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EVERY SPOKEN WORD
50 min read · 10,161 words- 0:00 – 4:30
Raoul's background
- RPRaoul Pal
But my big discovery, and why I really started loading up on Ethereum, was another chart, which was a 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.
- SPShaan Puri
Right.
- RPRaoul Pal
And once you realize that these are basically networks, and once you realize that crypto are networks where you actually own the network... So Facebook is a great network stock, and it works perfectly on a log chart, and it's an exponential. Does all the things as you imagine. You can value it in Metcalfe's Law terms, but the fundamental difference is shareholders and network users are not aligned.
- SPShaan Puri
Mm-hmm.
- RPRaoul Pal
The shareholders make the money, the network users get the utility. Along comes crypto. You ma- marry the, the network user with the owner. Okay, now you've got network effects upon network effects.
- SPShaan Puri
Yeah.
- RPRaoul Pal
This is like behavioral economics-
- SPShaan Puri
Right [laughs]
- RPRaoul Pal
... manna from heaven.
- SPShaan Puri
It's like re- religion meets Me- Metcalfe's Law, right? It's like, uh-
- RPRaoul Pal
Yeah. It's, it's, yeah, it's religion meets-
- SPShaan Puri
... now I have a, now I'm tribal about the thing
- RPRaoul Pal
... it's religion, it's religion-
- SPShaan Puri
[laughs]
- RPRaoul Pal
... it's religion meets capitalism-
- SPShaan Puri
Yes
- RPRaoul Pal
... is basically what it is, right? So that is incredibly powerful. [upbeat music]
- SPShaan Puri
So for those who don't know, you basically, you were at Goldman, you started your own hedge fund, and then seemingly you, you retired, correct? You retired pretty young. You retired at 36. But, I mean, now you're- you have a company now, so you're not, you know, fully retired and kicked back, but, um-
- RPRaoul Pal
No, I've got four, four jobs I'm doing right now, so.
- SPShaan Puri
Right. But you did have a break in between, correct? So, like, I think it was 2004 when you, 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 you were doing other projects-
- RPRaoul Pal
No, I was-
- SPShaan Puri
... I just don't know about?
- RPRaoul Pal
I was writing Global Macro Investor, but that is a monthly publication. So I don't know why all of you guys do weekly newsletters or daily newsletters.
- SPShaan Puri
[laughs]
- RPRaoul Pal
That's hard work. So I-
- SPShaan Puri
Yeah
- RPRaoul Pal
... I wrote monthly. It's big. It's like, well, it started off at about 35 pages a month, and then due to, uh, inflation, it gets to, um-
- SPShaan Puri
[laughs]
- RPRaoul Pal
... about 130 pages a month now. But I write it in a weekend. So-
- SPShaan Puri
Wow
- 4:30 – 13:15
Winning at the game of life
- RPRaoul Pal
on the tube in London at 5:15 in the morning to get my, get to my desk at Goldman before 6:00, the reason I did it is because I knew that the next thing I wanted to do was go and live in the Mediterranean.
- SPShaan Puri
Right.
- RPRaoul Pal
I wanted to have that quality of life. You know, 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.
- SPShaan Puri
[laughs]
- RPRaoul Pal
Right? Because this is where I live. This is the quality of life. This is my bank. This is everything. Um, and so I like where I live and how I live. That's why I live in the Cayman Islands, that's why I lived in Spain. They're beautiful places, and I live a quality of life. So that has always been my journey. But what I want to do is I always take steps towards the end game. I kind of live in the future always, in everything that I do. So I always have a vision of my future self, or whether that's future state of financial markets, where I think it's going, whatever it may be, I'm always well ahead. And so I then can look... It's much easier to live in the future and look back and say, "How do I get here?" than stand here today and go, "I wanna go forward." It's kind of weird. It's a psychology thing. And so-
- SPShaan Puri
Right
- RPRaoul Pal
... I had realized that the Mediterranean was this life, and I was... My ex-girlfriend when I was at university, um, her mother lived in Mallorca in Spain. And I, I was there in Mallorca one point, and we were on this small beach eating grilled sardines. There was, so it was this perfect Mediterranean scene, right? Grilled sardines, somebody's making a big oil drum on the beach.
