you know about the podcast, but basically, the podcast usually features me and Sam. He's not here because he's traveling; he's actually in Portugal right now. We just sort of usually spitball ideas. We're both founders, and we both recently sold our companies in the last two years. We started the podcast after we sold because that's when you have a bunch of time on your hands. It's usually just brainstorming different kinds of business opportunities and market opportunities—stuff that we see that we think could work or is interesting, but we're not going to go do it ourselves. So, this became our outlet to do that. We have over a million downloads a month, and the people who listen are typically either looking to start a business but haven't made the leap yet, or they have their own business. They listen while doing their chores, and it's like, "Oh, I get to hang out with my buddies who are shooting the breeze about business." We talk about topics they want to discuss, but they might not have friends around them who want to nerd out about business all the time. We kind of had that same need for intellectual sparring to feel good. Now, the thing you mentioned—like, you sort of won one game, you're doing well in one game, but you decided to exit the rat race. What was that? Did you have a kind of "come to Jesus" moment, or was that a long time coming? How did that happen?

Raoul Pal

My metanarrative is that the game is life itself. The game is not money; the game is the quality of life and how you live it. That was always my objective. So, when I was on the tube in London at 5:15 in the morning to get to my desk at Goldman before 6, the reason I did it is because I knew that the next thing I wanted to do was go and live in the Mediterranean. I wanted to have that quality of life. For me, a lot of people think of money as the primary objective. I actually like houses, as you can tell from the house behind me, right? This is where I live; this is the quality of life. This is my bank; this is everything. I like where I live and how I live. That's why I live in the Cayman Islands and why I lived in Spain. They're beautiful places, and I live a quality of life. So, that has always been my journey. What I want to do is always take steps towards the end game. I kind of live in the future, always in everything that I do. I always have a vision of my future self or whether that's the future state of financial markets, where I think it's going, whatever it may be. I'm always well ahead. It's much easier to live in the future and look back and say, "How do I get here?" than to stand here today and say, "I want to go forward." It's kind of weird; it's a psychology thing. I realized that the Mediterranean was this life. My ex-girlfriend, when I was at university, her mother lived in Mallorca, Spain, and I was there in Mallorca at one point.

Raoul Pal

And we were on this small beach, eating grilled sardines. It was this perfect Mediterranean scene. Grilled sardines, somebody's making the big oil drum on the beach, you've got a cold beer, and on this little mini peninsula, there are a bunch of pine trees and palm trees. There's this long table of about 30 to 25 people of different age groups—parents, kids, grandparents—eating paella, the Spanish national dish, on this Sunday, drinking wine and laughing. I'm like, "That is quality of life." So I kept that in my mind, and I kind of facilitated it to happen that I would move to Spain.

Shaan Puri

right

Raoul Pal

And I did it in steps as well. I was speaking to my father while having dinner with him. I was chatting over a few glasses of wine and said, "You know, I'd love to buy a house in Spain at some point." He replied, "You know, I've got friends selling a house in Spain." It was a random thing, so I said, "Sure, let me know." He sent me a fax of this 6-bedroom house on a hillside in Spain. I thought, "That's great, Dad, but how the hell am I supposed to afford it?" He said, "I was 30 years old, I was working at Goldman, and I don't know how much it is." He came back and said it was £150,000, which at the time was like $250,000 or $200,000. I had just received a bonus, and I thought, "Well, I could actually buy that in cash." And I did. It was game-changing. I had a mortgage in London and everything else, but now I had won the entire game. I owned a 6-bedroom house on a hillside in Spain overlooking orange groves, just 10 minutes from the beach. I could lose my job, and I could still...

Shaan Puri

have that

Raoul Pal

Do that, and I could work in a bar and I could live there. I'm done, right? My gamer life was one. So that was the marker stone to allow me to take more risks to do the next thing. That's how I've always done these things.

Shaan Puri

And how do you get that vision? So, I'm the same way, but what I've noticed about myself is that every... I call them "chapters." It's like every sort of five years is a new chapter. What I've noticed, if I look back at the last three chapters—I'm 30, about to be 34—so basically, you know, three chapters. Each time, it was sort of this fortuitous bounce where I get in touch with somebody, and they show me a glimpse into this lifestyle or this kind of mode that they're in. Then, I just can't unsee it. I'm like, "Why the hell am I not doing that?" Right? It's your version of seeing people eating paella, drinking wine at a 30-person table, just enjoying life by the water. That’s the glance—that is the glimpse I needed to do it. So, is that how you also got your vision for the next chapter?

