(bright upbeat music) – We're about to go
through the fastest period of technological growth and adoption in all recorded human history
in the next five to 10 years, and nobody is prepared for it. Humans are simple creatures. We think in linear terms, we can't understand exponentiality, it's just not something
that suits our brain. Bitcoin stops the whole process. And then everybody realises
this business model of tokens network effects and all of the technological benefits work for almost everything. And that's the rise of NFTs,
that's the rise of DeFi, that's the rise of social tokens.
That's the rise of so much,
that's all going on so fast. It's hard to keep up with. – I would guess if you speak
to most people in the public and say, "Is crypto
bigger than the internet?" Even investors they'd probably say, "Bigger than the internet." I mean, that's the biggest thing ever, the adoption of the internet,
but it's not, right? – This is like hyper-charged
new version of the internet. I don't know how big this is gonna be, but it's a lot bigger
than anybody thinks of it. When I was in the city, back in the '80s, we had something called the Big Bang. When investment banks and commercial banks were allowed to be the same thing again, this is that moment,
there's another Big Bang, but it's the entire architecture
of the financial system, that's about to happen.
They all know it's coming and
they're all working on it. – This is a whole different
way of looking at things. – The computers are coming
after your job, understand that, understand multiple streams of income, embrace this new future
crypto stuff like this, there is an opportunities here. (bright upbeat music) – [Announcer] The world is changing. Inspiration is everywhere. It has never been so
easy to connect, share, and bring people together. We're learning from others and finding the best in ourselves. Challenging our beliefs,
sharing our vulnerability, overcoming our fears, transforming ourselves so
we can transform the world. How far can we go. – This London Real, I am Brian Rose. My guest today is. (bright techno music) This is London real, I am Brian Rose. My guest today is Raoul
Pal, the British educator, investment strategist,
broadcaster and entrepreneur. In 1997, you became the head
of European hedge fund sales at Goldman Sachs before
becoming a portfolio manager at GLG Partners, one of
the largest hedge funds in the world. Then in 2005, at the age of 36, you left the world of mainstream finance to start Global Macro Investor, your own advisory publication.
You first got involved in cryptocurrency by investing in Bitcoin
in 2012, calling it quote, "The best trade you've ever found." And doubling your money in a month. In 2014, you co-founded the financial analysis
streaming network, Real Vision with the aim to quote,
"Disrupt the whole damn system and change the face of financial media." Raoul, welcome to London Real. – Great to be here. – Hey, it's great to have you here. It's gonna be a fantastic conversation. I can't wait to jump into
a bunch of your ideas. We both have a background in centralised finance and in banking. So I think it's gonna
be really interesting. I started banking in New
York City back in the 90s in fixed income derivatives. I went to Chicago, I went to London. It was in the credit
default market for awhile, but 10 years ago, I got jaded.
I started broadcasting London Real, but we weren't just doing finance. We were doing all sorts
of different things, but funny enough Raoul, we
dipped our toes into crypto over the years because it was current. So I had Max Keiser
here, here back in 2013, screaming at the top of his lungs. I had a Andreas Antonopoulos here in 2015. Then he came back in '17, then
he came back in '19, Raoul and he was talking about the
internet of money, the future, but we couldn't see it happening yet.
So it was kind of weird,
he was talking about it, but it wasn't there yet. Then last year we got really busy fighting for freedom of speech, went head to head with YouTube. This year, we ran to be mayor of London. And then after all that was over, I looked at the DeFi space and I was like, "What is going on here? I've never seen this rate of innovation, this rate of adoption." And again, I was in the dot com startup in New York city as a CFO. And I was like, I gotta
be involved in this. There's something special happening here. And so we just decided to go all in. I started the DeFi Academy. We got hundreds of students going through and just trying to get
involved in this market. I find it super exciting. And I wanna get your thoughts on it. Your video from back in
April 30th of this year, called, "Raoul Pal's Introduction
to the Exponential Age." It's got over a million views.
And I encourage everybody
to watch it because Raoul, I think you were channelling
some kind of higher energy on that day. I mean, like, I don't no but
for 90 minutes you were flowing and you were dropping some
terms I'd never heard before. Things like pristine collateral,
being irresponsibly long, crypto being call options on the future. And maybe we start with you talking about this exponential age, because Raoul, you felt almost like you
had surprised yourself. Like you already knew this market was big, but it felt to me like you were saying, "Wow, this is maybe even
bigger than I thought it was." So tell me, first of all, am I wrong on some of
those observations of you? And maybe you can walk
us through this concept of the exponential age.
