Raoul Pal & Chris Burniske: How an Expert Values Crypto

this whole Bitcoin halving narrative I spent a long time looking at it and I think it's factually incorrect Chris fantastic to get you on real Vision you've been on before right I was on talking about valuation I think in the last bear Market sometime fantastic um can you just introduce yourself what you do and how your path how you got here you know what was your crypto Journey as well because it's I just find it fascinating always how people jumped into this yeah definitely um well when I was in college I was studying Marine Sciences um it was called ocean systems at the University I was at and um around that time I also came across the Silk Road This was um 2012 2013 and um I found the Silk Road to be a radical experiment and it was more intriguing to me actually than than Bitcoin itself Bitcoin was just a tool that facilitated it um but it did cause me to learn a bit about Bitcoin um a couple years after that I joined a small startup by the name of Arc invest before they had any ETFs live and I worked for Kathy Wood for three years thereafter so that was 2014 to 2017 and um towards the end of 2014 we started a deep dive into Bitcoin it had been cryptocurrency had been one of the elements within the next Generation internet uh theme overall which would become the arkw ETF um and grayscale approached us and said hey we think you guys can put the Bitcoin Investment Trust in some of your ETFs and we didn't have direct Bitcoin exposure at the time we had like Nvidia for a variety of reasons um because the gpus Taiwan semiconductor because some of their Fabs were producing A6 but no direct cryptocurrency exposure it was too early um and ultimately in late 2015 Arc did put gbtc into two of its ETFs um became the first public fund manager to give its clients direct Bitcoin exposure and that was right around when um Bitcoin was at 200 and and I think the next month or two months later in November of 2015 Bitcoin quickly doubled from 200 to 400 and then it was a media darling again and um a right place right right time kind of thing right and then things just kept going from there ended up meeting Jack Tater who proposed uh co-authoring a book together which we did when we got the McGraw-Hill book deal um and then around it's called crypto assets um so um yeah thank you that's that's very Savvy of you um crypto assets the Innovative Investors Guide to bitcoin and Beyond I've I've lost my uh PR training Ralph since I'm uh the only PR training this is real vision but um yeah and so wrote that book uh that was published in the middle of the bear Market of 2017 and it was really the first book that went beyond Bitcoin right and discussed quote unquote alts on an evaluation methodology to approach you know the whole asset class of crypto and around that time I was also a founding placeholder with my partner Joel monegro um and assisted by Brad Burnham who was and is the co-founder of Union Square Ventures and so you know now here we are 17 18 19 20 21 22 23 I guess seven years later um and placeholders chugging along and um things are going great and I'm starting to feel like a seasoned veteran I guess and at placeholder what are you doing you're doing both privates and liquid correct I would say in capital we're pretty evenly balanced between public and privates but we are known as a venture capital firm and we do support teams in that capacity our view is even in the public markets when we're buying in distressed situations a lot of times you're encountering the same types of issues you would with the startup and you know you get Venture scale returns if you if you do it right even in the public market you do have the benefit of of liquidity um so in capital we're evenly split in number I would say we do about twice as many Venture deals as public market positions so that just means our Public Market positions are twice the size of our average Venture deal hi everyone Ralph's mentioned crypto it's really my Flagship show it's where I interview the best guests in the world people you never get on another show I think it's the best show in macro crypto and web 3 combined in fact that's what it does it covers everything but really it's all about the revolution in web 3 and crypto and I'd love it if you got it every week in your inbox all you have to do is just click on the link below pop in your email address and you'll get notified every time it comes out and you don't miss anything as you take my journey into the exciting New World of crypto and web 3. thanks so talk to me a bit about your valuation framework and then we'll start digging into where we are today how do you think about valuation in this space you know because different people have had different perspectives I've used metcalf's law and some sort of yeah methodology around that have you have you thought about it and has it evolved oh wow this is a big one I I would say I was more focused on valuation methodologies in 2017-18 and the reason I say that is um I think valuation methodologies are most useful in crypto in Bear markets um for for setting the price floor and then it's really a market structure and flow dynamics that are gonna um you know determine your end State prices at the top of a bowl so like and and then it really depends on the asset right so if you look at Bitcoin um I think price floor it's it's a commodity right commodity um is the price floor tends to be the cost of production and it's a it's an unusual commodity admittedly right in that like if miners keep going offline then the cost of production will keep dropping and and I think that that is um you know a wrinkle within using that commodity cost of production framework to Value Bitcoin at the bottom of bear markets but I you know I combined that I would say with um because Bitcoin is so psychological as a store of value with things like mvrv so market value divided by realized value where um when you when you drop beneath that you know you're starting to get into a situation where the holder base is beneath its cost um and when that happens you know the Bitcoin holder base is so committed you know I I just saw I I think a tweet that the amount of Bitcoin that is on exchanges is less than the amount of Bitcoin that has been dormant for 10 years right and so that's an extremely committed um huddle base let's call it and so you know looking at the the psychologies through numbers of the the Huddle base for for Bitcoin I think is is really useful for um you know those bear Market bottoms and then you know there's an array of technicals of which you're more an expert than I am but um the 200 week has historically been reliable you know that has been broken this fair market um but it's uh you know we're touring we're I think we're toying with it now um when I look at the charts yeah it feels like it's contextually right I don't look for Perfection you just look for things that are contextually right and if you can take a load of boxes you're kind of probably in the right ballpark you know exactly yeah and and that's a mistake that I think I see a lot of people online making is um they're always finding these exceptions it's like well it broke this Rule and so like it can't possibly be the bottom or the top and it's like yeah but