Raoul Pal

For you, the next thing was... So, I'd been in Spain and I realized the thing I was missing was **intellectual capital**. Even though my clients were the world's most famous hedge fund managers, you know, all of these super smart guys, they weren't around me. They were all around the world, and it was not as easy to get in touch. Twitter wasn't really around, you know? There were fewer ways to be social online, and podcasts didn't really exist.

Shaan Puri

right

Raoul Pal

So, I think I probably discovered Tim Ferriss, and another friend of mine, Mark Hart, had gone down this journey of looking at Silicon Valley and entrepreneurship. That was the thing that I thought, "Okay, this is the next thing for me." How can I take the entrepreneurial journey outside of, you know, setting up my own research business, which was essentially a one-man band? I wanted to take the entrepreneur's journey and push myself. I wanted to see what I was capable of. So, that was the next thing.

Shaan Puri

And give people a sense. So, you're at Goldman. That's a good job. What were you making back then? You know, basically, what was your kind of like... Because I think for a lot of people, they're like, "Okay, some people feel trapped when they're making a high salary at a nice company." They feel trapped; they don't take those leaps. And other people will look at this and say, "Well, it's easy for you. You probably were making a bunch of money at the time, you know? So, yeah, you could take these leaps of faith because you had kind of a safety net." So, let's wind the clock back. We're talking almost 20 years ago or something like that. How were you doing financially then versus, you know, at those two steps: kind of a research firm and Goldman?

Raoul Pal

I've been really lucky. You know, I worked in the banking industry selling derivatives to hedge funds. These are the megatrends of finance: the megatrend of derivatives and the megatrend of hedge funds. I was doing pretty well. At 30 years old, I was earning more than $1,000,000 a year.

Shaan Puri

but you managed to walk away from that which is pretty impressive

Raoul Pal

Yeah, and I first went to a hedge fund. Don't forget, I left Goldman and went to hedge funds. I took a risk, but I used to argue with my boss every time he gave me share options and restricted stock. I was like, "Thank you, but it's worthless. I'd rather have cash." I said, "How dare you? You should be proud to have equity in Goldman, and that's why we can give you so much more compensation." I said, "It's worthless." He asked, "Why do you say that?" I replied, "Because it's not money I can spend." So, he got really pissed off with me. Then, when I finally quit to go to my biggest customer, who was the biggest customer of Goldman's equity-driven equity desk—an entire equity floor in Europe, GLG Partners—he called me into his office and said, "Raul, you were dead right. It was worthless." He said, "I lost it all. I managed to cash in some of it, but I lost $1,000,000 to make that move." But I wanted to make that move because I wanted to see whether I could run money myself and be a macro investor. It was another chapter that I wanted to pursue for my own goals.

Shaan Puri

And then, let's kind of fast forward to today. You came on my radar; I think I had seen Real Vision a few times, but I hadn't really paid too much attention. I'm not from the finance world; I'm from the Silicon Valley tech world. So, we all kind of have our media sources that we learn from based on whatever industry we care about, right? I had seen it, but I hadn't really paid too much attention. However, I saw you start talking about crypto, and I didn't realize that you had actually started discussing it back in, I don't know, 2013 or 2014. I went back and read your old memos and the stuff that you have put up screenshots about. So, like you said, you were ahead of the curve; you have the receipts to prove it. But I think it was 2019 or 2020 when you started becoming very vocal. Then you made the big splash where you were like, "I've moved some ridiculous part of your liquid net worth." I think you might have said 50% at one point? I thought I heard you say 90% into crypto... or even 100% into crypto. That caught my attention and the attention of a bunch of other people. I know you've talked about this before, but there's a new audience. So, could you give us kind of the origin story of how the "mind virus" of crypto developed? What were the steps where you went from curious to convinced? What was that journey like for you when you put in 90% or 100% of your net worth?

Raoul Pal

My job is to live in the future. I had lived through the financial crisis and predicted it. I had also lived through the European crisis and predicted it. I was in Europe and had to buy a generator, food, and get cash out of the bank to keep at home. That's how close we were in Spain to losing our entire banking system. As a macro guy, I knew the issue was leverage. Leverage meant that we had a unique problem: there’s a layer of collateral, and all of this debt is against the collateral. Usually, you've got like 30 claims on the same piece of collateral. In fact, the average U.S. Treasury had 32 claims on it, or it did then; it may have more now. Therefore, who owns what in an unraveling? Who's going to get screwed?

Shaan Puri

And the leverage you were talking about—was it government or corporate? Where did you see this stockpile?