– Yeah, this whole thing. The more time I spend on
it, the whole crypto space, and there's the same is
happening with technology at the same time, which is what the exponential
age thesis is built on. It's like, we're about to go
through the fastest period of technological growth and adoption in all recorded human history
in the next five to 10 years. And nobody is prepared for it. Humans are simple creatures. We think in linear terms, we can't understand exponentiality, it's just not something
that suits our brains, but let me explain
what's going on in crypto 'cause that's our focus for today a lot, is the internet between
1990 and 2000 grew at it. That's the fastest period
of growth for the internet 'cause it went from zero or
low numbers to large numbers. That period, the internet
grew at 63% a year. It was the fastest
adoption of any technology in all recorded human history, much faster than the mobile
phone that came before it. And the telephone became forward. These are network businesses and I'll come onto that in a bit.
'Cause its really important concept. So, okay, how's crypto doing? Crypto is growing at 113% a year. It's the same number of users
as the internet had in '97, just before you've decided
to leave the world of finance and jump head first into it. People told you on my
God the dot-com crash. It was disaster. Well, it wasn't, 'cause out of that came
Facebook, Amazon, Google. I mean, you name it. It was the start, it wasn't the end. So we're growing at 113% a year. So this is double the faster
adoption of any technology in all recorded history. Okay, that is exponential growth.
So we're at about 140
million users as of today of crypto worldwide. If you lower the rates of growth to 83% to be slightly conservative, you're a billion people by 2024. That's three years. It's like, "Okay, I can't
get my head around this." But that's how fast it's growing. And it gets you to about
three and a half billion by about 2027.
So basically you're gonna
get to half of the world by the end of this decade. So that is truly extraordinary. What is that? What is this adoption? The adoption is a network
of money and all of finance. In fact, it's a network of value that sits above the internet that connects all of this digital world into a way that the value
is transferable, storable, ownable, recordable. And we'll get onto a
lot of this stuff later, but this is the world of
everything from Bitcoin, which was really clever. Why Bitcoin is a big
breakthrough was because, we've developed a new business model that mobile phones have brought and stuff like that
these are network models.
It's in fact, a guy called
Metcalfe, wrote Metcalfe's law, which is you value a network according to the number of users and the kind of interconnectedness they have with each other. And that was mobile phone companies. You'd be able to all of
the mobile phone networks in the world added together. You've got a multiple
trillion dollar business. Which don't think of it that
way, 'cause it's fragmented. Then you had the network
business models of Facebook, where they started and
Google and Twitter and Reddit and you name it. They started using behavioural economics combined with this data and
creating a network of people that were incentivized to post
more, share more like more, do things more. Now for us as users of those networks, we got the benefit of finding
our old school friends and keeping contact with your cousin and all this stuff that we
use social networks for.
The shareholders got
rich, we didn't, in fact, they took the economics from us. They monetize our eyeballs
and our attention. Then comes Bitcoin in 2008. And you've got something super powerful because what you've got is a network where the users of the
network have Bitcoin. The value of the network is Bitcoin. So it becomes a network like no other with all behavioural incentives
aligned where everybody is incentivized to grow the network.
This is why it grows so fast. So Bitcoin starts the whole process. And then everybody realises
this business model of tokens, network effects and all of the technological benefits work for almost everything. And that's the rise of NFTs, that's the rise of DeFi, that's
the rise of social tokens. That's the rise of so much
that it's all going on so fast, it's hard to keep up with. So that was a long answer
to your short question. – Yeah and it's funny 'cause
right before I sat down here, I wrote myself a question to ask you, "Is this bigger than the internet?" And funny enough, you answered it without
me even asking you, but I would guess if you speak
to most people in the public and say, "Is crypto
bigger than the internet?" Even investors, they probably say, "Bigger than the internet.
I mean, that's the biggest thing ever, the adoption of the internet." But it's not, right? – Is it bigger than the internet? No, not in term. I don't know that part,
they're really the same thing. This is like hyper-charged
new version of the internet. But if you think about
as investors, you can't, the internet was something that you had to make the right bet. Was it gonna be Oracle? Was it gonna be Juniper? Who was the right player? How did you make the money? It wasn't as easy. This is actually pretty easy
in many respects because a, you've got Bitcoin, which
is a monitoring network. You've got Ethereum, which
is basically a platform for all of this. And then you've got a
bunch of other things that you can invest in, but the whole space is moving in size. And it's much easier investible than let's say the NASDAQ was in the past.
