How Raoul Pal 10X-ed His Money with Crypto and Retired to the Beach

Manifested. Religion meets Metcalfe's Law, right? It's like, yeah, it's, yeah, it's really, now I'm tribal about the thing.

It's religion meets capitalism. It's basically what it is, right? So that is incredibly powerful.

So for those who don't know, you basically, you were at Goldman, you started your own hedge fund, and then it seemed like you retired, correct? You retired pretty young. You retired at 36. But I mean, now you have a company now, so you're not, you know, fully retired and kicked back.

But no, I've got 4 jobs I'm doing right now.

So.

Right.

But you did have a break in between, correct? So like, I think it was 2004 when you, when you sort of retired from the hedge fund and it was like 2014 or something when you launched, you know, Real Vision.

So what was going on in between?

Were you doing nothing or you were doing other projects? I just don't know.

Totally. So, describe the moment because I think a lot of people listening to this— so, just so you— I don't know how much you know about the podcast, but basically, the podcast is usually me and Sam, who he's not here because he's traveling. He's actually in Portugal right now. We just sort of usually spit— we're both founders. Both recently sold our companies in the last 2 years. We started the podcast after we sold, 'cause that's when you have a bunch of time on your hands. And, um, and it's usually just spitballing different kind of like business opportunities, market opportunities. And so just stuff that we see that we think could work or is interesting, but we're not gonna go do it ourselves. So this became our outlet to do that. And, um, and so you get like, we have like, I don't know, like over a million downloads a month. And those pe— what, what the people who listen, what they're doing is, they typically are either like they want to start a business, but they don't. They have like a good paying job and they're looking, thinking about making the leap or they have their own business. And this is like they're doing this while they're, you know, doing their chores. And it's like, oh, I get to hang out with my buddies who are shooting the shit about business. Cause like, you know, we talk about stuff that they want to talk about. Uh, they just don't maybe have the friends around them that want to talk nerd out about business all the time. And so we kind of had that same, uh, thing where you needed that intellectual sparring. To, uh, to feel good. But the, the thing you mentioned, which was like, you know, you sort of won one game, uh, you're doing well in one game, but you decided to exit the rat race. What was that? Did you have like a kind of come to Jesus moment? What did you have like a, was that a long time coming? How did that happen?

Right. And it was game-changing. I had a mortgage in London and everything else. It was game-changing because now I'd won the entire game. I've got a 6-bedroom house on a hillside in Spain overlooking orange groves, 10 minutes to the beach. And I could lose my job.

I could still have that.

And I could work in a bar and I could live there. I'm done. My game of life was won. So then that was the marker stone to allow me to take more risks to do the next thing. And so that's how I've always done these things.

And how do you get that vision? So, so I'm the same way, but what I've noticed about myself is like every, I call 'em like these chapters. So it's like every sort of like 5 years is like a new chapter. And what, what I've noticed if I go look back at the kind of last 3 chapters, so I'm, I'm 30, about to be 34. So basically, you know, 3 chapters, I, I've done 3 chapters now. And each time it was sort of this like fortuitous bounce where I get in touch with somebody and they show me a glimpse into this lifestyle or this kind of like mode that they're in. And then I just can't unsee it. I'm like, why the hell am I not doing that? Right. It's your version of seeing people eating paella, drinking wine at a 30-person table, just enjoying life on the, by the water. And you're like, that's the glance that, that was the glimpse I needed to do it. So is that how you also got your vision for the next, for the next kind of like chapter for you?

And so the next thing was not, so I'd been in Spain and I realized I was missing was intellectual capital, even though my clients were the world's most famous hedge fund managers, all of these super smart guys, but they weren't around me. They're all around the world. And it was not as easy to get in touch. Twitter wasn't really around. There was less ways to be social online. Podcasts didn't really exist. And then I think I probably discovered Tim Ferriss. And another friend of mine, Mark Hart, had gone down this journey of looking at Silicon Valley and entrepreneurship. And that was the thing that I thought, okay, this is the next thing for me. How can I take the entrepreneurial journey outside of setting up my own research business, which was a one-man band essentially? I wanted to take that entrepreneur's journey and push myself. I wanted to see what I was capable of. So that was the next thing.

