Source: “When Shift Happens”, Youtube

Compiled by: Felix, PANews

Raoul Pal, CEO of Real Vision, shared his framework for achieving success in the cryptocurrency space by 2026 without relying on luck: hold the right assets and then do nothing. Below are the highlights from the interview in the “When Shift Happens” podcast, compiled by PANews.

Kevin: I recently went to Silicon Valley and talked to a lot of people, which reinforced my long-term perspective. Today we need to discuss this because I think it’s important; people must understand it, but either they don’t understand or they don’t want to understand. A lot of people’s anger comes from mismatched time horizons.

Raoul Pal: It’s as if you can tell them the direction of future developments. The adoption of technology will not stop; the current market size has exceeded $3 trillion and will eventually reach $100 trillion. So, we have only completed 3%, and I estimate this may take 10 years. This is a long-term shift, but everyone asks, “What about today?”

Kevin: How would you respond to the haters? I see people saying you always use “think long-term” as an excuse when things are bad in the short term. How would you respond to those people?

Raoul Pal: The short term is more noise, while the long term is driven by two key factors: network adoption and monetary expansion, making the long term more predictable. The short term will always deviate from the long term, and people don’t want to accept that. Everyone is betting on the M2 chart, and I say it won’t match perfectly, but people interpret it as always matching perfectly. When it deviates, they say I was wrong. My job as a macro analyst is to figure out why it deviates and what has changed. For example, this time liquidity was pulled from the Treasury’s general account, coupled with the government shutdown. People don’t understand and think everything should match perfectly, but it’s impossible. The short term is always noise greater than signal, and only by focusing on the long term can you see the signal.

Kevin: I see a lot of smart people, especially former traditional finance traders, now saying the crypto market has matured, with more institutions and professional traders using technologies like AI. Besides long-term investing, there’s almost no alpha left in the market, so what you can do is basically buy and hold like an ordinary investor or trader, betting on the long-term trends you mentioned.

Raoul Pal: I’ve seen this before. In 2004, I left the hedge fund industry for this reason. In 2004, I was doing macro strategies. Macro strategies are more volatile and are long-term strategies because they involve trading around macroeconomic and economic forces. Now, there’s only one ISM data point each quarter, or one GDP data point each month. So, to really form a trend, you need a series of data over time. That means at least a 6-month trading cycle, perhaps shortened to 3 months at turning points, but usually it’s 18 months to 3 years. That’s the essence of macroeconomics.

Later, I realized that as new investors flooded into hedge fund investments, they forced everyone to mark to market monthly and judged your performance based on that month’s ups and downs, rather than how you performed over the year or the returns from that trade. No matter how the stock you bought moved, as long as the price fell that month and you were still profitable, you should close your position. I thought this way of doing things was not profitable at all. This practice stifled market volatility and reduced everyone’s returns. The crypto space is facing the same problem today. The situation in macroeconomics is even worse because of the rise of systemic funds and high-frequency trading, which have eroded the advantages of short-term trading in macroeconomics. I left macroeconomics and founded Global Macro Investor (GMI) to prove that long-term investing is the way to go.

Kevin: This is especially difficult for a generation with ADHD.

Raoul Pal: Yes, they feel like everything is a video game.

Kevin: 2025 will be tough for crypto investors; unless you invested in a few correct tokens, the returns will be mediocre. Why is that?

Raoul Pal: Because of liquidity. Liquidity is the most important macro factor right now. It’s a game. The first game is liquidity. The second game we overlay in the crypto space is how well the specific token assets you buy are being adopted. Whether it’s L1, L2, application layer, DeFi, or anything else, the key is the speed of adoption and the extent of depreciation. This is the entire game we are in. So people need to figure out the whole game. Then it gets a bit complicated: how to obtain liquidity?

In traditional cryptocurrency terms, liquidity refers to quantitative easing. They were printing money before, but now they’ve stopped. Then you have to figure out the net liquidity from the Federal Reserve, which is the Treasury’s general account and reverse repo operations. This used to be the only source of liquidity in the system, but they have exhausted the reverse repo funds. The Treasury’s general account is like a checking account; they keep recharging, emptying, recharging, and emptying. So the balance of this account keeps fluctuating. In reality, it doesn’t help liquidity. What we see as liquidity is actually the depletion of reverse repo funds. Therefore, the rate of change in liquidity has been very low. That’s one factor.

Additionally, the cycles have extended. Some say there will be a four-year cycle, and that’s true. But there’s a reason for it. After 2008, interest rates went to zero, and countries planned their debt for 3-5 year terms, extending the debt every four years. In 2021-2022, interest rates went to zero again, and they extended the debt duration to 5 years. So the place where money was supposed to be printed in the fourth year has been pushed to the fifth year, which is 2026. $10 trillion of debt needs to be liquid, so 2026 will require significant liquidity. But now there are too many tokens, and liquidity cannot save all projects. In the past, anything you bought would go up; now it doesn’t work that way.

Kevin: Right, many tokens can lose money even with plenty of liquidity because they are bad investments.