You didn't quite capture
the value of internet because this is global. When you bought Juniper
Networks back in 2000, that was a US firm. Yes, it was global, but you weren't capturing
the global value of internet. You have to go and buy
a share at all of the internet firms, here one thing fits all. I mean, it is amazing. And yeah, I don't know
how big this is gonna be, but it's a lot bigger
than anybody thinks it is. I would literally admit that. – It'll be the biggest
thing in the past 100 years. And maybe the next 100 years, this point in time for the next 10 years, like you're saying, as we go up to maybe
three and a half billion, probably you can conservatively say that it'll be the biggest, most exponentially growing
thing will ever see.
– And that is happening at the same time. As AI goes mainstream exponentially, robotics goes mainstream
exponentially, autonomous vehicles, EVI technology, genetic sciences, distributed computing
power, all of these things, 5G technology, well space
Wi-Fi are all happening at the same time. And they all are connected and
then all driven by networks. So it's kind of hold onto your hats. Humanity is not dealt with
anything like this before, and it's not gonna be easy. You see it all over social media. There's a fear of the future from some, because that is systems changing.
It was gold and value investing. It was bonds and it
was, that's what I know. And that's what I'm comfortable with. Somebody telling me this internet money is the future of everything
I don't wanna know. And then it becomes anger and resentment. And it's, I don't think that's
gonna go away for a while. I think people are gonna be a little bit, it's just gonna be very
unsettling, it's whole period, but incredibly rewarding. – Yeah, I mean, you have a background in centralised finance,
you worked in a bank. I worked in a bank and
maybe we just talk about this right now, I mean,
I got a text message from NatWest last week that said, "To protect you and your money, we're gonna restrict you
from being allowed credit and debit payments to Binance." And I thought, well,
that's very nice of you.
You've never sent me a
text like that in the past. And that was an interesting reaction to a centralised financial institution to this world of DeFi. What do you see the banks doing? I'm sure you still know lots of people inside the banking world. Do you see them as just part
of the innovator's dilemma? This is something that
always happens in disruption. Do you think they're gonna
hold on much more, much longer, because they're kind of ingrained in the whole government
and financial system? Do you look at them as
the bad guy, the good guy, or is this just a process? – There's a lot at stake.
– A lot.
– A lot at stake. I don't think NatWest having
worked there in the past, they're not brave enough
to make this decision. What they're terrified of, is the regulators coming after them. They have no, they're not thinking yet of Binance as a competitor
we need to stop them. So I don't think that's happening. I think what is happening is
the regulators are far behind. We know they want to regulate,
but we don't know how, and nobody wants retroactive fines. All the banks are fed up with that 'cause they've been
paying fines since 2008, and that hasn't stopped. So they're terrified. The regulators are terrified
because there is a lot at stake because suddenly there was a
decentralised financial system that is probably broader
than finance alone. It's the value of money,
it's the internet of value. And they don't know what to do.
How on earth do you regulate it? When you have things like DAOs
and decentralised exchanges that don't exist, what do you do? All you can regulate
on-ramps and off-ramps. So they need to figure that out fast. And the central bank digital currencies is their answer to this. 'Cause then, you know
what connects with what, right now, if not, it's
too difficult for them. So everybody's scared, the regulators know where the
world is going, I believe, I don't think they're stupid. And I don't think they're gonna stop it. I think they just wanna slow
it down, so they get a chance. Because what a government
is actually interested in, they're interested in taxes.
And that's what, even
what KYC AML is about too. It's really tax collection. You have a smaller black market economy, bigger tax collection. And having just gone through this period of excessive government
spending over the pandemic and beforehand for the
last decade and a bit, they need to raise taxes. So they just want it within their web. They don't wanna lose the
power of currency themselves, which is what the central
bank digital currency is doing is trying to stop them losing currency. But they're probably
gonna have to share it and they're gonna have to share power. And this world is gonna evolve outside of their sphere of influence. And there's not a lot
they can do about it. So I think there is, the
dilemma is everybody knows they're being disrupted, including the BIS, the IMF, the ECB, all of the central banks,
all of the main governments, they're not stupid.