And give people a sense. So you're at Goldman, that's a good job. What are you making back then? Uh, you know, basically like, what, what was your kind of like— because I think for a lot of people they're like, okay, some people feel trapped when they're, when they're making a high salary at a nice company, they feel trapped. They don't, they don't take those leaps. And other people, they'll look at this and say, well, it's easy for you. You probably were making a bunch of money at the time. Uh, you know, so yeah, you could take these leaps of faith because you had kind of a safety net. So, but way— wind the clock back. We're talking almost 20 years ago or something like that. How were you doing financially then versus at those two steps, research firm and Goldman?

But you managed to walk away from that, which is pretty impressive. Yeah.

And then let's fast forward till today. So, you came on my radar. I think I had seen Real Vision a few times, but I'm not from the finance world. I'm from the Silicon Valley tech world. And, you know, so we all kind of have our like media sources that we learn from based on whatever industry you care about, right? And, uh, so I had seen it, but I hadn't really paid too much attention. Uh, but I saw you start talking about crypto and this was, um, you, uh, I didn't realize that you had actually started talking about crypto back in, I don't know, 2013, 2014. And I went back and I read your old kind of like memos and, you know, stuff that you have, you know, put up screenshots about. So, you know, like you said, ahead of the curve, uh, you have the receipts to prove it. Um, but I think it was 2019 or 2020 where you started becoming very vocal and then you made the big splash where you were like, I've moved some ridiculous part of your liquid net worth. I think it was, I think you might've said 50% at one point. I thought you heard you say 90% into crypto.

Yeah.

100% into crypto. And, um, so that caught my attention and the attention of a bunch of other people. And so, you know, I know you've talked about this before, but this is a new audience. So give, Give kind of the origin story of how the mind virus of crypto kind of like, what were the steps where you went from like curious to convinced? What, what was that journey like for you where you put in 90% or 100% of your life?

My job is to live in the future. So I had gone, I had lived through the financial crisis and predicted it. I had also lived through the European crisis and predicted it and had been in Europe and had to buy a generator and food. And get cash out of the bank and keep it at home. Right? That's how close we were in Spain to losing our entire banking system. And as a macro guy, I knew the issue was leverage. And leverage had meant that we had a unique problem, which was there's a layer of collateral, and all of this debt is against the collateral. And usually, you've got like 30 claims on the same piece of collateral. In fact, the average US Treasury has 32 claims on it, or it did then, may have more now. So therefore, who owns what in an unraveling? Who's going to get screwed?

And the leverage was— you're talking about government or corporate, or where did you see this stockpile of leverage?

And when you say you bought it, that's like the first time I bought Bitcoin, I bought like, I don't know, $1,000 of Bitcoin, right? So, I bought it means what? Like, you bought a tiny bit, you bought a medium amount, or you went like you put a significant stake for yourself into it?

I had the opposite reaction.

I knew about Ethereum. But I started properly digging in. And I thought, this is really bloody interesting. The chart looks incredible. The chart versus Bitcoin looks incredible. 'Um, this makes sense to me.' So, um, I started switching, um, into Ethereum.

And when you say the chart looks incredible, so tell me what that means. So I've, uh, like I said, come from the tech world. We look at charts all the time, but they're always like users, revenue, uh, things that sort of like are not, uh, based on spec, you know, any kind of like, uh, speculation or Human emotion. Whims. Yeah. Human emotion. Exactly. So, you know, charts don't lie, or, you know, they, they, they do if you, but unless, unless you know what you're looking at. And so when you talk about charts, I've seen, you know, I see people like do this all the time on Twitter where they're like, you know, it's voodoo magic. They see a chart, then they draw this like crazy shape. Oh, clearly this is doing a reverse cyclone pattern and it's gonna go all the way up. And so are you one of those guys where you actually do the technical analysis and you say, no, the price chart is what I'm looking at? Or were you looking at other charts?