the other 10 indicators are all like flashing as they should be so I totally agree it's a Confluence of um methodologies that inform those um those bottoms and tops so that's Bitcoin you know that really sets the stage for the rest of crypto um the proof of stake based assets are trickier because if you try and value them um based on their their value flows they're they're recursive right because you're you're getting value in the stake based asset and then the stake based asset is fluctuating in US dollar price I think a cleaner way to go about it is just looking at yields um and you know the the higher risk of the network the the higher the yield should be and so I do use real yield or you know I adjusted for uh inflation on the protocol or or do you just keep it just basic so I mean I would look at it from both um I think that like eth is the only one that that has real yield right um and the the others are all right now subsidized yield through inflation um now I think that all these Protocols are going to have a choice to make of will their base just tolerate low amounts of inflation right to to subsidize the work of the validators or are they going to get to a place um where the transactional demand for Block space actually makes it a quote unquote profitable protocol like we see with with eth um and so but it's a great question because we need um we need standardization right and so like I think that um there should be for example on the the um increasing number of valued evaluation methodology websites such as token terminal um you know there should be real yield as as one metric um and um and then the other forms of yield because I I just thought about this and you've probably seen me talk about this is I think the whole space should be benchmarked against eth like all credit markets are benchmarked against treasuries yeah and so you should be able to see as you suggest hey Solana has a higher yield because there's perceived to be either more price risk or more volatility risk or whatever it or adoption risk yeah and we can do like eth plus 300 basis points and that would be so much easier and I mean if you're thinking that way then I bet a bunch of Institutions are thinking that way and you know as the the makeup of who is in crypto changes so are the Norms so I I could totally see an eth plus type of situation and you know one of the arguments I've been putting forth is that eth is risk minimize yield for the internet just as the tenure is risk minimized yield you know for the physical space and so um I think that everything will be benchmarked against each so long as eth maintains its dominance and I don't see a reason why why it wouldn't and so that's stake based assets right that would be say one pretty simple valuation approach and I'm sure people are going to get more sophisticated over time um with it I think the frustrating truth as someone who like who approached the whole crypto space very much as a scientist and that's how I was trained is you know if you get too lost in say some of the valuation methodologies you'll miss some of the larger moves and you'll actually take yourself out of the market and so this is where I think of you know the bell curve IQ chart and you know working with both the left side of the curve and the right side of the curve I totally agree because look in an adoption Market where every participant has a stake in the adoption right unlike a mobile phone network we all have a stake in you know ethyl Bitcoin or whatever it is and therefore narrative becomes really King so you need to see narrative plus some adoption measures and you kind of have to put your finger in the air and says it feels about right it's like you and I both got quite bullish on Solana when it collapsed because you look at it so ten dollars it was beneath uniswap yeah and when you look at it it was like well I can see the number of developers I can see the activity I can see the team and the price doesn't reflect and it just feels like 8th 2000 and 2018 all over again for sure for sure and I also think that um you know another way to approach the whole crypto Market is um much more psychologically and and looking at how things are are Tethered to each other so you know you could start with Bitcoin or you could start with macro and then for macro you get to bitcoin and then Bitcoin is you know right now the flag bearer of what is possible for evaluation of a crypto Network yes it's proof of work most of the others are something different but just on the left side of the bell curve you you have a Bitcoin valuation then you have an eth BTC ratio which is eth relative to bitcoin right and I think people want to see parity they love that chart by the way it looks like it's going to explode but it looks great right and so then you have the BTC chart then you have the soul eats chart right and that's its own competition and so everything is interconnected in in markets and you know so that's one way to to look at things and so it's like okay if um BTC hit you know or went through a trillion last cycle um could it go to two to three trillion next cycle probably um does that mean that East could also go to two to three trillion potentially you know I think East 20K is 2.4 trillion roughly um and so then you've got some type of BTC parity uh and then you know you look at say the the dominance chart of BTC over time and you say okay if BTC dominance is declining in the midst of all this and let's say BTC plus eth together make up 50 60 of the ecosystem then that leaves another room for two to four trillion of value in the rest of crypto and voila you have a 10 trillion dollar uh total Network value of crypto which I I would expect us to see at some point this decade right so that would be like another relatively um yeah I love doing those broad-based sense checks they just because in the end we don't know the path but something like that broadly makes sense and if you look at the the increase in adoption in terms of number of active wallets you can back out to roughly the same numbers yeah um also what I found was really interesting is I did a lot of this work on this trying to find an approximation for metcalf's Law and there's a great guy Bloomberg who's kind of taken it up and working on it now uh Jamie um Jamie Coots but what I basically found bizarrely is price is pretty accurate yeah you get some deviation but the market seemed quite efficient which means that yeah technical analysis is actually pretty useful if price is pretty efficient so it's kind of you know it's interesting efficient market you'll find inefficient stuff when you're looking at smaller stuff but at a broad base it's probably right I remember seeing what you circulated which was basically ether's on the exact same path as BTC when you look at it from their Tesla um and and yeah that that was fascinating and then because its adoption curve is faster as you said Bitcoin might get to 2.4 trillion but eth will get there as well it's kind of it's exactly backing up your kind of thesis which looks the same as the eth Bitcoin cross chart as well it's like that looks like it's gonna yeah triple or quadruple from here so therefore it all Stacks up roughly what do you think of the Soul eat chart then Super bullish on that one if that breaks