Raoul Pal

leverage together I look at total leverage financial system leverage government leverage household leverage and private sector leverage right so we're at 480% of gdp now whatever the stupid number is right it's ridiculous but the problem is is that's a lot of claims on the collateral mhmm so because not everything is collateral in the system only something's used as collateral anyway so when lehman went bust right everyone's scrambling to find who owns what and you know that that happens all the time so I started trying to start the world's safest bank with a bunch of family offices I thought you know we could stay a bank that doesn't use leverage so then people can put assets there their savings there and realize they're safe because it wasn't safe people in cyprus had all of their money taken out by the government so I'm like okay I need to do something about this and I can do something about it so I started that journey and a friend of mine called emile woods who was a subscriber to globe macro investor who was running a hedge fund at the time an ex goldman guy he said you need to look at bitcoin and I'd read a bit about bitcoin it's probably 2012 and I wrote the first macro piece on bitcoin which is I think the thing you referred to which is 2013 I was just like I saw it and thought okay so we've got 2 things here 1 is this asset bitcoin and that's a scarce asset in the digital world so that's probably interesting and secondly we've got blockchain which is a recorded ownership of everything okay well that solves the entire financial system and this could be something useful for the financial system in itself as a new version of gold so I backed out the the fair value of bitcoin with gold at 1300 using the kind of supply you know stock to flow ratio done badly I'm you know I'm no you know statistician or econometrics expert but I kinda backed it out and said it was probably worth $1,000,000 and then how I like to look at things is okay what's the price now $200 let's assume probably rightly that raul is a total idiot so let's assume he's wrong by 90% so it's worth a $100,000 and it's at $200 that is the best single bet I've ever seen in my entire life so I bought it and I wrote about it and I held it all the way through till

Shaan Puri

And when you say you bought it, that's like... the first time I bought Bitcoin, I bought like, I don't know, $1,000 of Bitcoin. Right? So "I bought it" means what? Like, you bought a tiny bit, you bought a medium amount, or you put a significant stake for yourself into it?

Raoul Pal

A decent, a decent enough amount, and I sold it after 10x. So I've done well from it. Sadly, I got divorced in the process, so I halved that. That was my tax that I don't pay in the Cayman Islands. I chose a voluntary 50% tax, so you know it.

Shaan Puri

wasn't a

Raoul Pal

Life-changing bet, but it was a good bet. Now, had I held on to $20,000 when it peaked, yeah, it would have been life-changing. So, okay, I've been in it, I got out. I was nervous about all of these forking wars and everything going on. I'm like, "I don't understand this. Let's wait and see." I had talked about it a lot, analyzed it, been involved in it, but hadn't been investing again until 2019. I started to stick my toes in again because the market had been selling off. I was starting to get comfortable that, yes, we got a recession coming. This is going to be a useful tool. Then 2020 comes along, and I was already positioned for a recession. But, you know, this opportunity was like, "Okay, if the central banks are gonna print like crazy, then that's the opportunity." So, I bought a lot of Bitcoin. I owned it at that time. I was long bonds, gold, dollars, and Bitcoin. Over time, I started charting Bitcoin versus other assets, and I realized its dominance in performance was so extreme that it made no sense to own other assets. Even with the fact that Bitcoin can be very volatile and have periods like now where it's down 50%, it makes no sense to own anything else. Now, I probably will take other bets here and there, but I think my core strategy was Bitcoin first. Then I started doing the work. I was on Twitter a lot, and if I were to ask anything about Ethereum, people would pile on to me. That makes me want to know more, so I started digging in.

Shaan Puri

has the opposite reaction

Raoul Pal

And I knew about Ethereum, you know, but I started properly digging in. I thought, "This is really bloody interesting." The chart looks incredible. The chart versus Bitcoin looks incredible. This makes sense to me, so I started switching into Ethereum.

Shaan Puri

And when you say the chart looks incredible, tell me what that means. So, I've, like I said, come from the tech world. We look at charts all the time, but they're always about users, revenue, things that are not based on speculation or any kind of...

Raoul Pal

human emotion

Shaan Puri

Whims... yeah, human emotion. Exactly. So, you know, charts don't lie. Or, you know, they do if you don't know what you're looking at. When you talk about charts, I've seen people do this all the time on Twitter where they're like, "You know, it's voodoo magic." They see a chart, then they draw this crazy shape. Clearly, this is doing a reverse cyclone pattern and it's gonna go all the way up. So, are you one of those guys where you actually do the technical analysis and you say, "The price chart is what I'm looking at," or were you looking at other charts?