Raoul Pal: Yes, no one is using them. A few can become memes, but it’s hard to sustain. What people don’t understand is that there is also a risk curve among mainstream tokens: Bitcoin may pull back 30%, Ethereum 40%, Solana 50%, and SUI 60-65%, depending on their maturity, user base, and market depth. The core of the “DTFU” (Don’t Fuck This Up) framework I use is not to make the most money but to avoid losing too much, and then compound over the long term. It sounds boring, but that’s the truth.

Kevin: What does “minimum regret portfolio” mean?

Raoul Pal: It means looking back and not feeling foolish. L1 is the simplest, large enough with adoption, and won’t go to zero in one cycle. It may slowly “bleed,” but it won’t go to zero instantly. Then you need to check if you are blindly following trends; now ChatGPT is free, you can check on-chain metrics, user growth, etc.

Kevin: Is ChatGPT’s analysis of on-chain metrics reliable?

Raoul Pal: I wrote an article about Metastas last week, using stablecoin transfer value / active users for valuation. ChatGPT itself suggested defining active users with five metrics like DeFi, gaming, etc., and then ranking chains based on these metrics to see which chains are overvalued and which are undervalued. It can give you a pretty good judgment; it does well in almost all aspects. It’s also good at interpreting technical charts. You can give it a chart, ask for its opinion, and it will provide a decent result.

Kevin: Do you follow your own “DTFU” investment framework?

Raoul Pal: I basically follow it, but my positions are more concentrated. When people hear I’m concentrated, they think they should concentrate too. I concentrate because I’ve built a valuation model. It’s likely to change at some point. Its volatility is greater; it’s designed to be more volatile because it’s an early network adoption model. So, its downside volatility is greater than its upside volatility.

I sold tokens like crazy in the past two weeks, and suddenly this morning SUI is up 20-30%, and others are up 8%. I can accept that; others may not understand. Besides that, I have other businesses that generate cash flow, which allows me to allocate assets correctly, and I take on more risk because I’ve done more homework. But that doesn’t mean my judgment is necessarily correct. Others shouldn’t listen to my asset allocation advice; they should listen to overall trading principles. Never borrow someone else’s beliefs. That’s the most important thing.

Kevin: Is it possible for you to underperform those who follow your “DTFU” advice?

Raoul Pal: Of course. I’m only responsible for my own capital. If I’m wrong, I bear it myself. As long as my direction is roughly correct, that’s enough.

Kevin: I saw a tweet: a girlfriend has been dollar-cost averaging into ETH and BTC since 2019, not looking at Twitter or paying attention, and has significantly outperformed her boyfriend. The best-performing accounts often belong to “deceased” clients.

Raoul Pal: Yes. So we always return to the starting point. Most people are in pain now because they are stagnant or losing in this cycle because they didn’t buy heavily at the lows, which is hard to do. The simplest way to get rich is to dollar-cost average into BTC, which has better returns than dollar-cost averaging into the S&P 500. But that’s not the real way to make money in crypto; I think a better method is to wait until the market drops X% to do dollar-cost averaging, say a drop of 30% or more, and then invest at three times the frequency when the market hits new highs; that way, the compounding returns will definitely be better. It’s not hard to do.

Kevin: Psychologically difficult. I buy Bitcoin every month, always feeling it’s more likely to go up, and end up buying at local tops.

Raoul Pal: I bought SUI three weeks ago, and then it dropped a lot. But over time, you forget the entry price unless it’s a major bottom.

Kevin: Do you collect tweets that insult you?

Raoul Pal: No, but I read tweets that insult me on the Drinks with Raoul show. It’s pretty good therapy. It also reminds me where I didn’t explain things clearly.

Kevin: Many early believers who entered from 2017 to 2021 are now turning to AI, saying that crypto has not fulfilled its promise of decentralization, only ETFs and stablecoins, and they are very disappointed. But I think they actually haven't made quick money in recent years and have lost their edge. In Silicon Valley, it’s the complete opposite; they say the big returns are still ahead. Aishal from Electric Capital compared crypto to a more liquid venture capital. Most venture capital will go to zero, but a few will be very profitable, and you have to hold on forever because exponential things will ultimately scale beyond imagination.

Raoul Pal: Venture capital enters before tokens are generated, with lower valuations. Buying in the public market, the power law isn’t as strong, and price is very important. In my last round, I tried a broad portfolio, but most of the returns still came from ETH, BTC, and a bit of Solana; the rest were basically useless. The current market size is about $3.5 trillion, conservatively estimated to reach $100 trillion in 10 years, and we are only at 3% now. Bitcoin's dominance will decline, while smart contracts' dominance will rise because their use cases will be more. The entire market still has 30 times the upside potential.

Kevin: Silicon Valley understands exponential growth, while Wall Street understands linear and mean reversion. So every time there’s a bull or bear market, they think the market is over. In fact, looking at it over a longer term, it’s just a smoothed trend. The same goes for Amazon, Google, and Tesla. Early on, there’s a lot of volatility, but it becomes smaller as they mature. What does your portfolio look like now?