here it's still messing around but if it breaks that level it just feels to me that it's yeah Solana will outperform eth will outperform Bitcoin and something else will outperform Solana but yeah it becomes harder for me I'm just don't have the ability to figure out what that'll be you know because we've got new stuff like suing we've got other stuff coming up you know I don't know but but those three charts are really interesting to me yeah they are for me they're they're like um crypto native macro charts and so you know there's all kind of there's more idiosyncratic things to crypto the other thing I think about a lot is um the amount of time that this Market is open I I ran the math at some point and and it's more you know the crypto markets are open more than 5x the amount of time than the traditional markets so if you think about like an information processing machine um they're a much more active on always on information processing machine the other thing is this is the first time the world has been able to bid or sell an asset Around the Clock um asset yeah right and so they're they're everyone's in the same markets and it's not you know a pink slip it's not you know there's no um say you know weird access points for different geographies everyone's in the same pool and you can watch and be like okay us is going offline um is just coming online okay Europe's coming online okay age is going offline and you see how different parts of the world are reacting and and I I do it mostly for Bitcoin but it shows up in other assets as well and I don't think that people fully grok um how powerful that is but I think it's it's part of what makes crypto so intensely boom bust um because we're all moving as a herd together you know and and at five times the speed say of what you would be able to find in traditional markets and I looked at this boom bust thing and we kind of tweaked out to each other and I still owe you some charts is okay we've got the adoption curve which goes up over time right and it's you lose the log chart and you know we're all familiar with that pattern but this whole Bitcoin halving narrative I've spent a long time looking at it and I think it's factually incorrect interesting it is actually the business cycle which is quite extraordinary and it's best represented by M2 so Global M2 year on year is the same as Bitcoin year on year basically except Bitcoin overshoots on the upside so it comes off this actually off the scale because it's an exponential adoption asset it's got metcalf's law to it so what you find is in the bull market that outperforms where M2 should be in the bear markets it exactly follows it and so then I thought huh what's going on here and I've just wrote a thesis on this because I just suddenly figured it out I got on my Bloomberg a chart of the ism survey and I'm like I've been looking at this for 30 years I'm like it looks really cyclical now I mean like like clockwork cyclical so on Bloomberg you've got these Cycles finder so I put it on and every top is exactly three and a half years right and all the bottoms match every top is every time Bitcoin tops I'm like and then I started doing the work and I realized what I think has happened is the global business cycle is just a refi cycle because everybody in the world reset their rates at zero in 2009 and at most debt is between three and five years so you get this three and a half year cycle right which is a refi cycle so right now the problem is is if we got rates of bloody five percent there's not enough money to cover it so the economy slows down Etc so it feels the Bitcoin all the crypto Market is liquidity flow plus adoption once I discovered that it just so happens that Bitcoin was launched at exactly the same time as zero rates so it's the dental that the Bitcoin halving because you know I looked at this for a long time and you know talked to plan B about this and I'm like Direction it seems fine I don't have a problem with it and doesn't have to be perfect but it's like but where's the demand side of that equation because it's only a supply story and every time I look at people in commodity markets who just use Supply which is a lot of people they always it up because demand is actually the more important equation that's really interesting I can see it um and I think that um you know you've you've cut my eye with some of the liquidity arguments and um I'm trying to do a better job of of tracking Global liquidity um because I think yeah there's no easy place I can get on Bloomberg and my macro analyst puts it together I'll see if I can figure out an easier place for it or if there's a proxy for it um because the usm2 alone doesn't work it has to be Global limited right right because right now we have China injecting liquidity into the markets which is a big deal and so I I definitely think that's valid I think that the um Bitcoin having narrative is baked into the cultural fabric enough that it will probably continue um and that's fine it you know like it can be used to to tell the um the supply side of the story and liquidity can tell the demand side and how do you approach the defy space this is the space I find the hardest because the adoption's actually very small because it's almost unusable for a normal human being um but it's interesting there's a lot going on you know whether it's uniswap or whether it's Ave or whatever there's a bunch of these that are really interesting how do you approach that space or do you not at all um well it's it's been a journey so we seeded some teams in 2018 and 19 and that became Blue Chips like balancer um or Uma and um we made some Public Market investments in teams like maker for example or Nexus mutual and um by and large those did very well for us but I do feel and and some people are gonna really not like me saying this but I do feel that uh Defy is is still in its V1 stage um and there's really awesome Innovation and and there's indications of what can be there um but I think we will look back on a lot of defy as we know it today um to be you know I don't want to use an insulting word here but you know more proofs of concept um that uh grew up over time and we've been uh we've been speaking with a team called um Infinity exchange and um they've been blowing my mind I would say um the leader of it is this guy Kevin lepso who was head of structuring um at Morgan Stanley from 2006 to 2011. so through the financial crisis uh through Max complexity um and he he gets defy and the importance of say you know the the transparency the assets being on chain but he also you know looks at a lot of the the inefficiencies let's say if you look at the spread between borrow land on Ave you know it's it's like I think I was just looking at youth the other day I think it it's um four percent to borrow and two percent to lend so you get a 200 basis point spread um and it's kind of like being able to um buy Bitcoin at 40K and sell it at 20K those spreads are never going to work uh for institutions or Power Players um and that's that's just one example I think that you know the spreads are much tighter in exchange um but you know one of the things here is and and you know this is from the conversations with with Kevin of from who I've been learning a lot so crypto right now they're they're