Raoul Pal

Both... so, I'll come on to that. The price chart, I think, is the best guide of what the asset is doing, what its trend is, how people are perceiving it, and where it is versus what you might perceive as fair value. You notice certain characteristics. For example, crypto tends to be exponential in price, so when you put it on a logarithmic chart, it starts to make sense. You look at things like copper and lumber; they tend to be mean-reverting assets because they get met by excess supply. High prices lead to excess supply. So right now, with oil at $100, everybody wants to make as much oil as possible, so the price comes down over time. It doesn't happen with crypto because you can't...

Shaan Puri

right

Raoul Pal

So, you need to understand the structure of markets. Where is the sentiment? Is it overly bearish? Like a day like today, it got overly bearish, and suddenly you start to see a reversal. These kinds of things are interesting, but my big discovery—and why I really started loading up on Ethereum—was another chart. It was an understanding that Metcalfe's Law was the primary driver of all crypto markets and, in fact, almost all of the tech stocks that we've known today. Once you realize that these are basically networks, and once you realize that crypto are networks where you actually own the networks, it changes everything. Facebook is a great network stock, and it works perfectly on a log chart. It's exponential and does all the things you can imagine. You can value it in Metcalfe's Law terms. But the fundamental difference is that shareholders and network users are not aligned. The shareholders make the money, while the network users get the utility. Along comes crypto, and you marry the network user with the owner. Now you've got network effects upon network effects. This is like behavioral economics.

Shaan Puri

right

Raoul Pal

manor from heaven

Shaan Puri

Religion meets Metcalfe's Law, right? It's like, yeah, now I'm really tribal about the thing.

Raoul Pal

it's religion meets capitalism it's basically what

Shaan Puri

it is

Raoul Pal

Right, so that is incredibly powerful. I started looking at the fact that Bitcoin and Ethereum charts, just at different points when they were at the same adoption cycle, were remarkably similar. Then it dawned on me: they're all the bloody same thing. They're all about adoption. So, if you look at it and if you're honest with yourself, Ethereum—if you think about Metcalfe's Law—it's about the number of users and then the kind of connections between the users and the applications built to create those connections. Well, Bitcoin's kind of a one-sided one, which is a bunch of people owning it as a store of value, like gold. There's nothing wrong with that, but there aren't many applications built into it. When you look at Ethereum, it's like, "Holy shit!" I mean, this is like the internet. That moment is like, "Okay, this is a far superior bet." And so that's why I took that bet. Eventually, I shifted the majority into Ethereum and then took other bets in the space to express macro views.

Shaan Puri

Yeah, it's funny. I have one-tenth of the intelligence of you, but I did the exact same pattern. So, you know, I heard about it in 2013. I bought a little bit, dabbled, and sold during... you know, I went to a wedding, and my aunt was telling me about how great Bitcoin and Ethereum were. I was like, "Oh, it's probably a bubble." In 2017 and 2018, I sold for a nice profit and was patting myself on the back. You know, in retrospect, it was the worst trade I ever made. I should've just held everything. I started buying back in 2019 or 2020. I kind of announced that I had moved 25% of all of my liquid net worth into the thing, but that was right before another run-up. So that quickly became 50-60%. Peers and some people were telling me I was crazy. I'm sure you had the same thing, you know? They were asking, "Why are you betting on this? Are you just kind of speculating?" I said, "No." Basically, I spent my whole career studying the power of network effects. I was trying to build marketplaces and social networks in Silicon Valley because I know that a network effect is the most powerful force imaginable. Then I see this chart, this adoption chart of this new money network. It's like, well, if the social network was worth X, and the information network was worth Y, and then the merchant network, which is like, you know, basically Amazon, was worth Z, then this money network is going to be worth a lot. I can tell you that. I didn't know much more than that, but I just knew if you can bet early in a network effect that's still going through its adoption curve, you'll do pretty well. So that was kind of my bet, coming from a different take but ending up with the same conclusion. I remember being impressed that you were talking about network effects because I didn't really see a lot of people in traditional finance talking about that at all. I was like, "They're missing the..."

Shaan Puri

You know

Raoul Pal

Really, one of the first people to start saying, "Unless you understand network effects, you don't understand what this is at all." Because everyone was identifying weird things.

Shaan Puri

because people people listening maybe

Raoul Pal

don't know network effects so so to

Shaan Puri

To define it, network effects describe this phenomenon where, let's just take a language. If I'm the only person who speaks English, English is not very useful. The same thing applies to the telephone system; if I'm the only person with a telephone, it's not that useful. But now, if another person gets a telephone or learns English, well, English just got more valuable. The more people that learn English, the more valuable English becomes as a language. So, it's described as a phenomenon where every participant that joins the network makes the whole network more valuable. It's like the opposite of a popular nightclub, where everybody who joins diminishes the popularity over time. Network effects typically describe that it gets more valuable at a square, basically as an exponential, not linear. Yep.

