Former Goldman Sachs executive Raoul Pal's insights and investment methods: How to get rich in the crypto space without relying on luck?

Raoul Pal, a former Goldman Sachs executive, author of "Global Macro Investor", and founder of Real Vision, is well-known for successfully predicting the 2008 financial crisis. Recently, in a conversation with "When Shift Happens" and a speech at Sui Basecamp in Dubai, Raoul Pal deeply analyzed how to accumulate wealth steadily in the field of cryptocurrency, and discussed topics such as Bitcoin, Ethereum, Meme, AI, NFT, Sui ecology, Strategy Bitcoin strategy, investment strategy, macro trends and market trends.

Raoul Pal's dialogue with When Shift Happens Highlights:

1. How to get rich in Crypto without luck?

How to get rich through Crypto without luck? Just buy Bitcoin and adopt the DCA (cost averaging) strategy.

Newbies are often prone to fall into the trap of pursuing quick wealth, which is actually full of dangers.

When you start to envy others for getting 100 times the return, you have already stepped into the danger zone. Once you lose your mind and become greedy, it is very easy to mess up your investment.

The Crypto field is full of risks, such as DeFi attacks and wallet thefts, which requires investors to be vigilant and rational at all times.

2. About Meme

Speaking of Meme coins, Raoul Pal said that he did not hold Fartcoin, but held SCF (Smoking Chicken Fish) and DODE. Although SCF fell by 90%, it is currently showing a good rebound trend. He especially reminded investors that whether they hold Meme coins such as Fartcoin, WIF or BONK, they must not let them occupy too large a proportion of their investment portfolio, because there is an 85% probability that such coins will return to zero. He was even surprised that LUNA did not evolve into a Meme coin, and originally thought that people would buy it crazily.

3. Stay away from market panic and return to value investment

If investors are panicking about the market, Pal suggests that they should return to their lives and stay away from the trading screen. Those 5-minute candlestick charts and 1-hour candlestick charts are actually of no substantial help to investment decisions.

Many people fantasize that they can become successful traders and earn 100 times the profit, but the reality is that those who can really accumulate wealth in this field are those who insist on buying and holding for a long time.

4. Beware of Crypto Yield Risks

Regarding Crypto Yield, there are also risks in the way of obtaining income through staking. For ordinary investors, when faced with an opportunity that seems to bring 20% income, they must be aware of the risks behind it.

5. What do you think of Michael Saylor's Bitcoin buying strategy?

Strategy's Bitcoin strategy is creating leverage in the system. Strategy buys Bitcoin by issuing convertible bonds, which is essentially selling options at a lower cost. After these options are bought by arbitrageurs (option traders), they will hedge on the exchange to cope with the volatility of Bitcoin prices and the risks of MicroStrategy stock options.

At the same time, arbitrageurs will also use the fluctuations in the ratio between MicroStrategy's NAV and Bitcoin prices to arbitrage, and use market tools such as the spread between perpetual contracts and spot, and the spread between futures and spot to trade.

Currently, the buyers of Strategy convertible bonds are mostly TradFi hedge funds and other institutions. Sovereign wealth funds such as Norwegian Bank may only value the Bitcoin element, while large hedge funds such as Citadel, Millennium, and Point72 also conduct arbitrage. These institutions are experienced in risk management and may receive systemic support. The size of their positions is reasonably controlled and they are not prone to explosions.

In sharp contrast, traders who overuse high leverage face huge risks, and cases of failed transactions due to excessive leverage are common in the market.

6. Raoul Pal's capital allocation

Regarding capital allocation, Raoul Pal said that Sui accounts for 70%, which is now far more than Solana. Sui's adoption and developer activities are doing well. In addition, he also owns some DEEP (DeepBook), which is the liquidity layer protocol in the Sui ecosystem.

7. The value and potential of NFT

As an innovative technology that can permanently store and trade non-transferable assets, Pal is full of expectations for its prospects. From a macro perspective, the current Crypto industry is worth $3 trillion. Assuming that it will grow to $100 trillion in the next 10 years, it will create a huge wealth of $97 trillion; even if it is conservatively estimated to reach $50 trillion, it will also generate $47 trillion in wealth increments.

These wealth will flow to different people. Art is the upstream of everything, and digital art, as an emerging field, is expected to become an important destination for wealth. In the field of digital art, we have XCOPY and Beeple, and then the generative art movement was born. I spent a lot of time talking to some very famous people, and these high-end people are very interested in this field. After crypto OGs make enough money, they have a strong desire to collect art. For example, CryptoPunk symbolizes your identity and allows you to meet a group of like-minded people. From institutions to super-rich people, to ordinary people, they are gradually beginning to realize the importance of digital art. We are still in the early stages. I hold a lot of art, and I think this is a time span of more than 10 years.

VIII. Advantages and prospects of Ethereum

Regarding Ethereum, Ethereum's network capacity has exceeded the current system requirements, and some mechanisms may be adjusted in the future to return to Layer1. EVM's status is like Microsoft. Many banks, insurance companies and large companies in the world rely on Microsoft, not Apple or Google.

Once you have an enterprise sales model, it is 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 can meet the needs of the financial market well. Will Goldman Sachs and JPMorgan Chase 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 screw everything up, its importance will become increasingly prominent.

Bitcoin Lightning Network, payment and other concepts have limited effect on price increase. The core value of Bitcoin lies in its value storage; the same thing will happen to ETH.