more Equity like instruments than they are Bond like instruments and the bond markets are much bigger than Equity markets um and like and because of that we don't have yield curves really in crypto we don't have continuous yield coach there's a team we we work with called element um that you know is is working on on parts of this there are people who are working on parts of this the Shanghai Fork is going to help on eth yeah that that'll help and like where you're seeing signs of um people playing with the idea of yield more and not you know degenerate yield but but real yield as as you point out but we need uh we need much better borrow land markets 2022 taught us that and even the defy Primitives that survived and that's great the spreads are way too wide um those need to tighten I would say that stablecoin yields need to achieve you know close to parity with real with the yields we see in traditional Finance like okay maybe an extra 10 20 basis points or whatever you want to apply to you know idiosyncratic crypto risk but those yields need to come together also you know um custodying uh real world assets and generating stable coins against those um is is another thing that we don't really have to start to really grow the the crypto pool so but you know those are um those are kind of more red tape stodgy quote unquote boring institutional things um that requires a different type of founder I would say um and so I think that we will see more of this hybrid or institutional defy come in built more by um say combinations of teams that came from Wall Street or traditional Finance with strong coders um who speak the language of traditional Finance because traditional Finance there's some experimenters like John or whatever but most of them they they just can't get over the line on too many things with D5 as it currently exists so what's super interesting is Alan Howard's a good friend of mine you know Brevin Howe digital he's the huge now is a hedge fund and what he did is hire well not higher he moved his money market an Emerging Market Traders to run the D5 books because they said they completely understand it and they understand how to Arbitrage it and all of that but you know I've got this uh crypto fund of hedge funds called exponential age asset management and what we found is basically at this current Market there's probably there's probably about four billion dollars in hedge funds maybe five in liquid Market strategies I mean there's no money three trillion in traditional markets in hedge funds so what you've got is that tier of people creating liquidity just not there so there's a few guys like you who are doing um you know mainly directional stuff so we've got polychain and a few others there's not that many Arbitrage funds yet that will tighten up all of these spreads and make all of these system things you know the the relationships between different uh crypto assets and stuff it's just not there there's no Capital yeah I think it will come I think the capital will come and the next wave will see a lot more hedge funds into the space that will start arbitraging spreads and make it more liquid for other people to use and most robust and stable I think I agree with that um and again this is pulling from conversations with Kevin but some of it is there's not um there aren't good ways to hedge out duration risk and without you know really robust um yield curves and borrow land markets with tight spreads you know there's there's too much risk I would say for an arbitrager to come in and do their job while while hedging out the the exposures they don't want so there are some like I would say you know fundamental pieces of infrastructure that still need to come into play that are probably going to be built in more hybrid defy environments that will allow power players who truly operate at scale um to come in and and do their work yeah my my view on this has been if staking yields was step one but that was one year yield and then you had to take illiquidity risk by taking Lido or somebody else and it's a mismatch duration mismatch which is always a problem right because it can go horribly wrong but after the Shanghai Fork basically anything out to one year is now liquid so now we can have a money market curve at least so we can have a three-month rate of money a six-month rate of money and one year rate of money an overnight rate all of that that's going to help a lot okay it doesn't give us an option Market that goes beyond a year yet you can but you've got a lot of risk as you point out I think this is a big deal and then somebody will set a longer term Benchmark duration yield at some point but it's probably still too new as an asset to have that but it feels like it's interesting and my guess is it all priced somewhere like the treasury curve because all money is fungible in the end you know there's some relative fungibility between you know a U.S treasury and eth so I think I think that's how it'll end up that makes sense and I mean the last bull market I would say was crypto playing with this idea with fire um you know because it's manufactured yield that was the problem and so it was you know it was us more in our juvenile State you know with um hairspray and and lighters and you know just torching everything and taking things to excess and I think that um or at least my hope is that the next expansion is uh more mature and refined um approach to to these really important components of Finance so you got very interested around the lows from that June to October period as crypto was basing what was what got got you more focused over that period and then we'll come into Solana because I thought that was very interesting but what got you focused because you know you've been to recycle before there's a lot of people who haven't you kind of know how it plays out uh and you remember and your tweets were quite funny because it's just reminding people of what they were like back then and it was exactly the same mentality yeah it's all going to it never changes I mean when I really started paying attention to crypto it was in the 2014-15 bear for for Bitcoin um and then that's when eth was launched and so from that bear to the 1819 bear to the 22-23 bear um I there's just certain patterns that pop up a bunch um and there's the psychological ones of um and and this is where Twitter is a really powerful tool but you know when a asset is really low and people are calling for zero in the case of Seoul or you know 10 12K in the case of BTC and and not honoring the fact that it's showing some strength you know that's an indicator to me the hysteria I mean the amount of rumors that we're circulating especially after FTX went under you know basically everyone was judged to be insolvent at that time uh insolvent or scamma or a fraud or it was incredible yeah and so that was basically the same um Behavior as the the 2021 top but just inverse um and so those types of things um socially made me interested and then some of it is going back to our evaluation conversation of um if I have rough price targets for certain assets that are on my shopping list once they've dropped sufficiently typically once they're down 75 80 percent um I'm starting to get interested because even just like here's a rough heuristic you know