Source: "When Shift Happens"

Curated by: Felix, PANews

Macroeconomic investor and co-founder of Real Vision Raoul Pal once again appeared on the podcast "When Shift Happens," delving into why the AI race is the largest capital event in human history, and why cryptocurrency holders are in a favorable position. Raoul Pal explained the economic singularity, why traders always lose to long-term holders, and why he continues to buy during downturns.

PANews has summarized the highlights of the interview.

Host: A few weeks ago, you shared and commented on an interesting video. It satirically stated that the U.S. stock market keeps rising, and as long as you "buy the dip," you can make money; if you have no money, you borrow to buy. This isn't a Ponzi scheme; it's a buy-the-dip plan. What is going on with the stock market?

Raoul Pal: There are mainly two reasons. The first is obviously liquidity; we are witnessing an expansion of liquidity. The other thing is that we are experiencing one of the most extraordinary periods in human history, where everything else no longer matters. All capital is flowing into the field of artificial intelligence; this is the largest competition in history. It’s a competition between nations, a competition between companies. Therefore, it will certainly suck every bit of capital because you can't slow it down.

Host: Tell me about this competition.

Raoul Pal: In this world, nobody will allow a single superpower to monopolize AGI (Artificial General Intelligence), so there must be two, and only the United States and China can afford this competition. Game theory suggests that no country will stop now because stopping means the other side gains an advantage. Even in scenarios like OpenAI going bankrupt or running out of funds, the U.S. government will immediately auction its assets to companies like Microsoft and Google; they will never allow one company to hold an advantage alone. This game is too large; no one will stop. It's a game of "converting units of energy into units of intelligence."

Host: Too big to fail. So, we should always "buy the dip"? Will it have an end?

Raoul Pal: I wrote in "Global Macro Investor" that it won't end unless we reach the economic singularity. The economic singularity refers to the point at which the system can no longer cope with the speed of technological development. You know that magical formula: population growth + productivity growth + debt growth. When you consider AI and robots as part of the population, our current peak population is 9 billion, but we can reach 18 billion, 100 billion, or even a trillion intelligent agents. If we have 10 billion or 50 billion intelligent agents, the economic system will no longer function as it did; it will operate too quickly.

Almost all previous technology adoptions have followed Metcalfe’s Law (the value of a network is proportional to the square of the number of connected users), showing logarithmic growth. But AI is the first observable case of "Reed's Law" in human history (the value of a network grows exponentially due to the effect of group formation), which is exponentially exponential. It is estimated that by 2028, the amount of text produced annually by AI will exceed the total amount of text produced in human history from Gutenberg to now.

Host: Anthropic's interview today also mentioned that they originally expected to grow 10 times in the first quarter, but instead grew 80 times. That’s incredible.

Raoul Pal: Yes, the economic singularity occurs when you have economic agents (agents) that can form capital instantly; that’s the significance of Meme coins: instant capital creation and destruction. They can instantly set up digital businesses, quickly capture market share, and then exit when the opportunity disappears. Where do large traditional enterprises fit into this economy? Who are the workers? The system can no longer operate normally. Because carbon-based organisms (human neurons) operate at 1 millisecond, and now we are pushing electric currents through sand (silicon, the second most abundant element on Earth) to create intelligence, which is six orders of magnitude faster than human neurons (a million times faster). It’s crazy.

Host: Since AI is growing exponentially, many people in crypto circles want to switch to AI; they feel that the crypto industry is uninteresting now, even fearing being trapped. How do you view the investment choices between AI and cryptocurrency?

Raoul Pal: Despite the extreme heat in the AI industry, I still believe that when viewed over a long-term cycle, cryptocurrency is still one of the optimal investments in terms of risk-reward. However, it is indeed difficult to compete with chip companies like Nvidia, as they are at the core of converting energy into intelligence. However, cryptocurrency has an "infinite TAM (Total Addressable Market)." Around October last year, we witnessed the birth of the agent economy (AI Agents). When these agents begin to scale, they will have their own wallets and conduct business on-chain. Previously, we estimated the crypto market could reach 100 trillion dollars based on human users; now, with unlimited AI agents, the game has fundamentally changed. Moreover, the Federal Reserve will operate the economy like in the Greenspan era, relying on productivity miracles to reduce the debt-to-GDP ratio, and the depreciation of fiat currency will not stop. The entire financial system is also shifting to blockchain infrastructure, so you just need to outrun the institutions. The worst is over, as global liquidity is accelerating.

Host: So for you, Bitcoin dropping from the recent peak back to 60,000 isn’t a bear market?

Raoul Pal: It’s just an uncomfortable correction in a bull market. I've been in crypto since 2013; a 50% correction in Bitcoin is normal, and other altcoins tend to fall harder, like Solana which dropped 80% before its surge last cycle. The difference is that the correction in 2021 was very fast, quickly rebounding after the fall; while this correction has been relatively volatile, taking months, so people feel it’s very painful. However, looking at it from another perspective, the longer the consolidation period, the longer and larger the bull market might be after the breakout.

