Original title: Raoul Pal: How to Get Rich in Crypto (without getting lucky) | E120
Original source: When Shift Happens
Original translation: KarenZ, Foresight News
Raoul Pal, a former Goldman Sachs executive, author of 'Global Macro Investor,' and founder of Real Vision, is renowned for successfully predicting the 2008 financial crisis. Recently, in a dialogue with 'When Shift Happens' and a speech at the Dubai Sui Basecamp, Raoul Pal delved into how to accumulate wealth robustly in the cryptocurrency field, discussing topics such as Bitcoin, Ethereum, meme coins, AI, NFTs, the Sui ecosystem, Strategy's Bitcoin strategy, investment strategies, macro trends, and market directions.
Raoul Pal's dialogue highlights from When Shift Happens
1. How to get rich in Crypto without relying on luck?
How to get rich in Crypto without relying on luck? Just buy Bitcoin and adopt a DCA (Dollar-Cost Averaging) strategy. Beginners often fall into the trap of chasing quick riches, which is a crisis-ridden mindset. The moment you start envying others for achieving 100 times returns, you have entered a dangerous zone; if you lose your rationality due to greed, it is easy to ruin your entire investment. The Crypto field is filled with numerous risks, such as DeFi attacks, wallet hacks, etc., which require investors to remain vigilant and adhere to rationality.
2. About Meme
Regarding meme coins, Raoul Pal stated that he does not hold Fartcoin but holds SCF (Smoking Chicken Fish) and DODE. Although SCF has dropped 90%, it currently shows a good rebound trend. He particularly reminds investors that regardless of holding Fartcoin, WIF, or BONK and other meme coins, they should not let these take up too large a proportion in their portfolios, as these coins have up to an 85% chance of going to zero. He was even surprised that LUNA did not turn into a meme coin, as he initially thought people would go crazy buying it.
3. Stay away from market panic and return to value investing
If investors feel panic about the market, Pal suggests returning to life with peace of mind, staying away from trading screens. Those 5-minute candlestick charts and 1-hour candlestick charts are not substantively helpful for investment decisions. Many people fantasize that they can become successful traders and earn 100 times their investment, but the reality is that those who can truly accumulate wealth in this field are the investors who insist on buying and holding for the long term.
4. Beware of Crypto Yield risks
Regarding Crypto Yield, such as earning returns through staking, there are also risks. For ordinary investors, when faced with an opportunity that seems to bring a 20% return, it's crucial to be soberly aware of the risks involved.
5. How to view Michael Saylor's Bitcoin purchasing strategy?
Strategy's Bitcoin strategy is creating leverage within the system. Strategy purchases Bitcoin by issuing convertible bonds, which essentially sells options at a lower cost. After these options are bought by arbitrageurs (options traders), they hedge on trading platforms to cope with Bitcoin price fluctuations and the risks of MicroStrategy stock options. Meanwhile, arbitrageurs also take advantage of the fluctuations between MicroStrategy's NAV and Bitcoin prices and engage in trading using market tools such as perpetual contract and spot price differences and futures and spot price differences.
Currently, buyers of Strategy's convertible bonds are mostly TradFi hedge funds and other institutions, with sovereign wealth funds like Norway's potentially only valuing the Bitcoin element. Large hedge funds such as Citadel, Millennium, and Point72 are also engaging in arbitrage. These institutions have extensive experience in risk management and may receive systematic support, controlling position sizes reasonably and avoiding liquidation. In stark contrast, those traders who excessively use high leverage face enormous risks, with numerous cases of trading failures due to over-leverage in the market.
6. Capital allocation by Raoul Pal
Regarding capital allocation, Raoul Pal states that Sui occupies 70%, far surpassing Solana now. The adoption of Sui and developer activity are performing well. Besides, he also owns some DEEP (DeepBook), which is the liquidity layer protocol in the Sui ecosystem.
7. The value and potential of NFTs
NFTs, as an innovative technology that can permanently store and trade non-transferable assets, have Pal filled with expectations for their prospects. From a macro perspective, the current Crypto industry is worth $3 trillion, and if it grows to $100 trillion within the next 10 years, it would create an enormous $97 trillion in wealth; even in a conservative estimate reaching $50 trillion, it would still generate an increment of $47 trillion in wealth.
Wealth will flow to different people. Art is upstream of everything, and digital art, as an emerging field, is expected to become a significant flow of wealth. In the digital art field, we have XCOPY and Beeple, leading to the emergence of the generative art movement. I spent a lot of time talking to some very famous people who are extremely interested in this field. Crypto OGs, after earning enough money, are very eager to collect art. For example, CryptoPunk symbolizes your identity and allows you to meet like-minded people. From institutions to super-rich individuals, and down to ordinary people, there is a growing awareness of the importance of digital art. We are still in the early stages. I own many pieces of art, and I believe this spans over a decade.
8. Advantages and prospects of Ethereum
Regarding Ethereum, its network capacity has exceeded current system demands, and adjustments may be made to some mechanisms in the future to revert back to Layer 1. The status of EVM is akin to Microsoft; many banks, insurance companies, and large enterprises around the world rely on Microsoft rather than Apple or Google.
Once you have a corporate sales model, it's almost impossible to remove it from the company because you don't want to change it and don't want to take risks. From the Lindy Effect (the longer something has existed, the higher the probability that it will continue to exist in the future), Ethereum has stood the test of time and meets the demands of the financial market well. Will Goldman Sachs or JPMorgan build on Solana? Unlikely. Ethereum may bring a new narrative to the market and is expected to outperform Bitcoin in the short term. Looking ahead to the next five years, unless they mess everything up, its importance will become increasingly prominent.