if if you look at um BTC you know in 17 2017 that hit 20K in 21 it hit 60 70k so it went about 3x right um all-time high to all-time high East 1500 in 2017 4500 5K in 2021 again 3x and you can find different examples of this typically the breakout cycle or the like I'm here cycle is you know the 100 or 1000x or you know the crazy thing but once something's at sufficient scale let's just say Okay 3x High to high is you know what you could expect if it's going to have continued success well then once something's down 80 percent that means it's a 5x back to the prior high and then it's a 3X from there to the next high so then it's a 15x um and so then at that point you know I'm I'm getting pretty interested and then if it's down 90 percent well then it's a 10x back to the high and 3X and X High so that's maybe a 30X and so that's how my mind works um and so and you know I never try and time anything perfectly tranchin um you know I learned from Kathy that um once you have conviction in an asset you just keep buying it it doesn't matter how low it goes doesn't matter how sick you feel um the sicker you feel the more you should buy and um looking back at our um you know our behavior in 2018 and 19. the assets that were bought near the bear Market bottom bottom you look at the units that you accumulated um for certain dollar dollar amounts and it blows you away you're like oh my God like I needed to buy more there and so um that you know I would say the back half of last year is when I was having that experience yeah I was just saying that any Penny I could find I was trying to to take the other thing I I Learned was having been in Bitcoin since 2013 is ridden the cycle up and down so taking the the joys and the pain yeah and then rode it all the way back up in 2017. got out too early into the Mayhem when it was at 2000 I was up 10x and I thought I was a God yeah it went up another 10x then it collapsed and then I bought it back I thought brilliantly in in April 2020 but I sold out at 2000 I bought back at 6 500 I'm like you're why don't you just keep it and buy more in the low and I would have done a lot better I I went did the whole maths and how much better I would have done even though I traded it really well theoretically other than 5x better just by holding it and if I'd doubled my position my original stake at the low I would have been something like 15 or 20 times more than I made I'm like okay so that's I've used that framework it's like okay fine just find whatever liquidity you can when it does this yeah and you tend to get the higher expected future returns I see I I discovered this exact same thesis that you had it was after the European crisis in 2008. um so 2008 European crisis 2012 there was a whole European economies that their stock markets were down between 75 and 90 percent so you need to make one choice is is this entire stock market going to go to zero because over time people you know anybody the troll on Twitter will look well it can go down 50 again here we just size it accordingly right yeah but um but the expected future return is astronomical and I just called it the bombed out Market strategy and it works brilliantly well in crypto because it's so cyclical it does yeah well and I think that your story is a good lesson for a lot of people of you know and and I I do this personally um where I don't uh I like I'll never sell all my Bitcoin you know there's like I've not sold anything yeah there's a position that like stays long and then there's like a trim position um but you know maintaining exposure at least for me it just keeps me calmer if if I were to sell you know all the crypto exposure I have I would kind of feel naked you know I I wouldn't be able to um you know just look at things as as logically and I think I would feel jumpier and so um again like I look at crypto Twitter and I think people are obsessed with perfection and you know these people who claim to make all this money and you know they try and say replicate a false stream um or a false idol and I think it's you know better to stay long and you know accumulate as you're pointing out you know what you can when when the opportunity arises um because yeah also just I notice you know when you step back and I keep trying to get people to think this it's a long-term adoption curve and we only just started we're at 300 million people and we will get to 3 billion people over time so you need to think of things as a long duration asset and you just size it accordingly now depending how much risk you want to take and that's it but people get so obsessed I mean yes I look at hourly charts next to me on my Bloomberg of eth and everything else I don't trade at all I'll never buy never sell it occasionally I'll make a switch so if that eth Soul if the Soul Eater chart really breaks and I got some conviction I'll switch some of my eth into salt that's all I that's all I ever do right I don't even trade it even though I've got hourly charts and I'm watching it like a crack addict for no reason entertaining and it's information um it is and if you enjoy doing it why not um no I agree well so I've got a question for you then do you think about terminal value for BTC no okay I just think of I think what we'll see because of adoption curves and how they always play out is a decreasing rate of change yeah and what you'll end up doing is naturally switching into another asset if you're driven by performance there's a whole bunch of Bitcoin Maxes who aren't there driven by um idealism and that's fine but for me it's about you know why did I make the switch from Bitcoin into eth it was just that the eth adoption curve for such a large asset was so much faster so I think what will happen is these curves come down over time um and so I don't know what that terminal value is and what is this I don't think of some Golden State of heaven where we suddenly come and the you know the birds are chirping and we've reached this state right you know basically speaking will all be okay if it goes up from here you know another couple of Cycles with this 3x versus the previous High everyone will be just fine you don't need to be the richest person in the world um you can still be surfing in Hawaii or scuba diving in the Cayman Islands and not have to focus on all of it so that's kind of how I think about it but everybody always wants a Target in the back of my mind when I first started this I wrote the first ever macro strategy piece on bitcoin and I just compared above ground supply of gold and known reserves and just backed into Bitcoin and said roughly speaking with gold at I think it was about 1300 bucks at the time I said equivalence basis bitcoin's worth a million dollars and I've always stuck with that as that's probably the kind of you know the right kind of Target yeah well that and and I think that aligns with Kathy's thinking as well um yeah I you know it's an interesting one because I look at uh BTC well so like if BTC is chasing gold and eth is chasing treasuries then the treasury market is bigger uh yeah if you look at total that there's no way a non Network outside of one thing so it's a it's a terrible narrative but it is like a digital goal there's a fixed asset that that does one thing right now yes we've got these ordinals and a few other