Source: "When Shift Happens"
Compiled by: Felix, PANews
Macro investor and Real Vision co-founder Raoul Pal once again appeared on the "When Shift Happens" podcast, delving into why the AI race is the largest capital event in human history and why cryptocurrency holders are in an advantageous position. Raoul Pal explains the economic singularity, why traders always lose to long-term holders, and why he continues to buy during pullbacks.
PANews has compiled the highlights of the interview.
Host: A few weeks ago, you shared and commented on an interesting video. It satirized that the US stock market keeps rising, just "buy the dip" to make money. If you have no money, borrow to buy. This is not a pyramid scheme; it's a dip-buying plan. What on earth is going on with the stock market?
Raoul Pal: There are two main reasons. The first is obviously liquidity; we are witnessing the expansion of liquidity. The other thing is that we are experiencing the most extraordinary period in human history, nothing else matters. All capital is pouring into the field of artificial intelligence, the most massive race in history. It's a race between nations, a race between companies. Therefore, it will of course suck up every bit of capital because you cannot slow it down.
Host: Tell me about this race.
Raoul Pal: In this world, no one will allow a single superpower to monopolize AGI (Artificial General Intelligence), so there must be two, and globally, only the US and China can afford this race. Game theory suggests that no country will stop now because stopping would mean the other side gains an advantage. Even in scenarios like OpenAI going bankrupt and running out of funds, the US government would immediately auction its assets to companies like Microsoft, Google, etc., never allowing one company to have a monopoly on the advantage. This game is too big; no one will stop. It's a game of converting "units of energy into units of intelligence."
Host: Too big to fail. So, should we just "buy the dip" forever? Will it ever end?
Raoul Pal: I wrote in "The Global Macro Investor" that it won't end until it reaches the economic singularity. The economic singularity is when 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 count AI and robots as population, our current maximum human population is 9 billion, but we can reach 18 billion, 100 billion, even a trillion intelligent agents. If we have 10 billion or 50 billion agents, the economic system simply cannot function as it used to; it operates too fast.
Almost all past technological adoptions followed Metcalfe's Law (PANews note: 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 in human history of Reed's Law (PANews note: the value of a network's scale not only increases with the number of users but also shows exponential growth due to group-forming effects), which is exponential on top of exponential. It's estimated that by 2028, the amount of text produced by AI annually will exceed the total output of all text from Gutenberg's printing press to the present day in human history.
Host: An Anthropic interview today also said they expected 10x growth in the first quarter, but it grew by 80x. That's incredible.
Raoul Pal: Yes, the economic singularity is what happens when you have economic agents (agents) capable of forming capital instantly. That's what Meme coins are all about: instant capital formation and capital destruction. They can instantly establish digital businesses, rapidly capture markets, and then exit when the opportunity disappears. Where is the role of large traditional enterprises in this economy? Who are the workers? The system can no longer function normally. Because carbon-based life (human neurons) operates at a speed of 1 millisecond, and now we are using electricity passing through sand (silicon, the second most common element on Earth) to create intelligence, which is six orders of magnitude (one million times) faster than human neurons. It's insane.
Host: Since AI is growing at an explosive exponential rate, many people in the crypto space want to switch to AI. They feel the crypto industry is boring now, even afraid of getting trapped. What's your view on choosing between investing in AI and cryptocurrencies?
Raoul Pal: Despite the intense heat in the AI industry, I still believe that over a longer cycle, cryptocurrency remains one of the investments with the optimal risk-reward ratio. But it is indeed hard to compete with chip companies like Nvidia, as they are the core part of converting energy into intelligence. However, cryptocurrency possesses 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 massively, they will have their own wallets and conduct business on-chain. Previously, our estimate of the crypto market reaching $100 trillion was based on human users. Now with unlimited AI agents, it completely changes the game. Additionally, the Fed will run the economy as in the Greenspan era, relying on productivity miracles to lower the debt-to-GDP ratio. The devaluation of fiat currency will not stop, and the entire financial system is moving towards blockchain infrastructure. So you just need to get ahead of the institutions. The worst is over because global liquidity is accelerating.
Host: So for you, Bitcoin falling from its recent peak to $60k is not a bear market?
Raoul Pal: It's just a painful correction in a bull market. I've been in crypto since 2013; a 50% correction in Bitcoin is normal, and other altcoins often fall even harder, like Solana dropping 80% before its surge last cycle. The difference is that the 2021 correction was very fast, plummeting and then quickly recovering; this time the correction is more volatile, taking months, so people find it very painful. But look at it another way: the longer the consolidation, the longer and larger the subsequent bull run after the breakout might be.