And they don't really know what to do. There is a sense of arrogance, which all of us in the crypto markets, sees as their sign of
weakness is the arrogance, is the nonacceptance of
what is really going on. And that usually means they'll
probably move too late, because they're still trying to regulate, the simple things like exchanges, meanwhile, DeFi is exploded. And then they get onto DeFi in
four years time and at NFTs, are now the biggest thing in the world. There's no way they can deal
with this piece of innovation. The sheer number of people
at a entrepreneurial level that are involved in this is like nothing I've ever seen before. It's more than I saw with internet. So it's huge now to go
back to the question about, "Okay, what am I colleagues in the investment banking world?" Well, that's entirely different, investment banks smell money, and they wanna control the flow of it. Not in terms of centralising money, but there's money to be
made from their customers, who want access to it.
So they too are scared of the regulators, but they're pushing forward faster. So Goldman has trading and
derivatives, in this stuff, JP Morgan, everything else. And they're all moving this way, 'cause they know it's coming. They also know in the end
and the regulators know that everything is about to be tokenized, the entire industry. Because you get tZERO settlements,
instantaneous settlements of any transaction for any financial instrument in the world, if you tokenize it. Question is, is what
blockchain does it go on? And the answer is it's not gonna
be a centralised blockchain because they can't innovate fast enough cause nobody can hire enough developers. So it's going to go to the private sector.
Like we saw the European
Investment Bank launched a bond on an Ethereum to test. So there is this, well, we don't know what it's gonna look like, but it's like when I was in the city, back in the late 80s,
we had something called the Big Bang when investment
banks and commercial banks were allowed to be the same thing again. And this is that moment. There's another Big Bang, but it's the entire architecture
of the financial system, that's about to happen. They all know it's coming and
they're all working on it.
– Yeah and like you said, if
the customers keep calling and if they want the exposure, your best banker at Goldman and JP Morgan. I mean, they're gonna find
a way to get them access. They're gonna find a way to do it. They're gonna find a way to make money, but then there's this
whole issue of regulation. Do you think that there will
be a point where a government, whether the US government
or Bank of England or someone else is able to
slow down the pace of growth, to just pull a massive restriction, or do you think that this
really is unstoppable, that it won't be able to pull it back 30%? – Well, China is kind of doing it now, until they get their stuff sorted out with their central bank digital currency. Again, I don't think their
intent is to get rid of Bitcoin it's to clean it up.
They've got wild speculation going on. They've already, they've got a problem with their private sector,
shadow lending markets anyway, and crypto is being used for it. Also, they've got a problem
with money going offshore. So they're just trying to just
say, "Right, stop everybody. We want to get this organised
so we can deal with it." I think we will see that periodically. We haven't seen in DeFi,
but that that's coming because there's no disclosure
of risks and stuff like that.
Now, the question is I saw
Gary Gensler yesterday, the new head of the
SEC, talking about risk. And I'm struggling to see why, we understand there's a
lot of scams in the space and things need to be,
there needs to be a hurdle, but why should somebody restrict somebody from the opportunity to make money? In the US you have this
term accredited investor. So I'm an accredited investor. So I get to do anything I
want to make as much money as I want and lose as
much money as I want, but somebody else is not allowed to. So you're perpetuating
the 99% versus the 1%, even though you're trying
to do the right thing, we need to change this. Now we've seen some of the
rules on crowdfunding change. We've seen some of the rules
on who can invest in startups. Most cryptocurrencies are basically real-time market to market, venture capital bets.
We just need to teach
people how to take risks, not stop them taking risks. And humans are gamblers. If they wanna gamble, they will gamble. They'll gamble on the horses, they'll gamble on the football,
they'll gamble on anything. So if you think that by regulating who can invest in cryptocurrencies, you're not gonna stop gambling. You're gonna stop gambling
crypto, just go somewhere else. It's ludicrous. So they need a better understanding really of what is going on. And it's hard because it's
engaging young people at scale.
– Yeah, it's a fascinating observation. And you can see it in the volatility. You can see it in the people
involved in this market. Like you said, they're
getting access to risk that used to be held for
accredited investors, but why was it held for
accredited investors? And that's one thing I see
that you're doing Raoul, you're so passionate about
the financial education.
And I think you once said,
"Bitcoin is the best chance for the median person to radically expand their economic horizons." And it's an interesting
concept just by trading crypto, you learn more about money, or you get more comfortable about money than probably you ever have in your life. And we're taught from kids
that you're not smart enough to manage your money. That's what the fund managers do. That's what these people do. And this is a way to
have a real relationship with your money in a way
where a conspiracy theorist would say, "Okay, the
governments and the banks don't want you to." But regardless of the motivations, it's been something that's
been missing in the past, but crypto changes all that, right? – It really does.