things but I don't see that really it's getting traction so that is not the same network if you think of metcalf's law it's not only the number of connections on the network but the interconnected between them I everything you build on top right honey has that written large everywhere right so there is almost in no world if that continues the Bitcoin stays as is the you know the Bitcoin Maximus perfect thing it can't be as big as a just mathematically impossible and that's okay yeah people kind of they worry about that like it's some War it's not it's a you know it's a just have an abundance mindset and everybody's fine yeah well eth is definitely the network of networks and then you have s-curves on top of the ether Network itself that are growing and pushing um then the value of of eth itself yeah I mean look at Matic right matic's a perfect example I'm actually going to write a piece on this I've been working with Kevin Kelly from Delphi I think of if as almost a perfect representation of an economy like you said we haven't fully got the yield curve longer data but we but and I'm thinking of things like polygon has been companies built on the economy so they're using the facilities of being in the United States like Google did but it's built on top of that infrastructure and it's net accretive to the economy which is eth and it's a company on top so you can have different growth rates there's something in this I'm just trying to I need to figure it all out well to to take the analogy even further if you say that um eth is a digital nation state then polygon is a jurisdiction within that nation state and then there are companies built within that jurisdiction it could be it's something like that or it's like it's a company like Google of which we've built businesses on like you know we're both using Chrome browsers now so yeah it's all this interconnectedness the staking is the is the treasury market and the FED funds right and all of that stuff Defy is Bank financing and lending nfts assets so that's property art all the other things that occur in the US economy because I realized this I had this breakthrough I was I was I was in my house in Little Cayman and um I was remembering I made I've made two really big calls in my life where I've kind of gone irresponsibly all in and one was 2012-13 I was in Spain and I was writing Global macro investor charging everybody in euros and living in euros and I just thought the Euro was like 148 or 145 something like that and I thought I think over time because the structural problems in Europe the euro is going to fall so I switched all of my savings into dollars and then I thought well where am I going to hold this and how I'm gonna do it was I was worried about European Banks I changed the billing of global macro investors so my entire income to dollars and then I went and bought real estate I bought a little place in Miami and built a house in the Cayman Islands and I did it so I couldn't trade because I knew that you know over time it should come my favor and so I bought the asset and then I realized that what I'd done is I've made money because the the dollar had gone up against the Euro but the property had gone up versus the dollar and it's like oh this was in a teaser and then suddenly I started oh my God it's actually a full ethnation State it's not 100 intact but it kind of makes sense no I I I agree we've we've um been strong Believers in the idea that like the base layer networks like eth are sovereign Nations um and then and then but there is a difference between say so like eth and soul are are pretty similar I would say like different um different cultural makeup um but where you know they've got all the components and people are um people use the base currency a lot right people price and ease people price in Seoul and then I do have a question more for the assets like Adam or dot um which are which which we also hold but they're um less transactionally used by the constituents of the nation and more you know a supply-side asset um and so it's one thing that I'm watching and and you know Adam is working to have interchange security and or Cosmos is working to have Adam serve uh interchange security and and I think be more consumer focused um but I think this is a design decision that people have to pay more attention to um even if you compare say Avalanche and Cosmos in architecture they're not all that different but then Avalanche prioritized avax within its ecosystem more than Cosmos prioritized atom now I would say in some ways or in many ways Cosmos is um like the cypherpunk dream and it's the most thin pieces Loosely joined it's had a lot of emergent Innovation and you have some of the strongest engineers and dreamers in all of crypto within Cosmos for that and so that's a strength um but then I'm very curious to see how the performance of avax versus atom say progresses over time because that's a more pure experiment where you have pretty similar architectures but with different approaches at the base layer offset and um following this idea of these being nation states you know you want as many constituents as possible using the the base currency to settle their liabilities yeah exactly right now I'm trying to think through some of that stuff and I don't really know one thing I wanted to ask you about this as well because you mentioned Dot dot is the one that everybody who kind of was a thinker in the space and an investor loved and it kind of hasn't done what was expected of it is it because it it's not a retail use asset is it what what do you think it is that's not driving large Network and it gets used and there's plenty of developers and stuff but it just doesn't hit that kind of inflection point where it kind of outperforms the market why is that right well I mean it goes to this idea of what I just said of um you know dot is not widely used transactionally and so it's not pricing the goods and services within its Network State it's more of an infrastructure asset that people buy and stake to secure so it's like a mobile phone network because you don't accrete the value of the stuff that's being the commas being conducted on it yeah so I.E there's less Network effects probably um and so I I think that's one thing to investigate um I would say that um you know I'm sure there are DOT enthusiasts who would just say you guys are too impatient you know and the the vision is coming together and Dot and Cosmos have both been on top of the you know inner chain Vision with different approaches um polka dot is more prescriptive um certainly than Cosmos is and so you know it might be that polka dot is used more by Enterprises who want to control their parachain environment um you know but I I totally agree when the polka dot white paper came out it was a seminal white paper that everyone read and um it's still I think a top 20 Network and I don't think it it goes away um but it's important for people to pay attention to the differences in crypto asset design and use because that that is a big a big one like and that's where I see Ethan's soul is quite similar um and some of the other designs they made more rational or logical decisions I would say um but they're they're less explosive or less exposed to network effects yeah that's really interesting