- SPShaan Puri
Right.
- RPRaoul Pal
You've got a cold beer, some grilled sardines. And on this little mini peninsula is a bunch of pine trees and palm trees, and there's this long table of, like- 30 people, 25 people of different age groups, parents, kids, grandparents, eating paella, the Spanish national dish, on this Sunday, drinking wine, laughing. I'm like, "That is quality of life."
- SPShaan Puri
[laughs]
- RPRaoul Pal
And so I kept that in my mind. And so I kind of facilitated it to happen that I would move to Spain.
- SPShaan Puri
Right.
- RPRaoul Pal
Um, and I did it in steps as well. So I did it in the step that I was speaking to my father, I was having dinner with him, and he's like... And I, I was just chatting over a few glasses of wine. I was like, "You know, I'd love to buy a house in Spain at some point." And he said, "You know, I've got a friend selling a house in Spain." A random thing.
- SPShaan Puri
Right.
- RPRaoul Pal
So I said, "Sure. Well, let me know." So he sent... He, he- This is in the day of faxes. This is like 1998 or something. He sends me a fax of this six-bedroom house on a hillside in Spain. I'm like, "That's great, Dad. How the hell am I supposed to afford it?" He's like... I was 30 years old. I was working at Goldman. He's like, "Well, I don't know how much it is." So he came back and said it was £150,000, which at the time was, like, 250,000 US, 200,000 US. And I'd just had a bonus, and I thought, "Well, I could actually buy that in cash," and I did.
- SPShaan Puri
Right. [laughs]
- RPRaoul Pal
And it was game-changing. I had a mortgage in London and everything else. It was game-changing, 'cause now I'd won the entire game. I've got a six-bedroom house on a hillside in Spain overlooking orange groves, 10 minutes to the beach, and I could lose my job, I could-
- SPShaan Puri
Still have that
- RPRaoul Pal
... anything of that, and I could work in a bar and I could live there. I'm done.
- SPShaan Puri
Right.
- RPRaoul Pal
My game of life was won. So th- that was the marker stone to allow me to take more risks to do the next thing. And so that's how I've always done these things.
- SPShaan Puri
And how do you get that vision? So, so I'm the same way, but I... what I've noticed about myself is, like, every... I call them, like, these chapters. So it's like every sort of, like, five years is, like, a new chapter. And what- what I've noticed, if I go look back at the kinda last three chapters, so I'm, I'm 30, about to be 34, so basically, you know, three chapters. I, I've, I've done three chapters now, and each time it was sort of, sort of this, like, fortuitous bounce where I get in touch with somebody and they show me a glimpse into this lifestyle or this kind of, like, mode that they're in, and 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 on the, by the water, and you're like, "That's the glance... That, that is the glimpse I needed to do it." So is that how you also got your vision for the next, for the next-
- RPRaoul Pal
Yes
- SPShaan Puri
... kind of, like, chapter for you?
- RPRaoul Pal
Yeah. And so the next thing was not... 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, but they weren't around me. They were all around the world.
- SPShaan Puri
Right.
- RPRaoul Pal
And it was not as easy to, to get in touch. Twitter wasn't really around. You know, there was less ways to be social online. Podcasts didn't really exist.
- SPShaan Puri
Right.
- RPRaoul Pal
So... And then 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.
- SPShaan Puri
Mm.
- 13:15 – 27:10
How Raoul got into crypto
- RPRaoul Pal
And as a macro guy, I knew the issue was leverage, and leverage had meant that we had a unique problem, which was there's a layer of collateral, and all of this debt is against the collateral. And usually you've got, like, 30 claims on the same piece of collateral. In fact, the average US Treasury has 32 claims on it, or it did then. May have more now. So therefore, who owns what in an unraveling? You know, who's gonna get screwed?
- SPShaan Puri
And the-
- RPRaoul Pal
So-
- SPShaan Puri
... the, the, the leverage was, uh... You're talking about q- uh, government or corporate, or where, where did you see this p-
- RPRaoul Pal
It's-
- SPShaan Puri
... stockpile of leverage? Everywhere
- RPRaoul Pal
... entire- I look at total leverage. Financial system leverage, government leverage, um, household leverage, and private sector leverage. Right, so we're at 480% of GDP now, whatever the stupid number is, right?