And also think about it. I try and think of the world
in different people's eyes. And let's say, you're the
typical millennial kid. Who's now 32 years old,
I think the average age. So you're just starting to
come into peak earnings. You've got no savings. You've still got your student debt, you're trying to get rid of. And then you look at real estate. So look at traditional investments.
So what are investments? Investments are basically
future consumption. You buy something now, you hope
to sell it at a higher price to give you consumption in the future. When you retire or whenever it is. That's what an asset is to
us in the investment world. So what assets do they have, they have the equity market all
time record high valuations.
They have the bond market all
time record high valuations. They have the real estate market all-time record high valuations. So traditional assets to them. They're buying very expensively. Now, if you look at the
size of those markets, equities bonds and real
estate on a global basis, like global real estates
of about $100 trillion, global equities, global bonds, they're all like the $200 trillion market. And then you got crypto the
fastest adoption technology in all recorded history,
which is the internet of money where all of these things
are gonna be tokenized and will be part of this,
but won't be Bitcoin. Bitcoin is one of the expressions of this. So that space is currently about one and a half
trillion dollars today. So, but it's to meet somewhere around the
equity bond market size. That's 100 X from here. If it actually absorbs
all of those markets, well, it's a 500 X.
So 100 X, you, me, nobody in history. Anybody has ever been
given a whole asset class, entire asset class that can
go up 100 X to $200 trillion. So, and it's fractionalized. So it doesn't matter whether
you earn £20,000 a year, or you went £200,000 a year, you can both put 10% of your income in it, 'cause it's fractional. So now you're on the same playing field. Okay, that gets interesting. So we can all have the
same percentage of Bitcoin, but then it's gonna get more
interesting because like, if you've got an apartment
in Number One Hyde Park, that thing cost £200 million
and of all of our reach, but the guy who owns it probably
bought it for 100 millions, he's made 100%, he's
made a hundred million. But we can't. And the average apartment, in the outskirts of London,
doesn't go up as much. So how do we make the money? Well, we're gonna
tokenize real estate too, because then maybe out of
one of those fancy buildings, one of those apartments gets tokenized.
So you can put in 10% of
your net worth into it. And I can put in 5% of my net worth and somebody else can put
in 50% of their net worth. 'Cause it's fractional and it's tokenized. We all get to participate without it just being
the rich, get richer. Fascinating. So there's a lot coming. – And so those millennials are looking, even if they don't have
a financial background, they look at it, like you said,
these other asset classes, and they all seem at their peak. And then they see something
that potentially could grow 100 X to 500 X and they have access to it. – And is native on social media. There is crowdsourcing of information, the quality of information
that's out there. Yes, there's a lot of noise,
but the quality of information, the people who are trying to
help in this space on Twitter, on Reddit and all of these
forums is extraordinary. Even on TikTok. So people are trying to help
you because of network effects means if you bring more
people into network, it goes up in value.
And also people passionately believe in the point of this thing. So it is engaging young people because also all of those
millennials grew up in 9/11, 2008, and now the pandemic. They have no trust in institutions. They trust institutions
implicitly in some ways, but finance is the big one that they don't because their parents lost
their houses and jobs. And so when you're seeing an opportunity that is social media in nature, that's native to the internet that they understand and live in that offers them huge potential reward and they can stick it to the man.
Well kind of gets interesting. (Brian laughs) – Right, and then that's probably why you see this exponential
option on the back of it. And the way you would kind
of open this broadcast out with that incredible explanation where, yeah, you had Facebook and you had this whole
information people layer here, but you never had the value layer and you never had a value
layer that was peer-to-peer and controlled by that peer group, which then leads to the
adoption and the growth. And it's an incredible way of visualising what's happening here. And I worry, I'm in a bubble here, Raoul, that I keep talking to people
like you and Michael Saylor and you know, CEOs of Aave
and Charles Hoskinson. And everyone's telling me
this, but when you say it, it just seems so clear to me. – Well, I go and have
the head check myself. 'Cause we're all in this space. We can get each other fired up, but I just use that adoption curve.