Raoul Pal: Besides buying some SUI three weeks ago, I haven’t changed much. I bought some NFTs. People will screenshot and say I’m promoting SUI, and then some will call me a fraud. My allocation is my business. I beg you not to emulate my risk tolerance. I just want to say to base it on your own risk capacity.

Kevin: What are your real thoughts on SUI by the end of 2025?

Raoul Pal: Its performance on the risk curve is normal. It’s underperforming Solana in the short term but is still in an upward trend. The project’s technology is sound; the key is whether it can gain adoption. The user growth rate is faster than Solana’s last round, and the value per active user is high. The model shows it is undervalued by about 80% compared to Solana. It still needs the overall market to rise to validate this.

Kevin: How do you allocate your income each month nowadays?

Raoul Pal: Cash flow will be used for investments, living expenses, and various costs. Just like everything else. Besides cryptocurrencies, I also invest in other things, like a lot of digital art. As your funds grow, you want to update some things. So you’ll change your sound system, change your car, etc. You do this to maintain the quality of your assets because if you don’t, the quality of your assets will decline over time; for example, cars will break down, age, and become a hassle that requires constant maintenance.

I like to spend money on vacations and travel. That’s quality of life. Quality of life itself is an investment; it brings you experiences. So I invest a lot in that area.

Kevin: You mentioned digital art, which is NFTs. How are NFTs doing now?

Raoul Pal: The Basel Art Fair is ongoing, and half of the digital art market is there. Although many of the artworks they create are not actually digital. The situation now is that once the price of ETH or Solana reaches the upper limit of the range, sales will explode again because people start to recover wealth to buy art. When the price falls back to the bottom of the range, no one has money to buy because the opportunity cost of putting liquid funds into non-monetary assets decreases. But this argument suggests that whenever prices peak, art becomes the focus, and prices start to hit new highs.

We are starting to see some big-name investors enter this space. Nikki Mala from Ribbit Capital acquired Punks IP and Crypto Punks IP; there are other investors like Alan Howard, who is a major investor in this field. The overall value of artworks is rising, but it will still fluctuate with the price of cryptocurrencies. So prices may dip slightly, but in the long run, they often outperform the market, and more things will emerge in this field.

Kevin: Yuge Yatsu, co-founder of Animoca, recently said that NFTs are the asset class of this generation. I think most people would think, “What the hell? Is he fooling himself? Is he denying reality?” I want to ask if he understands something that most people still don’t get?

Raoul Pal: Yes. Everyone thinks things like Monkey JPEGs have depreciated. It’s really foolish speculation. People don’t realize that the speculative nature of cryptocurrencies has accelerated the validation of certain ideas in a highly speculative manner. And speculation has proven that the value of digital assets is not just in being tokens on exchanges. So we have Crypto Punks, which have a total value of $10 billion. Game assets, tickets, financial contracts, digital identities… the TAM is huge. The most expensive block space is art. Everything in the digital world can go to zero, but only digital scarcity retains value. Wealth will ultimately flow to art.

Kevin: You posted in early November about “buying the dip.” Is that still the advice as we approach December 2025?

Raoul Pal: Yes. I believe the market has bottomed out. So we went through the liquidation in October. The U.S. government extracted liquidity through the Treasury’s general account, and then they shut down the government, and now liquidity is gone because they can’t even access the Treasury’s general account. As the most liquidity-sensitive asset, cryptocurrencies’ liquidity plummeting exposed all the weaknesses of leverage, triggering a series of issues like systemic liquidation of leverage.

If all my research on liquidity is correct, a wave of liquidity inflow is coming. The system now tells us that the banking system is tight on funds, leading to frequent fluctuations in the money market. There’s a shortage of funds in the market. The Federal Reserve knows this too. They have stopped quantitative tightening. But they have another task, which is to complete the financing work by the end of the year. Banks don’t have enough liquidity to roll over debt and adjust their balance sheets. Therefore, the Federal Reserve must inject some liquidity.

Kevin: How to get rich in cryptocurrency by 2026?

Raoul Pal: Hold the right assets and do nothing. Don’t borrow others’ beliefs; do your own homework to establish your own beliefs. Set a time frame based on your risk tolerance and goals. My framework is a 5-year cycle; everything else is noise.

Kevin: What is something you hold onto but know you should let go of?

Raoul Pal: I feel like I can help more people. But I have to let go because some people don’t want help. It’s frustrating. You’re also trying hard to help everyone, but many people are desperately trying not to be helped.

Kevin: What do the voices in your head say when you wake up every morning and before you go to bed at night?

Raoul Pal: Keep going. My job is to live in the future and see the path clearly. Don’t worry too much about the trivial. As long as the big direction is right, that’s enough. Don’t care if SUI drops 30% this week; care about the whole market reaching $100 trillion.

Related reading: Dialogue with the Founder of Polygon: Escaping Poverty and Building a $30 Billion Crypto Company

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