RAOUL PAL] Both. And I'll come on to that. So, price chart, I think, is the best guide of what the asset is doing, what its trend is, how people are perceiving it, and where it is versus what you might perceive as fair value. So, you notice certain characteristics like crypto tends to be exponential in price. So, you put it on the logarithmic chart, it starts to make sense. You look at things like copper and lumber, they tend to be mean-reverting assets. Because they get met by excess supply. High prices lead to excess supply. So, right now with oil at $100, everybody wants to make as much oil as possible. So, the price comes down over time. It doesn't happen with crypto because you can't. So, you need to understand the structure of markets, where the sentiment is. Is it overly bearish? Like a day like today, it got overly bearish. And so, suddenly, you start to see a reversal. So, these kind of things are interesting. But my big discovery and why I really started loading up on Ethereum was another chart, which was an understanding that Metcalfe's Law was the primary driver of all crypto markets. And in fact, almost all of the tech stocks that we've known today. And once you realize that these are basically networks, and once you realize that crypto are networks where you actually own the network— so Facebook is a great network stock, and it works perfectly on a log chart, and it's an exponential, does all the things as you imagine. You can value it in Metcalfe's Law terms. But the fundamental difference is shareholders and network users are not aligned. The shareholders make the money, the network users get the utility. Along comes crypto, you marry the network user with the owner. Okay, now you've got network effects upon network effects. This is like behavioral economics, right? Man of forever.

Religion meets Metcalfe's Law, right? It's like, yeah, now I'm tribal about the thing. It's religion meets capitalism.

Yeah. It's funny, I have 1/10 of the intelligence of you, but I did the exact same pattern. So, I heard about it in 2013, bought a little bit, dabbled, sold during— when I went to a wedding and my aunt was telling me about how great Bitcoin and Ethereum was, I was like, ah, it's probably a bubble. 2017, 2018, sold for a nice profit, was patting myself on the back. Uh, you know, in retrospect, worst trade I ever made. It should have just held everything. Um, you know, bought, started buying back in, uh, in 2020, uh, 2019 or 2020, I kind of announced that I've, uh, I had moved 25% of all my liquid net worth into the thing, but that was right before, you know, another, another run-up. And so that became quickly 50, 60%.. And, um, and you know, peers and some people are telling you you're crazy. I'm sure you had the same and same thing, you know, why are you betting on this? Are you just kind of speculating? And I said, no, like basically I spent my whole career studying the power of network effects, right? I'm trying to build marketplaces and social networks in Silicon Valley because I know that a network effect is the most powerful force imaginable. And, uh, and then I see this chart, this adoption chart of this new money network. I said, well, if the, if the If the social network was worth X and the information network was worth Y, and then the, you know, the merchant network, which is like, you know, basically Amazon, um, it was worth, you know, Z, then, then this thing is going to be— the money network is going to be worth a lot. I can tell you that. And so I was like, I didn't know much more than that, but I just knew if you can bet early in a network effect that's still going through its kind of like, you know, adoption curve, um, you know, you'll do pretty well. And so that was kind of my, my, my bet. Coming from a, you know, sort of a different, different take, but ended up at sort of the same conclusion. And I remember being impressed that you were talking about network effects because I didn't really see a lot of people in kind of traditional finance talking about that at all. And I was like, they're missing the point.

You know, really one of the first people to really start saying, unless you understand network effects, you don't understand what this is at all, because everyone was defining weird things because people, people listening maybe don't know network effects.

So, so to define it, Network effects just describes this phenomenon where, let's just take, you know, a language. If I'm the only person who speaks English, English is not very useful. Same thing with the telephone system. If I'm the only person with a telephone, it's not that useful. But now another person gets a telephone or learns English. Well, English just got more valuable. And then the more people that learn English, the more valuable English is as a language. And so it describes this phenomenon that every participant that joins the network makes the whole network more valuable. So it's like the opposite of like a popular nightclub where everybody who joins makes the thing sort of, you know, diminishes the popularity over time. Network effects typically describe that they, it gets more valuable at a square, basically as an exponential, not linear.