- SPShaan Puri
Right.
- RPRaoul Pal
It's ridiculous. But the problem is, is that's a lot of claims on the collateral.
- SPShaan Puri
Mm-hmm.
- RPRaoul Pal
So, 'cause not everything is collateral in the system, only some things are used as collateral. Anyway, so when Lehman went bust, right, everyone's scrambling to find who owns what, and, you know, tha- that happens all the time. So I started trying to start the world's safest bank with a bunch of family offices. Um, I thought, you know, we could set 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.
- SPShaan Puri
Right.
- RPRaoul Pal
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 Emil Woods, who was a subscriber to Global Macro Investor, um, who was running a hedge fund at the time, an ex-Goldman guy, he said, "L- You need to look at Bitcoin." And I'd read a bit about Bitcoin. This was probably 2012. Um, and I wrote the first macro piece on Bitcoin, which was I think the thing you referred to-
- SPShaan Puri
Yeah
- RPRaoul Pal
... which was 2013. I was just like, I saw it and thought, "Okay, so we've got two things here. One is this asset, Bitcoin, and that's a scarce asset in a 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 that the fair value of Bitcoin with gold at 1,300, using the kind of supply, you know, stock to flow ratio. Done badly. I'm, you know, I'm no, you know, statistician or e- e- um, econometrics expert, but I kind of backed it out, and so it was probably worth a million bucks. And then how I like to look at things is, "Okay, what, what's the price now?" $200. Let's assume, probably rightly, that Raoul is a total idiot. So let's assume he's wrong by 90%. So it's worth $100,000, and it's at $200. That is the best single bet I've ever seen in my entire life.
- SPShaan Puri
Yeah.
- RPRaoul Pal
So I bought it, and I wrote about it, and I held it all the way through till-
- SPShaan Puri
And when you say you bought it, that's like a... 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 went, like you put a significant stake for yourself into it?
- RPRaoul Pal
A decent, a decent enough amount. Um, and I sold it after a 10X. So I'd done well from it. Sadly, I got divorced in the process, so I halved that, so there was my tax that I don't pay-
- SPShaan Puri
I get it
- RPRaoul Pal
... in the Cayman Islands.
- SPShaan Puri
[laughs]
- RPRaoul Pal
I, I cho- I chose a voluntary 50% tax. Um-
- SPShaan Puri
[laughs]
- RPRaoul Pal
So you know, it wasn't a life-changing bet, but it was a, it was a good bet. Now, had I held it on to, to 20,000 when it peaked, yeah, it would've been life-changing. So okay, so 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."
- SPShaan Puri
Right.
- RPRaoul Pal
And then I had talked about it a lot, analyzed it, been involved in it, but hadn't been investing it again until 2019. Started sticking my toes in again, 'cause the, the market had been selling off. I was starting to get comfortable that, yes, that we've got a recession coming. This is gonna be a useful tool. And then 2020 comes along, um, 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 own- At that point I was long bonds, gold, dollars, Bitcoin, and then 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's like, it makes no sense to own anything else. Now, I probably will take other bets here and there, um, but I think my core strategic... So I was Bitcoin first, then I started doing the work. I was on Twitter a lot, um, and people, if I were to ask anything about Ethereum, people would pile onto me. That makes me wanna know more.
- SPShaan Puri
Right. [laughs]
- RPRaoul Pal
So I start digging in. And I thought this is-
- SPShaan Puri
Has the opposite reaction. [laughs]
- 27:10 – 40:15
Why NFTs are a bubble
- RPRaoul Pal
did a pretty good job of capturing the internet.
- SPShaan Puri
Right. And so you've been now kind of following this, and so what are, what, what is, what is a viewpoint you had about crypto that you have changed your mind on, or you f- what you believed before, now you realize it's sort of wrong and you, you think about it a different way? Is there any... Has there been anything, is this kind of... You know, it's kind of like this rapidly evolving thing. You're sort of, like, defogging this, like, brand-new world. You know, so, you know, maybe some mental pi- picture or some mental framework you had before hasn't really held up, and maybe something different has happened. Can you think of an example of that?