Host: The issue is that in 2021, it fell and rose quickly, but this market is very choppy and time-consuming. Moreover, some well-performing companies (like stablecoins, RWA) don't have tokens, so retail can't invest. People feel the promise of early wealth has been broken.
Raoul Pal: I don't think that's true. Product-market fit is king. Just because your altcoin isn't rising doesn't mean the promise is broken; the market owes you nothing. People got used to the easy money days of the past few years, but liquidity in 2024 is still suppressed; we haven't entered the real "banana zone" (referring to the crazy rally period). While ordinary people may not be able to buy equity in stablecoin companies, that's not a problem at all. You just need to hold the underlying Layer1 tokens. This is the "universal basic equity" for all of us. If a large part of the future economy is dominated by AI and agents, and they use crypto networks, we only need to hold Layer1 tokens to share in their success. We didn't have such an opportunity in the internet era; there's no excuse to miss it now.
Host: What have you added to your portfolio during the recent dip?
Raoul Pal: I bought some Sui, and a little Zcash. I didn't chase Zcash when it went crazy last year; I started buying during the correction. In the store-of-value space, privacy has value. It's a very simple "left curve" trade (intuitive trade): it's Bitcoin with privacy. And the "right curve" trade (deliberate trade) considers its quantum-resistant properties. While this might incur government bans, it provides very important protective attributes for the future.
Host: Can you explain in detail why smart contract Layer1s will capture most of the value in cryptocurrency over time?
Raoul Pal: Layer1s are investment-grade infrastructure layers. Just as the operating system market eventually narrowed down to three or four major players, Layer1s will also converge to 3 to 5 core chains. As for understanding Layer1 value? If you unplug Ethereum today, the economic value you destroy is enormous: all Layer2s, DeFi, NFTs, RWA would go to zero. ETH's current valuation might even be undervalued. Bitcoin's functionality is singular; its goal is to capture a share of global savings. But the scalability of smart contract infrastructure is limitless.
Host: So which Layer1s will win?
Raoul Pal: ETH has the densest economic value and developer intellectual resources (security, Lindy effect, etc.), like Microsoft; buying it won't be a big mistake. Solana has proven successful; it's more efficient, faster, cheaper. Sui is still very early, but when the market fell 80%, ETH, Solana, and Sui were the only three tokens that maintained economic density. Sui's programmability within a single block, processing speed of thousands of transactions, and finality speed are on a completely different level. Evaluating blockchains with traditional "Discounted Cash Flow (DCF)" models is nonsense because the network's purpose is to provide the cheapest, fastest service. Valuing it based on how much fee revenue it generates is nonsense. The cheapest, fastest, most programmable chain will ultimately outperform.
Host: Some say DeFi has "died" after a large number of hacks in the past few months. How could traditional financial institutions put money on DeFi that is easily hackable?
Raoul Pal: But this only forces people to develop better products. Just like we install antivirus software on computers, hacks are everywhere. Every bank actually has teams dealing with hacks and a ratio of stolen funds; they just don't publicize it. I predicted back in 2014 that the entire financial system's infrastructure would move onto the blockchain. Why? Because it's the most efficient way to output energy. The financial system will always migrate to the most profitable, most efficient track. Moreover, DeFi is actually more suitable for machines (AI agents) than humans. Machines don't even need a front-end website; they can perform extremely low-friction asset rebalancing and instant trades across multiple chains and using various stablecoins within milliseconds. They will be the largest user group of DeFi, and we won't even notice these transactions.
Host: Do you think NFTs will gain huge value because of the aforementioned wealth effect? The CryptoPunks and XCOPY I bought aren't moving at all; I don't even want to look at them anymore.
Raoul Pal: That's because NFT activity is a function of the overall prosperity of the crypto economy. You have to wait until the entire crypto market reaches tens of trillions of dollars. When ETH rises from its current price to $5000, or breaks upwards, you'll see a massive recovery in NFT activity. Think about it, we are experiencing the biggest turning point in human history: we will no longer be the top intelligence on Earth, and art is the carrier that records the culture of our time. When people make big money in this vast machine economy, they will naturally buy "trophy assets" (PANews note: refers to those top-tier assets that demonstrate social status, bring immense psychological satisfaction due to extreme scarcity, prime location, or major historical/cultural value, and are usually "hard to get" in the market), just like tech moguls, real estate tycoons, and hedge fund billionaires buying art after making fortunes.
Host: How do you plan to configure your NFT portfolio? Are only the top "holy grail" assets worth buying?