If networks are valued in a certain way and let's just go back
to first principles, okay, how is this network growing? What is gonna derail that. Is bad news about tech,
going to derail that, highly unlikely is regulation
gonna slow it down? Well, I think regulation
speeds up adoption because then NatWest won't be saying, "Oh, don't use Binance." They're like, "Okay, fine,
you do what you want. Here's the rules." So it's very difficult to find a world where adoption goes down. And at this pace of adoption, it feels very difficult indeed. So I just try to first principles, keep out of all of this because
everything sounds amazing. And we don't know what's gonna go to zero and what's gonna go exponential.
But generally it's that
network adoption model. That's the truth. – Yeah, that's such a great point and a great way to ground yourself. Whenever you feel like
you're in the echo chamber, go back to the first principles
and just look at the order, look at that growth and say, "Okay, I can't argue against this at all." – And the one, the other
easy one for people who don't really know how to do that is, there's free charting
platforms like TradingView. You can just chart a log
chart, all exponential assets, basically look a beautiful
trend channel in a log chart. So Facebook looks like this. Google looks like this. Apple looks like this. Well actually, when it
creating the log chart, that is lovely linear trend log trend. Bitcoin is the same. And if that changes, that log trend from 2010 till current day, if that changes, then you can reassess, if not the ups and downs, the noise, all of the screaming and
shouting on social media, forget about it, just follow that chart.
– Right, okay. And that's that logarithmic
graph that you looking at with the log chart? I encourage everyone to look at that. One of the things you talked
about in this black hole video was Ethereum versus Bitcoin. And again, it was fascinating to watch you almost realising this
while you were saying it and showing it, and you
were looking at again, you talked about Metcalfe's law, you all talked about all these data points and what Ethereum brought to the table and how you were just
more and more convinced that this quote, unquote,
flipping what happened or Ethereum would
long-term surpass Bitcoin, or at least there was massive
value in this network.
And maybe you can talk
a little bit about that. I've been rewatching my interviews
with Andreas Antonopoulos from 2015, '17 and '19. He's basically describing
Ethereum before Ethereum really had the traction and he's describing this whole potential
future of smart contracts and this things, but it
hadn't really happened yet. And then we see it happen. Tell me what you were
describing in that video and what you see and your
thoughts on BTC versus Eth. – So it started, I've been involved in
Bitcoins first, 2012, '13, and I get the value proposition. I get what it is. It's perfection as an
asset and it store of value and yes, it's still too
volatile to best store of value, but it's compensated by the
fact that goes up a lot. So, we don't mind, we have
to accept the volatility, but then, I was starting to
become aware of smart contracts in about 2015, as some friends of mine started talking about it.
And I didn't really
understand what that was, but when they explained, I started realising the
future of everything from insurance contracts
to legal documents, to everything could
now go on a blockchain. And that meant for me also
with my finance background, okay, that means all derivative contracts, which are complicated and messy. And we knew it when Lehman blew up. Nobody knows who owns what? So I'm thinking, "Wow,
okay, that's all the finance and probably this
custody and this clearing and there's, okay, these
are a lot of things." And so I reinvested in the space.
I sold that in 2017 too early,
I then bought again in 2020. Because the macro and crypto
comes to this point where, but it was like marriage made in heaven. The chart pattern was perfect. The government's gonna print
massive amounts of money. The financial system has got
to be on the massive strain and Bitcoin is gonna
come the shining light. And that's exactly how it laid out. So I was heavily invested in that 100% of my liquid net worth in this, which is why irresponsibly
long was the terminology.
I didn't use leverage, it
wasn't that irresponsible and I've got income and other stuff. But anyway, so it was that. – It was quite a lot, you're all in. You really are all in.
– I'm all in. And then I started looking at the chart 'cause I love the chart of
Ethereum versus Bitcoin. And I'm thinking, this
looks like it's basing, this looks like it's gonna break out. And this I do a lot of my macro thinking. I start with a chart think, "Huh, why is it telling you that?" So then I start doing work about, okay, we kind of think we
know how to value Bitcoin 'cause we're using the
stock to flow model. That plan B has, and we're
doing all this stuff. Maybe it's something else too. Maybe it's network effects. So I start talking to
people, thinking it through and I start looking at Bitcoin
and network effect tips, and it works, Metcalfe's law.
So I thought, "Huh, I
wonder if Ethereum works." 'Cause everyone tells me, "You don't wanna touch
Ethereum, it's a scam, it's a, shitcoin it's
gonna under perform." I'm like, once you tell
me something like that, I'm gonna look at it if
it's something serious. So I did the work and
it's like, not only is it, are you getting foster
adoption of Bitcoin? It's working perfectly in terms of price with Metcalfe's law. And it is almost mirroring
Bitcoin back in 2017 with the kind of lag
or the number of years, except the networks going faster. Then I looked at the
quality of the network.