The concepts of Bitcoin's Lightning Network, payments, etc., have limited effects on price increases; the core value of Bitcoin lies in its role as a store of value; the same will happen with ETH.
9. About AI
The development of AI is rapid, and its performance has surpassed 99% of analysts. After deep reflection, Pal believes that the rise of AI raises profound questions about consciousness and the future role of humanity. He suggests that people actively engage, deeply understand, and skillfully utilize AI technology.
Secondly, we do not know what this means for employment and how we create wealth, etc., but I know what humans are best at? What can humans do that AI cannot? That is to be human.
I developed an AI Raoul that can read the news daily, and the news is also written by AI. Additionally, I built a chatbot trained on my own voice, with training data covering all of its X content, YouTube content, and 100 books. Now, Real Vision users can interact with this chatbot. Pal predicts that soon these two technologies will merge, leading to a transformation that will have a profound impact on the podcast and media industries, with future media content being uniquely personalized. Moreover, human memory and behavior may ultimately become 'nourishment' for AI, achieving a certain sense of 'immortality.'
10. Market attention and selection of quality projects
This is an attention game. People's focus on key tokens is dispersed, and the duration of many narratives is relatively short. Pal emphasizes that holding Bitcoin is always a wiser choice, and additionally, buying Solana at the bottom of the cycle and buying SUI last year are also good strategies.
Investors should focus on the top 10 or top 20 tokens, emphasizing projects that can continuously enhance network adoption, as these projects often have higher investment value. According to Metcalfe's Law, project potential can be assessed based on active user numbers, total transaction value, and user value.
Bitcoin has a large number of users, and sovereign nations are involved in purchasing, which is why Bitcoin is more valuable; Ethereum boasts a large user base and diverse applications, and although the emergence of L2 has made the situation slightly complex, it still holds significant value. Investors should actively seek projects where both user numbers and the number of valuable applications are growing, such as Solana at the bottom of the cycle, where the developer community continues to grow and user numbers remain stable. The emergence of Bonk has further enhanced market confidence in Solana (note: the host stated that in a prior conversation with toly, toly mentioned that Mad Lads is a turning point for Solana); Sui is similar.
Highlights from Raoul Pal's speech at the Dubai Sui Basecamp
1. Macroeconomic core factors: Liquidity and currency devaluation. Cryptocurrencies and the economy exhibit a four-year cycle, driven by the debt refinancing cycle. Since the high global debt levels in 2008, we have been maintaining economic operation through borrowing to pay off old debts.
2. Aging population and economic growth: The aging population leads to slower economic growth, requiring more debt support to maintain GDP growth. This phenomenon is commonly observed in many parts of the world, and the correlation between debt and GDP can clearly reveal this dynamic.
3. Liquidity drives everything: The net liquidity of the Federal Reserve is a core indicator. From 2009 to 2014, liquidity was primarily provided through balance sheet expansion, followed by the introduction of tools such as bank reserve adjustments. Currently, total liquidity (including M2) is crucial, showing an astonishing explanatory power related to the movements of Bitcoin (90% correlation) and Nasdaq (97% correlation).
4. Currency devaluation mechanism: Currency devaluation is akin to a global tax, with a hidden inflation tax of 8% per year globally, plus 3% of explicit inflation, meaning you need an annual return of 11% to maintain your wealth. This explains why young people are flocking to the crypto field—traditional assets (real estate, stocks, etc.) do not provide sufficient returns, forcing them to choose high-risk assets in search of excess returns.
5. Wealth disparity and crypto opportunities: The rich hold scarce assets while the poor rely on labor income (with declining purchasing power year by year). The crypto system disrupts this pattern—young people seek breakthroughs through high-risk assets.
6. Performance of crypto assets: Since 2012, annualized at 130% (including three major corrections), Ethereum at 113%, Solana at 142%. Bitcoin has increased by 2.75 million times, which is extremely rare in the investment field, and crypto assets are gradually becoming a 'super black hole' for attracting funds.
7. The potential of the Sui ecosystem is enormous. DEEP (DeepBook Liquidity Layer Protocol) has recently performed the best. The SOL/SUI ratio indicates that SUI is relatively strong.
8. Analysis of current market misjudgment: People often interpret the current market narrative (such as tariff panic) using liquidity conditions from three months ago, but this is flawed. In fact, the tightening of financial conditions in Q4 2024 (rising dollar interest rates, rising oil prices) has a three-month lag effect. The Economic Surprise Index (comparing the US and globally) indicates that the current economic weakness is only a temporary phenomenon. Looking back at the Trump tariff cycle in 2017, the dollar rose and then fell, followed by liquidity driving a significant increase in asset prices.
9. Relationship between global M2 and assets: When global M2 reaches new highs, asset prices should rise in sync. Taking Bitcoin as an example, its price movements typically show a pattern of breakout, retest, and then accelerated rise in the 'banana zone.' Compared to the 2017 cycle, Bitcoin surged 23 times that year. Although the current market is somewhat different, a considerable increase is still expected. The current market is in the correction phase after breaking through the first part of the 'banana zone' and is about to enter the second part, which usually welcomes altcoin rallies.
10. Business cycle and Bitcoin trends: The ISM Manufacturing Index is an important leading indicator. When this index breaks above 50, it signals a return to economic growth, increased corporate earnings, and active reinvestment of funds, leading to accelerated Bitcoin price growth. If the ISM index reaches 57, Bitcoin prices could even hit $450,000. As the business cycle warms up and household cash increases, risk appetite rises, making the investment logic for altcoins similar to junk bonds and small-cap stocks.
Note: Raoul Pal is also a board member of the Sui Foundation.
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