that's cleared up for me actually I think what area and I don't need to name stuff because you don't want to move prices and stuff but what areas are you focused on that think you know this is you know you're getting yourself set up for the next bull market you're looking at stuff saying okay where are the kind of areas I want to invest what kind of areas that you're looking at outside of the main stuff we've talked about sure well I I mean I would say that so my focus has been two part in the public markets it has been buying the distressed important infrastructure of the next expansion and a lot of this is you know on our website placeholder.vc and it's a lot of the names we've we've discussed already I would also add you know file storage names to that mix um and so those those are things where they're big teams they're well financed they're liquid um it's a little bit like being able to buy you know uh Microsoft and Amazon and those types of names after the.com crash right and and that's how I look at it um so that was really a lot of time in the back half of last year um and then on the Venture side you know placeholder is a very small firm um people don't realize this but but we're five people and um we do I guess punch above our our weight in terms of our staff but we form a tight thesis we're very collegial we work closely with entrepreneurs but because of our size we don't do a ton of venture deals right I probably do six Venture deals personally a year um and it's really determined by like what is the problem set that I'm currently most interested in how elegant is the solution how compelling is the founder or Founders you know making sure you're not working with like you know all those those kind of checklist things and so for me right now um at least at the Venture stage because again I have all this infrastructure exposure um in the public markets Venture stage I'm drawn more to application stuff um and so it would be things like um you know we've talked about tensor recently um which is built on Solana so it's an nft exchange built on Solana really native experience I would say it's it's kind of like you show up and it feels like a trading view or Bloomberg of of nfts um and that's you know two Founders who bootstrapped the whole thing on their own budget and with hacker prizes um so that would be a good example or vault uh which is uh it's um faults are basically programmable environments for artists to launch experiences for their top fans and so they start with the music industry because the music industry's lost a lot of Revenue because the top fans can't interact with artists like they used to be able to and vault is trying to create that in a in a digital environment is that cilantro eighth that's also Solana so Solana and tensor are both or vault and tensor both Solana and I would say this too we're very valuation sensitive and um valuations within ethereum are quite expensive I would say 5 to 10x at the C to series a stage what they were in 18 and 19 whereas the valuations within Solana are where they were in 18 or 19. so you know one-fifth the price for similar maturity team and so I would say that you know that's because people don't have the faith that they have in Seoul or they don't have the faith that they have and eat they have in Seoul but if you go back to 1819 very few people had the faith in eth right and so if I can develop the faith in Soul and then invest in that Venture ecosystem then by the way if you overlaid I put them both on a log chart I overlaid the charts of eighth for actually it was based on your tweet I think and I'd been thinking roughly the same thing eth 2018-19 and Seoul now they're pretty much identical yeah yeah we're not looking for a perfect pattern match but contextually it's bloody close yeah and then that implies Seoul 500 to 1K and suspension yeah and and so I've been working more at that like user-facing application layer than any other cycle in part because I desire for crypto to break more into mainstream user bases and I'm also looking for Founders that have a combination of um native understanding of the tech but ability to reach user bases that go beyond the the insular group of crypto folks um because we need that and and I think that we're we're reaching the the place of infrastructure maturity where there are teams who can build that experience so um yeah that's been more of my focus on the Venture side and so it's not relegated to defy or nfts or anything like that it's more where do I see people providing a experience for consumers that is you know Superior to anything else you can find on the market um and you know with a very credible team that's delivering that experience the area that you know I've focused on two areas of this three areas one is integrating web 3 and and real Vision so obviously we've been educating people all the way through but just fully integrating it but then I built the asset management business because institutions need to come in and they need a way to do it uh because they will come into hedge funds after VC they always do um but the other part I co-founded a business called science magic Studios and the thesis there is that culture is now an asset class and tokenization is the way to turn the intangible of culture brand Community into a tangible on the balance sheet you know and I always use the example of Disney what is Disney's brand and culture worth probably a couple of trillion bucks you know it's it's not there's a lot more than the companies valued and what's really interesting is those guys are speaking to um a lot of big Brands and the cultural Fashion sports entertainment music they're all looking at it yeah and so I think it's going to get driven you know what the guys at meta are doing your Instagram team and some of the guys at Google and stuff I think all of these worlds are going to come together in a Cambrian moment at some point when before they know are buying you know Rihanna nfts that is the album cover that comes with their Spotify because Spotify announced starting to integrate web3 it feels that all these connecting tissues are about to come together I agree and this this is a really big difference between this bird market and all the bear markets prior I feel like all the bear markets prior any one major who is involved or any incumbent who is involved in any sector kind of pulled back and was like ooh like let's pretend we didn't do that you know and maybe crypto does go to zero this bear Market they they're they're by and large like oh we've seen this story before and now is our opportunity and we need to keep doing work here yeah I've seen that with the financial investors as well some didn't have done that oh you know I don't know I don't know but a lot of them are like yeah you know everybody told us it would be like this or they're still paying attention some may be lost stomach in Q4 um but they're still paying attention and I don't blame them for you know I mean Q4 was brutal like that was that was I think worse than anything we got in 18 or 19. I think so too I think the anger in the space because everyone's losing money which never helps but then the everybody's savings getting destroyed by every single player that anybody who had faith in maybe I can get a yield lost