- RPRaoul Pal
Well, my views on Bitcoin changed, um, significantly. I don't think, you know, no less of it as an asset, but I thought about it in network terms and the community, and I thought the community is not attracting new people.
- SPShaan Puri
Mm.
- RPRaoul Pal
And the job of a network is to attract new participants. And if the network was actively rejecting people, I thought it was gonna underperform. Um, which was surprising to me, 'cause I was very bullish on Bitcoin first, because I thought, "Look, it's gonna have a larger place." And what's happened is, almost immediately, and it made me change my mind, is the institutions started going, "Well, I actually don't like this space."
- SPShaan Puri
Mm.
- RPRaoul Pal
And they started buying Eth. And that was-
- SPShaan Puri
So, so that's, that's new. I haven't really heard that. So tell me about... 'Cause you're connected to all these folks, right? Like, you know-
- RPRaoul Pal
Yeah. They just-
- SPShaan Puri
... hedge fund guys, CIOs, whatever. You know a bunch of different people in that world. What do you hear?
- RPRaoul Pal
They don't want to own an asset where everyone's shouting, "Have fun, stay poor" at each other and putting laser eyes, right?
- SPShaan Puri
[laughs]
- RPRaoul Pal
Makes them look fucking stupid-
- SPShaan Puri
[laughs]
- RPRaoul Pal
... and irresponsible with their money. While Eth 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. While Bitcoin was at war with every other network, because, you know, that's what networks do, you know? Religions go to war with each other for the same reason, right?
- SPShaan Puri
[laughs]
- RPRaoul Pal
They're exactly the same principles. Um, so you know, it's the same reason Russia and NATO. It's, they're all the same. They're all networks fighting each other for the robustness of their own network. I get it. So that, that, that whole process of seeing institutions getting turned o- off by it was a, was a big deal to me. I just thought, "Yeah, I don't like this either." So that was one thing. Um, I'm trying to think. I've been-
- SPShaan Puri
Well, on that point-
- RPRaoul Pal
Yeah
- SPShaan Puri
... we've seen a lot of news about institutions buying Bitcoin, whether it's Tesla or MicroStrategy or Square or, you know, some, like, you know, a random insurance company buys $100 million worth of Bitcoin. So we've kind of heard those... We hear less of that with Eth. Is it just going on under the radar? Is it coming? What, what's your sense of that? Because I haven't... I, I'm in this space-
- RPRaoul Pal
Yeah, no, it-
- SPShaan Puri
... and I haven't heard a ton.
- RPRaoul Pal
It's happening, um, 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," right?
- SPShaan Puri
Right.
- RPRaoul Pal
You don't see it until you look back and go, "Wow." So I mean, I literally every other day am speaking to the world's largest financial institutions who put me in front of their investment committees and talk them through crypto and how to invest. And the narrative change, it really surprised me. It was always, "Bitcoin. You know, can we put Bitcoin on our balance sheet? How should we invest in Bitcoin? What's the diversification?" Moved very quick to, "Look, Ethereum feels like it's a technology play that makes sense-
- SPShaan Puri
Right
- RPRaoul Pal
... with the applications. We ca- we're interested in DeFi," et cetera. Then it very quickly became Oh, shit. Well, how do we get involved in Web3? Um, so it moved very fast, which is why in the end VC got most of the money, um, because they saw the broader opportunity. They all came through the, the 2020 lens of Bitcoin is the asset, and you know, the, the Michael Saylor route, and even me, you know, in the earlier part of 2020. A lot of people came in that. And then like all of us, they kind of go, "Oh, wow, okay, this is much bigger." So, you know, I've started a fund of hedge funds, um, which is i- invested in, in crypto hedge funds-
- SPShaan Puri
Hmm
- RPRaoul Pal
... to allow institutions another way into the market, because they don't really want to buy just Eth or Bitcoin. They want exposure to this $2 trillion asset class that's gonna go to 200 trillion over the next 10, 12, 15 years, whatever the number is. So hedge funds are pretty good for that because their, their job is to manage the exposure and, and to capture the, to capture this big move. So, you know, that's another way that it's coming in that people don't see. Um, you know, people... It's not all about the Bitcoin ETF. I don't think that's gonna move the needle as much. It'll be positive-
- SPShaan Puri
Right
- 40:15 – 48:26
How crypto could revolutionize the music industry
- RPRaoul Pal
Fashion brands more than any others. Um, 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.
