Author: Raoul Pal

Translation: Jiahua, ChainCatcher

I want to share some thoughts I had while writing GMI (Global Macro Investor) this weekend, which will help bolster your confidence. Sit down, pour a drink or brew a cup of coffee… Usually, I reserve this content for GMI and Pro Macro subscribers, but I know you all need to soothe your frayed nerves…

The Trap of the Mainstream Narrative

The grand narrative is: Bitcoin and cryptocurrencies are completely broken. The cycle is over. Everything is messed up, and we don't deserve nice things. It has decoupled from other assets, and it's Zhao Changpeng's fault, it's BlackRock's fault, it's anyone's fault. This is undoubtedly an enticing narrative trap… especially when we see prices plummeting every single day…

But yesterday, a GMI hedge fund client sent me a brief note asking whether he should buy the discounted SaaS stocks that seem cheap, or if, as the current narrative suggests, Claude Code (AI programming tool) has killed SaaS.

I decided to dig deeper…

What I found destroyed the narrative about BTC and also the narrative about SaaS. SaaS and BTC are following exactly the same chart.

UBS SaaS Index vs BTC

This means there is another factor at play that we have all overlooked…

That factor is: due to two government shutdowns and issues with the U.S. financial "pipeline" (reverse repo tools are basically exhausted in 2024), U.S. liquidity has been suppressed. Therefore, the TGA (Treasury General Account) rebuild in July and August has not been offset at the monetary level. The result is a liquidity drought…

This persistently low liquidity is precisely why the ISM (Institute for Supply Management) index is so low…

We typically use global total liquidity because it has the highest correlation with BTC and NDX (Nasdaq 100 Index) over the long term, but at this stage, U.S. total liquidity seems to dominate, as the U.S. is the key provider of global liquidity. In this cycle, global total liquidity has led U.S. total liquidity, and a rebound is coming (so is ISM).

This is why SaaS and BTC are affected… Both are the longest-duration assets currently in existence, and both have been discounted due to a temporary withdrawal of liquidity. The rise in gold has essentially siphoned off all the marginal liquidity that should have flowed into BTC and SaaS. There isn't enough liquidity to support all these assets, so the riskiest assets have taken a hit.

Now, the U.S. government is shut down again… once more. The Treasury has hedged against this by not utilizing the TGA at all after the last shutdown, in fact, increasing the TGA balance (which led to more liquidity loss).

This is the "liquidity vacuum" we are currently facing, which has led to brutal price movements. Our beloved cryptocurrencies currently lack liquidity support.

However, signs indicate that this shutdown will be resolved this week, which will be the last liquidity obstacle to be cleared. I have mentioned the risks of this shutdown multiple times. Soon it will be in the rearview mirror, and we can continue to welcome the impending flood of liquidity—adjustments from eSLR (Supplementary Leverage Ratio), partial releases of TGA, fiscal stimulus, interest rate cuts, and so on. Everything is for the midterm elections… In these full-cycle trades, timing is often more important than price.

Yes, prices may be brutally beaten down, but over time and as the cycle evolves, everything will resolve, and divergences will close. That is why I advocate for patience!

Things take time to evolve, and fixating on every fluctuation in your P&L will only affect your mental health, not your portfolio.

Misreading the Fed

Regarding the topic of interest rate cuts, there is another circulating false narrative claiming that Kevin Warsh is a hawk. This is complete and utter nonsense. These comments mainly stem from 18 years ago.

Warsh's job and mission are to run the script from the Greenspan era. Trump has said this, and Bessent (the Treasury Secretary nominee) has also mentioned it. There is too much to elaborate on here, but what it means is: cut rates, let the economy overheat, and assume that productivity gains from AI will suppress core CPI. Just like the era from 1995 to 2000.

He doesn't like the balance sheet, but the system has hit reserve limits, so it's likely he won't change the current course. He can't change it, or he will blow up the lending market.

Warsh will cut rates and do nothing else. He will make way for Trump and Bessent to operate liquidity through banks. Mirran will likely force a comprehensive reduction through eSLR to accelerate this process.

If you don't believe me… then believe Druck (referring to Stanley Druckenmiller).

Stanley Druckenmiller is also betting on policy easing

I know how hard it is to listen to a bullish narrative when things feel so bleak. Our Sui position feels like a pile of dog shit, and we don't know what to believe or who to trust anymore. First of all, we've been through this experience many times. When BTC drops 30%, smaller tokens drop 70%. But if they are of high quality, they recover faster.

Our Misjudgment

Our misjudgment at GMI was not recognizing that U.S. liquidity is the current driving factor, whereas typically global total liquidity dominates throughout the cycle. But it is now clear that the "everything code" is still at work… There is no decoupling. It's just a convergence of various events—reverse repos exhausting > TGA rebuild > shutdown > gold rising > shutdown—that we couldn't predict, or we missed its impact regardless.

But this is almost over. Finally. Soon we can return to normal business.

We can't get every moving part right, but we now have a better understanding, and we remain hugely bullish for 2026 because we know the script of Trump/Bessent/Warsh.

They have repeatedly told us…

All we have to do is listen and be patient. The key is time, not price.

If you are not a full-cycle investor and do not have that risk tolerance, that's perfectly fine. We all have our styles, but Julien and I are not swing traders, and we are bad at it (we don't really care about the ups and downs within the cycle), but over the past 21 years, our verified and documented full-cycle investment performance is among the best ever. (Warning— we could also be wrong. 2009 was an astonishingly bad example!)

Now is not the time to give up… Good luck, and let's have a damn epic 2026!

The liquidity cavalry is coming.

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