IX. About AI

AI is developing rapidly and its performance has surpassed 99% of analysts. Pal thinks deeply that the rise of AI raises profound questions about consciousness and the future role of human beings. He recommends that people actively participate, deeply understand and skillfully use AI technology.

Secondly, we don’t know what this means for employment, how we create wealth, etc., but I know what humans are best at? What can humans do that AI can’t do? That is to be human.

I developed an AI Raoul that can read the news every day, which is also written by AI. At the same time, I also built a chatbot trained based on its own voice, and the training data covers all its X content, YouTube content and 100 books. Today, users of Real Vision can already communicate with the chatbot. Pal predicts that the two technologies will merge soon, and this change will have a profound impact on the podcast and media industries. In the future, the media content that everyone is exposed to will be unique. Moreover, human memory and words and deeds may eventually become the "nutrients" of AI, achieving a kind of "immortality".

10. Market attention and selection of high-quality projects

This is an attention game. People's attention to key tokens is scattered, and the duration of many narratives is relatively short. Pal emphasized that holding Bitcoin is always a wise choice. In addition, 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, focusing on projects that can continuously increase network adoption, which often have higher investment value. According to Metcalfe's Law, the potential of a project can be evaluated from the number of active users, total transaction value, and user value.

Bitcoin has a large number of users and sovereign countries participate in the purchase, which is why Bitcoin is more valuable; Ethereum has a large user base and rich applications. Although the emergence of L2 makes the situation slightly complicated, it still has significant value. Investors should actively look for projects with both the number of users and the number of valuable applications growing. For example, when Solana was at the bottom of the cycle, the developer community continued to grow and the number of users remained stable. The emergence of Bonk further strengthened the market's confidence in Solana (Note: The host said that in a previous conversation with Toly, Toly mentioned that Mad Lads was a turning point for Solana); Sui is the same.

Highlights of Raoul Pal's speech at Sui Basecamp in Dubai

1. Macro core factors: liquidity and currency depreciation. Cryptocurrency and economy present a four-year cycle, and the root cause is the drive of the debt refinancing cycle. Since the global debt was high in 2008, we have been maintaining economic operation by borrowing new to repay old.

2. Population aging and economic growth: Population aging has led to a slowdown in economic growth. In order to maintain GDP growth, more debt support is needed. This phenomenon is common in many parts of the world, and the correlation chart between debt and GDP can clearly show this dynamic.

3. Liquidity drives everything: The Fed's net liquidity is the core indicator. From 2009 to 2014, liquidity was mainly provided by balance sheet expansion, and then new tools such as bank reserve adjustment were added. At present, total liquidity (including M2) is crucial, and it has amazing explanatory power for the trends of Bitcoin (90% correlation) and Nasdaq (97% correlation).

4. Currency depreciation mechanism: Currency depreciation is equivalent to a global tax. The global annual implicit inflation tax of 8% plus 3% explicit inflation means that you need an annual return rate of 11% to keep your wealth from shrinking. This explains why young people are flocking to the crypto field-traditional assets (real estate, stocks, etc.) have insufficient returns, and they are forced to choose high-risk assets to seek excess returns.

5. Rich-poor polarization and crypto opportunities: the rich hold scarce assets, while the poor rely on labor income (purchasing power declines year by year). Cryptocurrency has overturned this pattern - young people seek breakthroughs through high-risk assets.

6. Crypto asset performance: 130% annualized since 2012 (including three major callbacks), Ethereum 113%, Solana 142%. Bitcoin has accumulated a 2.75 million-fold increase, which is extremely rare in the investment field. Crypto assets are gradually becoming a "super black hole" that attracts funds.

7. Sui ecosystem has great potential. DEEP (DeepBook Liquidity Layer Protocol) has performed best recently. The SOL/SUI ratio shows that SUI is relatively strong.

8. Analysis of current market misjudgment: People often use liquidity conditions three months ago to interpret current market narratives (such as tariff panic), but this is biased. In fact, the tightening of financial conditions in the fourth quarter of 2024 (rising US interest rates and rising oil prices) has a three-month lag effect. The economic surprise index (comparison between the United States and the world) shows that the current economic weakness is only a temporary phenomenon. Looking back at the Trump tariff cycle in 2017, the US dollar rose first and then fell, and then liquidity drove asset prices up sharply.

9. The relationship between global M2 and assets: When global M2 reaches a new high, asset prices should rise simultaneously. Taking Bitcoin as an example, its price trend usually shows the characteristics of breaking through, stepping back, and then accelerating in the "banana zone". Compared with the 2017 cycle, Bitcoin rose 23 times that year. Although the current market is different, it is expected to still have considerable gains. The market is currently in the correction stage after breaking through the first part of the "banana zone" and is about to enter the second part. Usually, this stage will usher in the altcoin market.

10. Business cycle and Bitcoin trend: The ISM manufacturing index is an important forward-looking indicator. When the index breaks through 50, it indicates that economic growth has returned, corporate earnings have increased, and funds have been reinvested actively, and Bitcoin prices will accelerate. If the ISM index reaches 57, the price of Bitcoin may even reach $450,000. The recovery of the business cycle and the increase in household cash have led to an increase in risk appetite. At this time, the investment logic of altcoins is similar to that of junk bonds and small-cap stocks.

Note: Raoul Pal is also a member of the board of directors of the Sui Foundation.