Raoul Pal

And then, if you think about it in other terms, let's say we look at Web 3 as a network—a network of engineers and engineering talent. This is where it gets really interesting. Why is it exponential? It's because there are parts when everybody's trying to hire Web 3 talent. Every single person I know is trying to do that, and the actual pool of people who are capable of doing it is probably around 1,000.

Shaan Puri

right and there are multimillionaires who don't want jobs that's

Raoul Pal

That's the... It's their salaries, and the demand for them is exponential. The demand for the network of those guys becomes exponential over time. There will be millions of trained people, and it becomes the network effects. The overall space is very valuable, but the opportunity that ramps—that's the single most important and interesting part of network effects. The fact that you can own a share of the network means that even when the network flattens out and is now worth, I think, $200 trillion for the digital asset space—it's currently $2 trillion—that's a 100x in market cap. That's huge! We've never had anything like this before.

Shaan Puri

Right, like when the information network was getting built out, which is just the internet, it was pretty clear that slowly but surely, people were adopting it. They were getting online, and then stuff was getting built—stuff to do. Then, everybody who was online made being online better because you could communicate with them, or they might write a blog or whatever. The whole internet was getting better the more people that joined, right? That was a network effect. But you couldn't invest in the internet; you couldn't just invest generically in the internet. So, you had to pick certain platforms. And even then, how do you become an investor? Let's say you believed in Amazon or eBay or whatever. You're only getting a slice of the total internet, and even then, the average person could not invest.

Raoul Pal

And that, to me, feels like NFTs right now. We all want to get involved in NFTs, but we have no idea what's going to win. I mean, you don't have the ability to go on every Discord, so it's bandwidth constrained. We all are in this space; we know it's huge. We also know it's a bubble, and tons of this is going to zero. That's what's interesting about it.

Shaan Puri

owning eth gives you the gives you the action of of nfts

Raoul Pal

That's the kind of... you know, that kind of makes sense. Like, owning Oracle did a pretty good job of capturing the internet.

Shaan Puri

Right, and so you've been kind of following this. What is a viewpoint you had about crypto that you have changed your mind on? What you believed before, now you realize is sort of wrong, and you think about it in a different way. Has there been anything, as this kind of rapidly evolving thing, you're sort of defogging this brand new world? Maybe some mental picture or framework you had before hasn't really held up, and maybe something different has happened. Can you think of an example of that?

Raoul Pal

Well, my views on Bitcoin changed significantly. I don't think any less of it as an asset, but I thought about it in network terms and the community. I thought the community is not attracting new people, and the job of a network is to attract new participants. If the network was actively rejecting people, I thought it was going to underperform. This was surprising to me because I was very bullish on Bitcoin at first. I thought, "Look, it's going to have a larger place." What happened almost immediately, and it made me change my mind, is that the institutions started going, "Well, I actually don't like this space," and they started buying Ethereum (ETH).

Shaan Puri

And that was... so that's new. I haven't really heard that. So tell me about it, because you're connected to all these folks, right? Like, you know hedge fund guys, CIOs, whatever. You know a bunch of different people in that world.

Raoul Pal

They don't want to own an asset where everyone's shouting, "Have fun, stay poor!" at each other and putting laser eyes. It makes them look stupid and irresponsible with their money. Well, Ethereum feels like it's a technology play. Yes, it's amusing because everyone's saying "GM" to each other and all of this stuff, but it's not at war. Meanwhile, Bitcoin was at war with every other network because, you know, that's what networks do. Religions go to war with each other for the same reason, right? They're exactly the same principles. So, you know, it's the same reason Russia and NATO are in conflict. They're all networks fighting each other for the robustness of their own network. I get it. That whole process of seeing institutions getting turned off by it was a big deal to me. I just thought, "Yeah, I don't like this either." So that was one thing. I'm trying to think... well, one.

Shaan Puri

You've seen a lot of news about institutions buying Bitcoin, whether it's Tesla, MicroStrategy, Square, or some random insurance company that buys $100,000,000 worth of Bitcoin. So we've kind of heard those stories. We hear less about that with Ethereum. Is it just going on under the radar? Is it coming? What's your sense of that? Because I haven't, I'm in this space, and I haven't heard a ton.