Yeah. And then if you think about it in other terms is let's say, let's say, let's look at Web3 as a network and a network of engineers, engineering talent, right? This is where, where it gets really interesting. Why is it exponential? Is because there are parts when everybody's trying to hire Web3 talent, right? We are, every single person I know is, right? And the actual pool of people who are capable of doing it is probably like 1,000.

Right. And they're all multimillionaires who don't want jobs.

Right? Like when the, when they first, when the information network was getting built out, which is just the internet and it was pretty clear, like slowly but surely people were adopting, they were getting online and then stuff was getting built, stuff to do. And then everybody who was online made, made being online better. Cause you could communicate with them or they might write a blog or whatever. The whole internet was getting better. The more people that joined, right? That was a network effect, but you couldn't invest in the internet. Like you couldn't just invest it generically. The internet. And so you had to pick, you know, certain platforms. And even then, how, how do you become an in— let's say you believed in Amazon or eBay or whatever, you're only getting a slice of the total internet. And even then they don't want, you know, the average person could not invest.

And that to me, it feels like NFTs right now. We want to all get involved in NFTs. You have no idea what's going to win. I mean, I mean, you don't have the ability to go on every Discord. So it's bandwidth constrained. We all are in this space. We know it's huge. We all know it's huge. We also know it's a bubble. We also know tons of this is going to zero. That's fit. What's interesting about—

Owning ETH gives you the action of NFTs.

That kind of makes sense. Like owning Oracle did a pretty good job of capturing the internet. Right.

And so, you've been now kind of following this. And so, what is a viewpoint you had about crypto that you have changed your mind on, or you— what you believed before, now you realize is sort of wrong, and you think about it a different way? Is there any— has there been anything? Is this kind of, you know, it's kind of like this rapidly evolving thing. You're sort of like defogging this like brand new world, you know. So, you know, maybe some mental picture, some mental framework you had before hasn't really held up, and maybe something different has happened. Can you think of an example of that?

And that was— So, that's new. I haven't really heard that. So, tell me about— because you're connected to all these folks, right? Like, you know hedge fund guys, CIOs, whatever. You know a bunch of different people in that world.

They don't want to own an asset where everyone's shouting, have fun, stay poor at each other and putting laser eyes, right? Makes them look fucking stupid. And irresponsible with their money. Well, ETH feels like it's a technology play. Yes, it's amusing because everyone's saying GM to each other and all of this stuff, but it's not at war. While Bitcoin was at war with every other network, because that's what networks do. Religions go to war with each other for the same reason, right? They're exactly the same principles. So, it's the same reason Russia and NATO, they're all the same. They're all networks fighting each other for the robustness of their own network. I get it. So that, that, that whole process of seeing institutions getting turned off by it was a, was a big deal to me. I just thought, yeah, I don't like this either. So that was one thing. Um, I'm trying to think.

Well, at that point you've seen a lot of news about institutions buying Bitcoin, whether it's Tesla or MicroStrategy or Square, or, you know, some like, you know, random insurance company buys $100 million worth of Bitcoin. So we've kind of heard those. We hear less of that with ETH. Is it just going on under the radar? Is it coming? What's your sense of that? Because I haven't— I'm in this space, and I haven't heard a ton.

Yeah. Yeah. The, the way you described it, it's like, it's not one giant wall of money and like most things, it's not, you know, a single moment in time where it just goes from, from not here to here. It's like a, it's, it's more like a cascade of dominoes and every day you hear something, it's like, that's another domino that's tipping the next domino. Each one influences the next one. And then you sort of, once you tip it off, which has already happened, it just takes a matter of time until the whole domino set runs through and it's all, it's all, it's all good.

Yeah. And I, I'm seeing institutions using this weakness and not being frightened by it. So like, look, this is fantastic opportunity. I need to use this. I get it. It's a volatile space. They, they understand. The people who are trying to put capital work understand. But once the price starts going up again, then you'll see the stampede. If Bitcoin's at $65,000 or $70,000, then people say, OK, we've had a year-long correction. It's now going up. Next phase is going to go to $160,000. And they'll be in. And they'll be in, and there'll be a mad panic, because they've all been doing the work over the last year and a half. So, they'll be like, we've got to get in now, got to get in now. Because if they don't, they miss the outperformance of their peers who've got it.