their money including the trading houses I mean and then FTX and then the headlines and all the lies is I think that was really hard for people to take and we haven't seen anything at that scale but my signal is we've thrown the worst news yeah Mountain got which is bigger as a percentage back in the day but we threw the absolute worst news at this and it just didn't go down as much as the previous bear cycle it's like no definitely definitely I know we're probably drawing a close here and we're not sure to meet in term Traders but um do you have a view on say into the end of q1 into Q2 here I'm really bullish I'm I'm gonna look at the chart the chart looks great it feels like we've just had this nice kind of month-long correction I'm looking at the East but we can use any of the charts it feels like I don't know what it is but there's one thing that's just going to trigger this and I you know I then went back and looked at all the other previous you know pickups from the low and then versus stuff like Amazon back in 2003 four I look at all of this stuff and normally it always goes higher and faster than people expect and then correct so and then we get to the okay and let's use eth prices but it could be anywhere between two and three thousand let's call it that it could be even higher doesn't I don't know because there's a lot of mechanics in eth which is very lopsided because of the burn the more people come into the network the less ether is around it's actually I think it might become a problem brief but it's going to give a lot of upside volatility but then the question is okay there will be a period where the macro needs to be established and usually crypto corrects for six months and it's either the 2008 19 correction which was a big retracement but at that point I saw that money supply was actually shrinking again okay maybe it was that and then you look at the 2015 correction uh 40 15 and it was just a sideways wedge it was just flat as a pancake yeah between the two but there is a risk of a v-shape up that that's the risk I think is underpriced and I was speaking to a friend of mine um who's a Trader of the of the options I'm like the options in eth from a from a medium term tannerized not wildly underpriced because people haven't figured out this convexity issue yeah of the more network activity the less the ether is just when institutions want to come in they want to stake it staking takes everything off the market so you've got no eth on the market and it's burning and there's more activity yes it's going to push stuff out to the to the layer twos as well that's kind of interesting in itself but I if pricing could get a little bit unruly to the upside and options don't have that price into the term that's interesting and you're not um you're not worried by because like it's funny if you look at uh the traditional markets January was full on and then February people got scared again um but then you know I look now it looks like the dollar could be medium term topping you know we're bouncing against four percent on the 10-year um s PS holding 200 day at least today and you know if those things you know if the dollar comes back in if yields come back in a bit if the s p holds then I look at BTC needs and they both look like they want to run I agree I agree and then we go back to the other conversation we have well if it runs if you just zoom out of the eth BTC chart that kind of 0.085 level you bring that okay that's if you put then the monthly log chart of the pressure across it's like holy and then you go to the the soul eat one that will break at the same time you're like and this is why in my head I'm like there is a risk that this just reshapes because of the difference that this time has a versus any other time and this time has a ton of Institutions hedge funds retail who all understand that it goes through a cycle and they all want to come in so there is a risk that it just it goes higher so yeah I've I'm seeing the same thing and who knows let's see how it plays out either of us that bothered about the the timings but yeah but it just feels that I think the risk is up yeah I'm I'm with you I I would I would then basically expect we either come back to these current levels to base or higher you know and it's like 30k btc's the base um you know 2K eth is the base for for the subs the pullback say mid-year or whatever it might be yeah um even you know I don't know Seoul 30 or 40. like there were some levels that we put in for a time there basically pre FTX levels um and we're starting I mean btc's already cleared that um so yeah it is interesting I I like that people are getting um angry at bullish posts again that makes me more bullish yeah they are you know people are going for the there's another leg lower and I just think I think I really doubt it I think you missed your chance in June listen my friend that was a fantastic conversation really really enjoyed it yeah thank you I'll definitely get you back and we'll chat some more as we start developing some of these ideas out further as well that sounds great economies and stuff but I really appreciate it thank you thank you for having me you know I love speaking to people like Chris he's just thoughtful he doesn't come at it with I know he comes it well this is how I'm thinking about it trying to struggle piece together this incredible jigsaw puzzle um what I like is he thinks very similar to me but he comes in it from different angles as well um and again doesn't mean we're right or wrong because we have a similar framework but I just think it's it's very very interesting a big breakthrough from me and I need to think this through is how networks that don't have lots of applications layers and more nodes in the network things like polka dot which may be good may never rise as much as ones that have more component parts of the nation state I need to think about that point more I think there's definitely something there also interesting to see it on the VC side that Solana have been cheap and again I'm not Shilling Solana I just think it's interesting but to find that there's a lot of applications being built and my thesis on Solana has been that there's a lot of consumer stuff coming and he seems to be finding that in the VC space mine was more of a hunch but he sees it so interesting let's see how it plays out uh I think we're both pretty bullish um and we'll see Visionaries thank you for two more free crypto content like head over to realvision.com forward slash crypto you'll get early access to the most Brilliant Minds in the space to cut through the noise get in-depth analysis and get you ahead of the curve with unbiased insights

Channel: Real Vision Crypto

Views: 25,633

Keywords: Crypto Investing, Real Vision Crypto, BTC, Crypto, Crypto Currency, Ethereum, Bitcoin, Blockchain, Digital Assets, Alt Coins, Crypto Asset, Crypto Adoption, Altcoins, Decentralized Finance, DeFi, raoul pal, real vision, web3, nft, ETH, decentralized finance, Unlocking DeFi's Value, chris burniske, Placeholder VC, VC partner, realvision, raopul pal, raul pal, bitcoin halving, halving cycles, Raoul Pal & Chris Burniske: How an Expert Values Crypto, crypto value, cracking crypto

Id: 43H7PEJFYyg

Length: 65min 46sec (3946 seconds)

Published: Mon Apr 03 2023