Raoul Pal

It's happening below the radar because people keep coming to me saying, "When's this wall of money?" I'm like, it doesn't come as a tidal wave; it comes as a flow. You don't see it until you look back and go, "Wow." I mean, I literally speak to the world's largest financial institutions every other day. They put me in front of their investment committees and I talk them through crypto and how to invest. The narrative change really surprised me. It was always about Bitcoin: "Can we put Bitcoin on our balance sheet? How should we invest in Bitcoin?" The diversification moved very quickly to, "Look, Ethereum feels like it's a technology play that makes sense with the applications. We're interested in DeFi, etc." Then it very quickly became, "Oh shit, how do we get involved in Web 3?" So it moved very fast, which is why in the venture capital space, they got most of the money. They saw the broader opportunity. They all came through the 2020 lens of Bitcoin as the asset, and you know, the Michael Saylor route. Even I, in the earlier part of 2020, saw a lot of people coming in that way. Then, like all of us, they kind of go, "Oh wow, okay, this is much bigger." So, I've started a fund of hedge funds which is investing in crypto hedge funds to allow institutions another way into the market. They don't really want to buy just ETH or Bitcoin; they want exposure to this $2 trillion asset class that's going to go to $200 trillion over the next 10, 12, 15 years, whatever the number is. Hedge funds are pretty good for that because their job is to manage the exposure and capture this big move. So, you know, that's another way that it's coming in that people don't see. It's not all about the Bitcoin ETF. I don't think that's going to move the needle as much. It'll be positive, only in a positive market.

Shaan Puri

Yeah, the way you described it, it's like it's not one giant wall of money like most things. It's not, you know, a single moment in time where it just goes from not here to here. It's more like a cascade of dominoes. Every day you hear something, and that's another domino that's tipping the next domino. Each one influences the next one. Then, once you tip it off—which has already happened—it just takes a matter of time until the whole domino set runs through, and then it's all gone.

Raoul Pal

Yeah, and I'm seeing institutions using this weakness and not being frightened by it. So, look, this is a fantastic opportunity. I need to use this. I get it; it's a volatile space. They understand that the people who are trying to put capital to work understand this as well. But once the price starts going up again, then you'll see the stampede, right? You know, if Bitcoin's at $65,000 or $70,000, then people will say, "Okay, we've had a year-long correction. It's now going up. The next phase is going to go to $100,000."

Shaan Puri

and 60

Raoul Pal

Right, and they'll be in... and there'll be a mad panic because they've all been doing the work over the last year and a half. So they'll be like, "We've gotta get in now! Gotta get in now!" Because if they don't, they miss the outperformance of their peers who've got it.

Shaan Puri

And what do you do with your [money]? Do you like put it into DeFi, or are you earning interest? Or do you yield for it? Do you put it in a [platform] and lock it away so you don't touch it?

Raoul Pal

Do you remember that story of the house in Spain? Once you win something, you don't let somebody else take it away from you. It's as simple as that. Because if I was staking, I get what, a 5% yield? Or if I'm really clever and I mess around in deep DeFi, I'm getting like a 15% yield. Then I get rugged or something goes wrong, or it's on an exchange that gets hacked. I just... that's not the risk I want to take. It's not worth it. If my expected future return is, you know, 10x, why take a 5% yield? It's nonsensical, so I just don't.

Shaan Puri

Do it. Why take... yeah, exactly. Basically, why take even a small chance of multiplying the whole thing by 0? You know, that's not really the bet to make. What I do is I take a very small percentage and I say, "This is my learning budget." Because, you know, if I had done that with Bitcoin, I would have just sort of sat on my Bitcoin and never touched anything else. I said, "Well, no, actually it was quite useful to start playing in Ethereum fairly early on." Similarly, now playing in DeFi or NFTs, you take a learning budget and you say, "Look, this isn't the principal. This isn't the one that's going to make all the money, but this is also where I get to continue to play the game and understand how this whole thing unfolds."

Raoul Pal

Yeah, and I've never been interested in yield. Even in financial markets, all the yield stuff is boring to me. I'm a guy who likes the capital gain route. Different people have different preferences. There's a whole bunch of people who love yield; it's called carry in financial markets. They want to get carry, while others want to go for performance. Those are two different equations. The carry guys do really, really well until they blow up, and the guys like me tend to do mediocre, mediocre, and then make huge gains. They're just different ways of skinning the cat. I spent my time focusing on this because we don't have enough mental ability to focus on all the things in the space. So, I started going down a different rabbit hole. I saw NFTs and understood them—mainly not all of it, but I understood the macro view of what these things are and how big this is. I wasn't really that interested in these communities.

Shaan Puri

And, and give the... here's my understanding of NFTs. I think, like, you know, the third most Googled question is, "What is an NFT?" So, you know, even people who hear about it, maybe even own a couple, but they don't have a great frame. I think you're very good at framing things. So, give us your current frame of NFTs.