- SPShaan Puri
Right.
- RPRaoul Pal
So now we've got pop star and token holder. They're all now joined in the same network, so now every is incentivized to grow the value of that network. You've now made culture an 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-
- SPShaan Puri
Mm
- RPRaoul Pal
... right, with all of its kind of 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.
- SPShaan Puri
Right.
- RPRaoul Pal
But if I buy their social tokens-
- SPShaan Puri
[laughs]
- RPRaoul Pal
... 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. Um, they don't have to do that. They do a different way, which is by using their human instincts about the communities they want to be part of and which networks are gonna thrive. And music is so powerful 'cause it's human emotion, um, and people r- 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 smelt like, what I heard-
- SPShaan Puri
[laughs]
- RPRaoul Pal
... who I was hanging out with. I mean-
- SPShaan Puri
Right
- RPRaoul Pal
... everything, right? M- 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've been able to sell something in small numbers and make $50 million. He's just not that big a star because record labels, um, because 80% of all the economics of selling music gets taken by middlemen. So he'd ha- he'd have to sell a huge sum to do that, or he'd have to go on tour. And to make $50 million, that's a big exhausting tour. You know, he's no spring-
- SPShaan Puri
Yeah
- RPRaoul Pal
... chicken anymore. These things are-
- SPShaan Puri
[laughs]
- RPRaoul Pal
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.
- SPShaan Puri
Yeah, like the artist had to create, uh, scarcity, uh, which was basically, "Come to my concert. There's only X tickets, and that's how you can see me." And then they also created status, which was take photos of yourself at this concert, post that online, and that's a big part of the value that you're gonna get out of, uh, out of coming to this thing. And then now we have a digital version of that-
- RPRaoul Pal
Which-
- SPShaan Puri
... which is-
- RPRaoul Pal
And, and so when all these people spoke to each other, the fans, they'd have to go on a Facebook group, and Facebook monetizes them.
- SPShaan Puri
Right. Right.
- RPRaoul Pal
Right? And if they wanna go on tour, they need to go on Facebook and Google and pay everybody. But when you've got millions of token holders, you've sold out 50% of your tour. You've de-risked everything in minutes. It's just-
- SPShaan Puri
Right
- RPRaoul Pal
... it, it, it stops you having to use middlemen all the time.
- SPShaan Puri
And, uh, you talked about two different things. There's like this sort of like f- almost like the thousand true fans, uh, you know, concept, where basically an artist can drop something that's rare and exclusive or access to them or their commu- their com- fan club. And the, it gives the whales, you know, something to go buy that they would, you know, that they're, they're actually willing to buy for more than just a T-shirt. Uh, now you give them something worth buying, and so that's, that's one thing that you could do with it. But the other one is, was talking about buying a stream of roy- a, a, a part of the royalty, right, the a part of the royalty stream. And so that's where, you know, I remember, I don't know, I, I remember finding Macklemore, the, the artist, when he had, like, you know, whatever, 2,000 fans. And I was like, "This guy's great." And, like, if I had actually been able to bet that this guy's great and therefore be a part of his community, he views me as a backer and true believer, and I did. I remember I kind of did a Kickstarter with him or whatever. He, he pre-sold his album, and I just gave him, you know, 30 bucks because, 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 with him. I had nothing to show for being right. And, um, and so now in this, in a world like this where the 16-year-old kid can say, "I think these guys are gonna be great. Their price is cheap right now, and I could buy, you know, some of their future," um-
- RPRaoul Pal
But, but-
- SPShaan Puri
... that's kind of exciting
- RPRaoul Pal
... there's even more, there's even more magic because that 16-year-old kid, 'cause he's now financially incentivized to grow the network and make that song a success-
- SPShaan Puri
Right. Tells all his friends
Episode duration: 48:26
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Transcript of episode H1FYJlaxlOg