Host: The problem is that in 2021, it fell fast and rose fast, but this time the market has been tumultuous and time-consuming. Also, some companies that performed well (like stablecoins and RWA) have no tokens, making it difficult for retail investors to invest; everyone feels that the promise of early wealth has been broken.

Raoul Pal: I don’t think that’s true; product-market fit is key. Just because your altcoin hasn’t risen doesn’t mean the promise is broken; the market owes you nothing. People have gotten used to the easy days of making money with their eyes closed in previous years, but liquidity in 2024 is actually still constrained; we haven't entered the real "banana phase" (referring to a period of crazy price increases). While ordinary people might not be able to buy equity in stablecoin companies, that’s not a problem; you just need to hold the underlying Layer 1 tokens. That’s our "universal basic equity." If a significant part of the future economy is driven by AI and agents using the crypto network, we just need to hold Layer 1 tokens to share in their success. We didn’t have this opportunity in the internet age, and now there’s no excuse to miss it.

Host: What have you bought during the recent downturn?

Raoul Pal: I bought some Sui and a bit of Zcash. I didn’t chase Zcash when it skyrocketed last year, but I started buying during the correction. Privacy is valuable in the field of value storage. It's a very simple "left-side curve" trade (intuitive trade): it’s like Bitcoin with privacy features. Meanwhile, the "right-side curve" trade (thoughtful trade) considers its quantum-resistant properties. While this may provoke government crackdowns, it offers very important defensive attributes for the future.

Host: Can you explain in detail why smart contract Layer 1 will capture most of the value in cryptocurrency over time?

Raoul Pal: Layer 1 is the investment-grade infrastructure layer. Just as the operating system market ultimately has only three or four major players, Layer 1 will eventually condense to 3 to 5 core chains. How to understand the value of Layer 1? If you unplug Ethereum today, the economic value you destroy is enormous: all Layer 2, DeFi, NFTs, RWA would go to zero. ETH's current valuation is possibly even underestimated. Bitcoin has a single function: to capture a share of global savings; but the scalability of smart contract infrastructure is infinite.

Host: So which Layer 1s will win?

Raoul Pal: ETH has the most concentrated economic value and developer wisdom resources (security, Lindy effect, etc.), similar to Microsoft; buying it won’t be a big mistake. Solana has proven to be successful, being more efficient, faster, and cheaper. Sui, while still early, was one of only three tokens to maintain economic density during an 80% market downturn, along with ETH and Solana. Sui's programmability within a single block, transaction handling speed, and finality speed are at a completely different level. Evaluating blockchains can’t use traditional "Discounted Cash Flow (DCF)" models because the purpose of the network is to provide the cheapest and fastest service; it's absurd to value it based on how much transaction fees it generates. The cheapest, fastest, and most programmable chains will ultimately outperform.

Host: Some say DeFi has "died" after a large number of hacks in recent months. How could traditional financial institutions put money into vulnerable DeFi?

Raoul Pal: But this will only push people to develop better products. Just like we install antivirus software on our computers, hacking is everywhere. Each bank actually has teams handling hacking attacks and the proportion of stolen funds; they just don’t publicize it. I predicted back in 2014 that the entire financial system's infrastructure would shift to blockchain. Why? Because it's the most efficient means of energy output, and the financial system will always migrate to what's most profitable and efficient. Also, DeFi is actually more suitable for machines (AI agents) rather than humans. Machines don’t even need front-end websites; they can rebalance assets and conduct instant trades across multiple chains and using various stablecoins with very low friction. They will become the largest user base of DeFi, and we might not even notice these transactions.

Host: Do you think NFTs will gain immense value due to the aforementioned wealth effect? I bought Crypto Punks and XCOPY, but their prices are stagnant, and I don't even want to look at them anymore.

Raoul Pal: This is because the activity of NFTs is a function of the prosperity of the crypto economy. You must wait until the overall crypto market reaches the scale of trillions of dollars. When ETH rises from its current price to 5,000 or breaks upwards, you will see a massive revival in NFT activity. Just think about it: we are experiencing the largest turning point in human history; we will no longer be the top intelligence on Earth, and art serves as a record of the cultural carrier of our era. When people make big money in this gigantic machine economy, they will naturally buy "trophy assets" (referring to those top-tier assets that due to extreme scarcity or exceptional historical/cultural value can showcase the buyer's social status and bring an extremely high psychological satisfaction, usually hard to find on the market), much like tech tycoons, real estate moguls, and hedge fund barons buy art after getting rich.

Host: How do you plan to structure your NFT investment portfolio? Is it only the top-tier "holy grails" that are worth buying?