Raoul Pal

so ethereum introduced a piece of magic in a smart contract a smart contract attached to a blockchain means that any contract in existence can now be attached to a blockchain and smart contracts allowed an algorithm or a calculation to be made automatically and verified on the chain so that could be your insurance contract for your house it could be any of the contracts I mean if you look around you almost everything that we have in life is a contract mhmm whether it's a spoken contract written me appearing on this together with you is a form of contract right so all of these things are contractual relationships that are everywhere what this was saying is we can record all of them and verify all of them okay so that's a really big concept beyond which most people understand and you can understand that okay if that's the case then a house can go on a blockchain yes because the deeds and then you don't need a notary and then you don't need lawyers there's all of this stuff most legal stuff can actually go on this and then the breakthrough is that okay we've got another thing that's going on in digital world which needs solving so this contract thing is a big deal we don't even know what this means yet right when we talk in 10 years' time we'll go oh my god we didn't see that coming right so that's all happening and defi is that there's contractual obligations between borrowers and lenders it's all happening on chain but what the what the the the average person is seeing is a different breakthrough that came out of this whole concept is in digital world everything that gets digitized goes to 0 in value or cost everything right the price of data the price of everything is 0 over time so that's a big problem if you're living in an increasingly digital world so how do you cement digital value is you have to introduce a system of scarcity and an nft allows a digital asset to have scarcity okay breakthrough now it could have come from the music industry it could have come from a number of different places it ended up being the art market okay and where you can say this stuff that was now was basically worthless online and getty had bought a bunch of image rights but to police it is really bloody hard as well so okay now we can create a one of 1 of value or a number and do that so that becomes the value of an nft the next part of an nft that you say okay well if we give a bunch of people these we can now identify a community and then these people can be like minded communities because they coalesce around an idea which is this piece of art and this community which is bored ape yacht club or cryptopunks so that becomes incredibly valuable it's a membership to a club and it's your identification it's showing your rolex and you know it's all of that stupid identifying tribal stuff that humans do endlessly and always have and always will so that's going on and it allows us don't forget the internet had taken us from our towns villages families which is our social structure and thrown us into a big shouting room from people all around the world with different views right it's quite exhausting and we all wanted a place and what this is giving us is these little digital communities sovereign states villages towns cities where we can now operate with civically minded people within that and these tokens are the identifiers social tokens are the big thing they're they're not come they've only just started that's much bigger I think than even nfts are but let's start with this because this is a way of coalescing humans because humans like these kind of identification system of shared values that kind of stuff so nfts are a lot of things that's why they're so big and again that's just scratching the surface of what this is it's your it can also and will also be your digital identity online

Shaan Puri

Right, and you said something about music. I saw you tweeting about music and kind of the future of music royalties, or like how anybody can become an A&R person now. Describe what you're thinking there because I think that'll be fascinating to a lot of people. Music, like art, is a great entry point for a lot of people, whereas, you know, macro investing is deeper in.

Raoul Pal

correct so what is the world's most vibrant communities it's sports and it's culture that's fashion brands fashion brands more than any others it's music it's art it's these things right culture the big unlock here is if you can tokenize communities which is now the network owner is the same as the network user remember that facebook example right so now we've got pop star and token holder they're all now joined in the same network so now averig is incentivized to grow the value of that network you've now made culture and investment this was not possible you could take a cultural marker like an adidas sneaker but you weren't making money from adidas you had to buy the shares and there was no connection between the consumers there was no network of adidas users now you're about to create networks amongst these people so what is the value of lvmh the fashion company right with all of its kinda mega brands that people are passionate about that are status symbols that humans like we've just talked about love these things so the same with music right we're all tribal in music we love different music we like different bands so to be part of that network I could now be a 16 year old kid and never have to have a job because I happen to get involved in the right I'm good at finding the next pop star if I buy their social tokens mhmm or I invest in their song ip on nfts right I'm in business so what this is creating is a system I think is universal basic equity where culture is the investment they're not living in your and I world where they're building businesses and having to sell them and go through the entrepreneur's miserable journey they don't have to do that they do a different way which is by using their human instincts about the communities they wanna be part of and which networks are gonna thrive and music is so powerful because it's human emotion and people and it's it's a place in time and I remember I'm a huge music fan and you know I identify music by its year what I was doing what it smelled like what I heard who I was hanging out with I mean everything right music is is one of those anchoring things so just the ability for musicians to now sell directly and have a direct relationship with their fans via social tokens and nfts is literally a game changer I mean there is no way on earth snoop dogg would have been able to sell something in small numbers and make $50,000,000 it's just not that big a star because record labels because 80% of all the economics of selling music gets taken by middlemen so he'd he'd have to sell a huge sum to do that or he'd have to go on tour and to make $50,000,000 that's a big exhausting tour you know he's no spring chicken anymore these things are you know it it the music industry economics got destroyed by middlemen and it made the artist have to work harder take more risk with capital which is like I have to go on a massive tour I have to rent arenas and take these trucks this changes all of that dynamic and the metaverse changed it one stage further