And what do you do with your ETH? Do you put it into DeFi? Are you earning interest? Are you yield farming? You put it in a— lock it away, you don't touch it?

Yeah. And I've never been interested in yield, even in financial markets. All yield stuff is boring to me. I'm a guy who likes the capital gain route. And different people, right? There's a whole bunch of people who love yield. It's called carry in financial markets. They want to get carry, and others want to go for performance. And they're two different equations. And the carry guys do really, really well until they blow up. And the guys like me tend to do mediocre, mediocre, and then make huge things. They're just different ways of skinning the cat. So, I spent my time— because we don't have enough mental ability to focus on all the things in the space. I started going down a different rabbit hole. I saw NFTs, I understood it mainly, not all of it. I understood the macro view of what these things are and how big this is. I wasn't really that interested in these communities.

But I've done one. Give the— here's my understanding of NFTs, because I think the third most Googled question is, what is an NFT? So even people who like hear about it, maybe even own a couple, but they don't have a great frame. And I think you're very good at framing things. And so, give us your current frame of NFTs.

So, Ethereum introduced a piece of magic in a smart contract. A smart contract attached to a blockchain means that any contract in existence can now be attached to a blockchain. And smart contracts allowed an algorithm or a calculation to be made automatically and verified on the chain. So that could be your insurance contract for your house. It could be any of the contracts. I mean, if you look around you, almost everything that we have in life is a contract. Mm-hmm. Whether it's a spoken contract or written, me appearing on this together with you is a form of contract, right? So all of these things are contractual relationships that are everywhere. What this was saying is we can record all of them and verify all of them.

Okay.

So that's a really big concept beyond which most people understand. And you can understand that, okay, if that's the case, then a house can go on a blockchain. Yes. Because the deeds, and then you don't need a notary, and then you don't need lawyers. And there's all of this stuff, right? Most legal stuff can actually go on this. And then the breakthrough is that, okay, we've got another thing that's going on in digital world. Which needs solving. So, this contract thing is a big deal. We don't even know what this means yet. When we talk in 10 years' time, we'll go, oh my God, we didn't see that coming. So, that's all happening. And DeFi is that. There's contractual obligations between borrowers and lenders. It's all happening on-chain. But what the average person is seeing is a different breakthrough that came out of this whole concept is In digital world, everything that gets digitized goes to zero in value or cost. Everything. The price of data, the price of everything is zero over time. So, that's a big problem if you're living in an increasingly digital world. So, how do you cement digital value is you have to introduce a system of scarcity. And an NFT allows a digital asset to have scarcity. OK, breakthrough. Now, it could have come from the music industry. It could have come from a number of different places. It ended up being the art market. OK. And where you can say this stuff that was now— was basically worthless online. I mean, Getty had bought a bunch of image rights. But to police it is really bloody hard as well. So, okay, now we can create a one-of-one of value or a number and do that. So that becomes the value of an NFT. The next part of an NFT that you say, okay, well, if we give a bunch of people these, we can now identify a community. And then these people can be like-minded communities cuz they coalesce around an idea, which is this piece of art and this community. Which is Bored Ape Yacht Club or CryptoPunks. So, that becomes incredibly valuable. It's a membership to a club. And it's your identification. It's showing your Rolex. And it's all of that stupid identifying tribal stuff that humans do endlessly and always have and always will. So, that's going on. And it allows us— don't forget the internet had taken us from our towns, villages, families, which is our social structure, and thrown us into a big shouting room from people all around the world with different views. It's quite exhausting. And we all wanted a place. And what this is giving us is these little digital communities, sovereign states, villages, towns, cities, where we can now operate with civically-minded people within that. And these tokens are the identifiers. Social tokens are the big thing. They've only just started. That's much bigger, I think, than even NFTs are. But let's start with this, because this is a way of coalescing humans, because humans like these kind of identification system of shared values, that kind of stuff. So, NFTs are a lot of things. That's why they're so big. And again, that's just scratching the surface of what this is. It can also and will also be your digital identity online.