Raoul Pal: I am actually preparing to launch an NFT fund. Many high-net-worth individuals, family offices, and even OGs who have made money in the crypto circle but have never bought digital art don’t know how to purchase. Our fund will be divided into two parts: one will invest in "holy grail" assets (like Alien Punks, XCOPY, Beeple, valued from hundreds of thousands to millions), which have already proven social consensus. The other part will invest in mid-tier artists whose works have very high convexity. For example, "Die with the most likes," which humorously and somewhat crudely portrays the decline of the American middle class; or German artist Kim Asendorf, who is at the forefront of AI art. If the works of these artists are repriced from 20 ETH to 200 ETH (5 to 10 times), and ETH itself might also rise 10 times, you will receive a stunning 100-fold return.

Don’t worry about ordinary NFTs, as the whole industry is still small, and everything will be repriced. Even if you buy a regular Punk from the same series, that’s still a good deal. In addition, our fund will also engage in NFT collateral lending, aiming for returns over 15% to reinvest and support the entire art ecosystem's liquidity.

Host: Is Bitcoin an investment proxy for AI?

Raoul Pal: It can be said to be, as AI will promote economic growth, and the depreciation of fiat currency due to massive debt will favor Bitcoin as a store of digital value. However, Layer 1 smart contract platforms are a better and more direct bet.

Host: You say everyone is too focused on cycles, while the big picture is so obvious: unless absolutely necessary, you should never sell.

Raoul Pal: Exactly. In this era of Agents, continuously depreciating fiat currency, and everything going on-chain, why would you sell? If we know the long-term direction of market capitalization, why sell? This is the pension plan for all humanity. The economic singularity will arrive in about four years; you now have four years to hold as many of these assets as possible, which will help you through the greatest uncertainty in the future.

Host: Can you provide data to prove that "buy and hold" has outperformed those trying to trade in and out?

Raoul Pal: Absolutely. I’ve done the modeling. If it’s in the lower part of the logarithmic trend channel at 1 to 2 standard deviations of overselling, you buy and then do nothing, the compounding is astonishing. If you try to sell at the top and then buy back at the bottom, 99% of people cannot do it, it’s too difficult. People tend to chase high during the rise. I’ve been in this industry for 35 years, and I don’t know anyone who can consistently make big money through short-term trading. Those who make big money as traders are actually earning asset management fees.

It turns out that the ones who make the most money in cryptocurrency are those who "do nothing." Why do brokers often find that their most profitable accounts are those "dead accounts (forgotten accounts)?" Retail investors trying to sell high and buy low not only fail but also waste a lot of emotional and psychological energy, getting angry or elated daily over price fluctuations, which is certainly the least efficient use of personal energy. If you have surplus productivity energy, study AI, and then hold onto your Bitcoin tightly. If the price is overbought at two standard deviations, you can sell a little to enjoy life; otherwise, just keep quiet, buy the dip, and hold patiently.

Host: When a portfolio falls 60-80% and lasts for months, how can people maintain faith?

Raoul Pal: I don’t care at all. I live off my salary. If I have spare cash and the market is severely oversold, I just keep buying. Because my core logic hasn't changed: tomorrow will be more digital than today.

Host: With AI stocks skyrocketing and many charts continuously trending upwards, won't that attract people away from the dull crypto market to buy AI?

Raoul Pal: Your duty is to be a mercenary for your own capital, going where the money is made. But I believe that cryptocurrency has a higher compound return rate. Compared to Nasdaq, Bitcoin is currently in a significantly oversold position relative to its long-term trend. This means, relative to Nasdaq, you should allocate more cryptocurrency now.

Host: Finally, please give us some optimistic hope for 2026 to 2027 to boost everyone's morale.

Raoul Pal: There is a lot of good news. First of all, banks are coming in, and stablecoins will experience explosive growth in the next two years. Regulatory clarity, with the "Clarity Act," will be signed allowing almost everyone to start building on the blockchain. On a macro level, the U.S. government has trillions of dollars in interest to roll over and pay, so they must continue printing money; global liquidity will inevitably increase. The business cycle remains strong, and more of people’s income will flow back into speculative assets. Most importantly, current crypto assets are at the cheapest low point within a long-term logarithmic upward trend compared to assets like Nasdaq. We are also experiencing the longest duration in history with the lowest readings of "extreme fear" (the fear and greed index falling below 10), and there is a high likelihood that the Middle East war will be permanently resolved. This is practically a perfect storm of bullish combinations. I believe the probability of such an optimistic outcome is 70%, with the remaining 30% of downside risk primarily due to the potential of unresolved Middle Eastern conflicts leading to inflation and liquidity tightening, but I don’t currently see any signs of that.

Related articles: Dialogue with VanEck CEO: Only BTC and stablecoins can survive in the crypto winter, the surge in storage chips resembles a bubble

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