Shaan Puri

Yeah, like the artist had to create scarcity, which was basically, "Come to my concert, there's only X tickets, and that's how you can see me." They also created status by encouraging fans to take photos of themselves at the concert and post that online. That's a big part of the value that you're going to get out of coming to this event. And then now we have a digital version of that, which is...

Raoul Pal

And so, when all these people spoke to each other, the fans would have to go on a Facebook group, and Facebook monetizes them, right? If they want to go on tour, they need to go on Facebook and Google and pay everybody. But when you've got millions of token holders and you've sold out 50% of your tour, you've derisked everything in minutes. It just stops you from having to use middlemen all the time.

Shaan Puri

And you talked about two different things. There's the sort of like almost the "1,000 true fans" concept, where basically an artist can drop something that's rare and exclusive, or access to them or their fan club. It gives the whales something to buy that they would actually be willing to pay for, more than just a T-shirt. Now, you give them something worth buying. So that's one thing that you could do with it. But the other one is we're talking about buying a stream, a part of the royalty, right? A part of the royalty stream. I remember finding Macklemore, the artist, when he had like, you know, whatever, 2,000 fans. I was like, "This guy's great!" If I had actually been able to bet that this guy's great and therefore be a part of his community, he would view me as a backer and true believer. I did, I remember I kind of did a Kickstarter with him or whatever. He presold his album, and I just gave him, you know, $30 because I thought, "Yeah, go use this to help make your album, pay for some studio time." But he didn't know me, I didn't have a relationship, and I had nothing to show for being right. And so now, in a world like this, where a 16-year-old kid can say, "I think these guys are gonna be great. Their price is cheap right now," I could buy, you know, some of their future. But there's even more...

Raoul Pal

With even more magic, because that 16-year-old kid is now financially incentivized to grow the network and make that song a success.

Shaan Puri

is gonna make friends

Raoul Pal

like 100 tiktok videos

Shaan Puri

yeah exactly

Raoul Pal

Right, and if you multiply that by all of the token holders of those IP rights, they're all marketing for you because they get paid in the upside. It's genius.

Shaan Puri

I mean, think about it. If you doubt what you just said, just consider: who is Bitcoin's CMO? Who's the Chief Marketing Officer there? What's their ad budget? Then, how much publicity do they get? Who's their PR person? How much publicity do they get? How much chatter? You know, the ticker that's sitting on CNBC all day showing the Bitcoin price. All of this happened because you had a network of people incentivized to go shout to the world how great this thing is. And people hate that about crypto. "Oh, there's just people shilling their thing." Yes, and that does get annoying. You know, you have to filter signal from noise, but at the same time, you have to appreciate what that does. It turns every believer into a...

Raoul Pal

A monitor... every society is the same. So, if we think of everything as the same, let's assume Bitcoin is a social token, Ethereum's a social token, let's assume the U.S. dollar's a social token, and let's assume that religion is a social status token, essentially. So, everybody goes the same way to increase the value of that thing. The U.S. is like, "We've got military might, and we're the greatest nation. This is the free place, and everybody can become a president," right? That's their narrative. Every country has a different narrative to drive its value system for its network because they all require incoming capital to support the network, including the church, which couldn't have survived without incoming capital. So, they get all these people out to go and tell the word of God. They then spread the dish around, take money in, and it builds the church. It grows the network. They're all the same; that's humans. The book *Sapiens* kind of goes through this a lot about how humans need to self-organize.

Shaan Puri

Yes, well said. I think that's a perfect zoom out. We can kind of even pause or stop there. So, Raul, where should people follow you? On Twitter, you're @RaulGM. You also have Real Vision, and people should go sign up for that.

Raoul Pal

I mean, look, if people are interested in crypto, it's really easy. I've set up an entire free crypto channel, which is **realvisioncrypto.com**. It's all the great and the good of the entire industry. Every week, I interview the people I really want to pick the brains of. I go down all these journeys of social tokens, music, macro, and all of this stuff. So, there's so much there, and it's free: **realvisioncrypto.com**.

Shaan Puri

awesome alright thank you for coming on appreciate it

Raoul Pal

I really enjoyed it thank you