Right. You said something about music, and I saw you tweeting about music and kind of the future of music royalties or like how anybody can become an A&R, you know, person now. Describe what you kind of— what you're thinking there, because I think that'll be fascinating to a lot of people because music is one of the— music, like art, is a great entry point for a lot of people, whereas, you know, macro investing is deeper in.

Yeah. Like the artist had to create scarcity, which was basically come to my concert, there's only X tickets and that's how you can see me. And then they also created status, which was take photos of yourself at this concert and post that online. And that's a big part of the value that you're going to get out of, out of coming to this thing. And then now we have a digital version of that, which is—

and so when all these people spoke to each other, the fans, they'd have to go on a Facebook group and Facebook monetizes them.

Right, right.

And if they want to go on tour, they need to go on Facebook and Google and pay everybody. But when you've got millions of token holders, you've sold out 50% of your tour. You've de-risked everything in minutes. It's just, it, it stops you having to use middlemen all the time.

And, uh, you talked about two different things. There's like the sort of like almost like the thousand true fans, uh, you know, concept where basically an artist can drop something that's rare and exclusive or access to them or their community, their fan club. And the, it gives the whales, you know, something to go buy that they would, you know, that they're, they're actually willing to buy for more than just a t-shirt. Uh, now you give them something worth buying. And so that's, that's one thing that you could do with it. But the other one is what you're talking about, buying a stream, a part of the royalty rights, a part of the royalty stream. And so that's where, you know, I remember, I don't know, I remember finding Macklemore, the artist, when he had like, you know, whatever, 2,000 fans. And I was like, this guy's great. And like, if I had actually been able to bet that this guy's great and therefore be a part of his community, he views me as a backer and true believer. And I did. I remember I kind of did a Kickstarter with him or whatever. He, he pre-sold his album and I just gave him, you know, $30 because yeah, go use this to help make your album, pay for some studio time. But he didn't know me. I didn't have a relationship and I had nothing to show for being right. And, um, and so now in this, in a world like this where the 16-year-old kid can say, I think these guys are gonna be great, their price is cheap right now and I could buy, you know, some of their future. Um, that's kind of exciting.

But there's even more magic because that 16-year-old kid, cuz he is now financially incentivized to grow the network and make that song a success, right? It's gonna make 500 TikTok videos.

Yeah, exactly.

I mean, think about it. Like, uh, you know, if you doubt what you just said, just think about, you know, who, who's Bitcoin's CMO? Who's, who's the chief marketing officer there? How, what's their ad budget? And then how much publicity do they get? Who's their PR person? How much publicity do they get? How much chatter, how much, you know, the ticker that's sitting on CNBC all day showing the Bitcoin price, right? Like all of this happened because you had a network of people incentivized to go shout to the world how great this thing is. Um, you know, and, and people hate that about crypto. Oh, there's just people shilling their thing. Yes. And that does get annoying. And you know, you have to filter, you know, signal from noise, but at the same time you have to appreciate what that does. It turns every, every believer into a marketer.

Every society is the same. So, if we think of everything as the same, so let's assume Bitcoin is a social token, Ethereum's a social token. Let's assume the US dollar's a social token. And let's assume that religion is a social status token, essentially. So, everybody goes the same way to increase the value of that thing. So, the US is like, we've got military might, and we're the greatest nation. This is the free place, and everybody can become a president, right? That's their narrative, right? Every country has a different narrative to drive its value system for its network because they all require incoming capital to support the network, including the church, which couldn't have survived without incoming capital. So they get all these people out to go and tell the word of God. They then spread the, the dish around, take money in, it builds the church, it grows the network. They're all the same. That's humans. The book Sapiens goes through this a lot about how humans need to self-organize.

Yes. Well said. I think that's a perfect zoom out. We can even pause or stop there. So Raoul, where should people— so follow you on Twitter. You're @RaoulGMI. You also have Real Vision, and people should go sign up for that. Yeah.

Awesome. All right, thank you for coming on. Appreciate it.

I really enjoyed it. Thank you.