Raoul Pal: I am actually preparing to launch an NFT fund. Many high-net-worth individuals, family offices wanting to enter, and even OGs who have made money in crypto but never bought digital art don't know how to buy. Our fund will have two parts: one invests in "holy grail" assets (like Alien Punks, XCOPY, Beeple, valued from hundreds of thousands to tens of millions of dollars), which already have proven social consensus. The other part invests in mid-tier but highly convex artists' works. For example, "Die with the most likes," who uses a humorous, even somewhat crude way to document the decline of the American middle class; or German artist Kim Asendorf, who is at the forefront of AI art. If these artists' works are repriced from 20 ETH to 200 ETH (5 to 10x), and ETH itself might rise 10x in the future, you'll achieve an amazing 100x dual return.
Don't worry about ordinary NFTs because the entire industry is still small; everything will be repriced. Even if you buy ordinary Punks from the same series, it's a good trade. Additionally, our fund will also engage in NFT collateral lending, earning yields of over 15% to reinvest and support liquidity for the entire art ecosystem.
Host: Is Bitcoin a proxy for investing in AI?
Raoul Pal: It can be said so, because AI will promote economic growth, and the devaluation of fiat currency from massive debt will benefit Bitcoin's function as a digital store of value. However, Layer1 smart contract platforms are a better, more direct bet.
Host: You say everyone focuses too much on cycles, while the big picture is so obvious: unless urgent, 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 the market cap, why sell? This is the pension plan for all humanity. The economic singularity is about 4 years away. You now have 4 years to hold as many of these assets as possible; they can carry you through the greatest uncertainty in the future.
Host: Can you prove with data that "buy and hold" beats those trying to time the market?
Raoul Pal: Absolutely. I've modeled it. If it reaches the oversold zone of 1 to 2 standard deviations below the lower band of the logarithmic trend channel, you buy, then do nothing; the compounding is amazing. If you want to sell at the top and then buy back at the bottom, 99% of people can't do it; it's too hard. People often chase highs during rallies. I've been in this industry for 35 years; I don't know anyone who consistently makes big money through short-term trading. Those who make big money from trading actually earn asset management fees.
The evidence shows that the people who make the most money in cryptocurrency are those who "do nothing." Why are the most profitable accounts at major brokerages often "dead accounts"? Retail tries to sell high and buy low, not only fails but also consumes massive emotional and psychological energy, getting angry or ecstatic over daily price fluctuations. This is absolutely the least efficient use of personal energy. If you have spare productive energy, study AI, and then hold onto your Bitcoin for dear life. If the price becomes overbought to two standard deviations, you can sell a little to enjoy life; otherwise, shut up, buy the dip, and be patient.
Host: When a portfolio is down 60-80% for months, how should people maintain conviction?
Raoul Pal: I don't care at all. I live on my salary. If I have spare money and the market is severely oversold, I keep buying. Because my core logic hasn't changed: tomorrow will be more digital than today.
Host: Now AI stocks are soaring; many charts are straight lines up. Won't this attract people away from boring crypto to buy AI?
Raoul Pal: Your job is to be a mercenary for your own capital; go where the money is. But I believe the compound return rate of cryptocurrencies is higher. Compared to Nasdaq, Bitcoin is currently at a severely oversold position within its long-term trend. This means, relative to Nasdaq, you should allocate more to cryptocurrencies now.
Host: Finally, give us some optimistic hope for 2026 to 2027 to help boost morale.
Raoul Pal: There's a lot of good news. First, banks are entering; stablecoins will explode in growth over the next two years. Regulatory-wise, the "Clarity Act" will be signed, allowing virtually everyone to start building on the blockchain. Macro-wise, the US government has trillions in interest to roll over and pay; they must keep printing money; global liquidity will increase. The business cycle remains strong, more people's income will flow back into speculative assets. Most importantly, current crypto assets are at their cheapest low point in the long-term logarithmic uptrend compared to assets like Nasdaq. We've also experienced the longest-lasting, lowest-reading period of "extreme fear" (Fear & Greed Index below 10), and it's highly likely the Middle East war will be permanently resolved. It's practically a perfect storm of bullish factors. I think the probability of this positive bullish outcome is 70%, the remaining 30% downside risk mainly lies in the Middle East war not being resolved, triggering inflation and liquidity tightening, but I haven't seen signs of that yet.
Related reading: Dialogue with VanEck CEO: Only BTC and Stablecoins Remain in Crypto Winter, Chip Stocks Surge More Like a Bubble