The amount of connections. And you see that people
on Ethereum have built all of these applications,
which is all of DeFi, all of NFTs, other uses
of smart contracts. We've got central banks using it for the European Investment
Bank, putting bonds on it. We've got people wrapping Bitcoin on it. People are wrapping securities on it. And you're like, "Okay, this
is the platform for now. Things can change." It's adoption is twice
the speed of Bitcoin just to get everybody's heads around it. I mean, so the probability of Ethereum going up dramatically in price because of that alone is very
high, then cuts it tomorrow. So after this interview, this interview, once everybody sees it, we'll
have implemented EIP-1559.
What that basically does is Ethereum got quite expensive
to use, 'cause gas fees, well, what they're gonna do with fees is they're gonna stop burning Ethereum, which is basically like a share buyback, which makes it rarer. So the issuance rate probably
goes from 4% a year to, we don't know, but let's say 2%. Okay, and then we've got another
thing coming in Ethereum, which is Eth 2.0, which is
moving to proof of stake. And what's very nice about
that is we all get rewarded by staking our Eth. So we get through this 1559, probably everybody ends up staking the Eth because the price is gonna start rising. And so everyone locks away. So there's a bunch of
Ethereum get locked away. There's a bunch of us
who are also hold us. Who've stuck it in our cold wallets. And then there's all DeFi, which is locking away
billions and billions, of tens of billions of
dollars of Ethereum.
So when you look at the
analysis, the on chain analysis, the free float of Ethereum
going into this is 13% and it's falling every day. And as the price starts rallying,
which is doing pretty well and starts approaching
the new highs again, a, everybody's gonna stake
their Eth, because why not, b, if not, you're not
going to keep on exchange because it's going up in value. So you tend to put it in a cold storage. And so there's no supply and
you're burning Eth every day. So the supply keeps going
down and the network effect that I've been talking about means that the demand is going up exponentially. So a limited supply assets
is becoming more limited with a backdrop of
exponential, increasing demand can only equal exponential price rises.
– And your view on this hasn't
wavered much in the past, say six months. – Not at all, not at all. – Right and yeah. And with this latest initiative as well, it just, like you said, it gives
even more and more reasons. And some of the complaints about Ethereum about it being inflationary,
it addresses all of those. And like you said, with the stake, we've never really seen that effect happen and it could be big.
– I think, I wrote this up
for Global Macro Investor, my kind of institutional research service. And I just titled it the
greatest trade in the world. And I think the opportunity
in Eth is better than the opportunity in
Bitcoin in March, 2020. – Wow, that being said,
you still own Bitcoin. – Yes.
– Okay. You still have it as
part of that portfolio? – Correct, but it's
just, it's a lesser part. – You're most heavily weighted Ethereum. – Yeah, I think 55% Eth, 25% Bitcoin. Then I've got baskets of
everything from DeFi protocols to other big protocols, like Polkadot, interoperability stuff, equally weighted. 'Cause I don't really know. And I'm just not smart
enough to figure it all out. And then I've got a bit of
a macro bet in a metaverse and community tokens, but again, small.
It's really, everything's
really in Ethereum, Bitcoin bet for me still. – Okay, while we're here
now, let's talk about a couple of those things you mentioned. And the only thing that
maybe we can see competing, if you will, with Ethereum, obviously Cardano is the big wild card, making some moves in the
next couple of months, we got Charles here. I think about four weeks from today, we've got, like you said, dot it's a lot of these
kind of inter chain pieces.
We've got these second layer
solutions like Polygon. But if you look at CoinMarketCap, there's not a lot of
other things happening except for DeFi protocols
up there that I can see, some great apps, Uniswap and
Aave and things like that. What do you see in those other
competitors, if you will. – I don't and I don't know is the answer, but I need to have an open mind because there's spaces too close minded.
The space is because you're
rewarded to be tribal and back the only one
true thing, true asset. As investors, we need to
be careful of that bias. So I don't know. So some very smart people that I know say, "Listen, Polkadot is a
really serious project and this could do this, Filecoin or." There's a bunch of things
that become, that people say, "Listen, you don't really
understand the use case yet." And probably in three years time, we'll be talking more about it.
So I kind of say, "Yeah,
okay, I'll keep an open mind." I have an open mind that
I've I even own Doge. And the reason being is simply put, if the world is network effects, you've got a lot of retail owners, but there's no network
because it's not being used. But then you've got Elon Musk telling you, "Hey, I wanna build on this." Why, "Well, because he's
got all these users." He can not raise infinite
capital so he becomes, the core side, the other
side of the network equation. Mark Cuban started accepting Doge. 'Cause he realised it's a social thing. People know it's kind of fun,
but that also has worked. So he started accepting at
Dallas Mavs for ticket sales and march and stuff like that. So now we might end up building a network. So again, I keep an open
mind to all of this. People are too quick to say, "This is never gonna make it." Like Cardano right, there's a
huge fight in the community, Cardano and it's smart
contracts and you know, is it gonna amount to anything? Is it gonna amount to nothing? I don't know and that's okay.
And we should all be a little
bit more comfortable saying, "I don't know, it's pretty interesting. Let's see how it goes. I can place a small bet and
I can't place, a big bet yet. Cause I don't know enough." Maybe you're really in the
space and you know it inside out and you think, "Yeah, you know what? I can see what's coming
down the pipe on the plan.
I think this is gonna work. I can take a bigger bet." That's okay too. But you know, I can't,
'cause I don't know. I just don't have the
bandwidth to take all this in. – Yeah, that is the thing is bandwidth. I mean, one of the things
I'm getting all my students to do is we have a thing
called a 10 coin rule. You're not allowed to
own more than 10 coins, at least for your first year of investing. That's probably too many
because there's so many of so many rabbit holes,
but that there's also, it seems like a finite
number of potential players.
And like you said, with
Cardano, it's interesting because it's been a
long time in the works. It's a long-term plan,
but it's a call option on something that could be big. And there's not many
places that are putting that much effort into that piece. So I guess it's a kind of
watch and to be continued– – Yeah, I mean, there's
the other one that came out that it's gonna take a
while to sort this one out and I don't know which way it's gonna go, but you shouldn't write it off is DFINITY or the Internet Computer.
So unfortunately it was backed
heavily by VCs early on. The people who were
allowed liquidity on launch have made tens of thousands of percent. And so retail got pretty
burned since that equation that was ugly and not
good and not honourable. I've got several friends
who invested in it and they're all locked up still, but there's a bunch of words. So that was not good. What those guys have built. I don't even understand. I can't, I've interviewed them. I don't really know, but
I kind of figure it's big, kind of like, when we first
spoke to Charles Hoskinson on Real Vision, 2016,
'15, it was the same. It's like, "Man, that sounds
pretty big, I don't know.
DFINITY, it fell 90 something percent, is that a small call option on something? Could it be worth zero possibly? I don't know, we just have
to keep our eye on 'cause, even though the adoption is exponential, each token has to go through
its adoption curve or failure. And we don't, that takes a
bit more time than we think while we see the whole space doing this is really driven by current
is really driven by Bitcoin and Ethereum and DeFi the other protocols. It's gonna take more time. – Yeah, and it's interesting
how I like how you are honest enough to say, "I don't know exactly what they're doing." But all great tech investors from the past never really knew what
the company was doing.
I mean, did anybody really
know what Facebook and Google were doing in the beginning? They knew they probably did
pass the first principles. "Oh, you're doing this, this." Listen to Peter Thiel,
"It's a social network, they're using their real names I'm in." There's little things, but
there's a lot you'll never know. And if you try to figure it all
out, it's too late, usually.
So I like how you're
thinking of these markets as it might have the potential,
let's keep a small bit, but keep the core positions. I wanna talk to you about the metaverse and your community IP, because this makes you very unique Raoul. You really have a passionate
way of understanding and looking at the communities, which I think you believe is
everything really going forward and how the future is these communities? You've touched on it while
we've been talking now, you mentioned Doge, you
mentioned kind of the Facebook, but then the value here, you mentioned since it's
peer-to-peer and people own it. You mentioned some of the passion behind some of these coins. Talk to me about community. It's such a general word. I don't know if anyone understands it. If you've had a community,
you kind of understand it, but it also slips
through your fingers too, doesn't it, 'cause it's? – It's it does.
What did the internet do for you and I? We would have grown up
in a town where we knew a lot of the people and then you go to. (bright upbeat music) – [Announcer] To continue watching the rest of the episode for free visit our website, londonreal.tv, or click the link in
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