We have been listening to Raoul Pal and his views on what could be ‘The Greatest Trade In The World’.
Raoul Pal (@RaoulGMI) is a Macro Investor and entrepreneur. Having formerly worked for NatWest, Goldman Sachs & GLG Partners he has a significant grasp on the Global Macro view. He now Runs GMI and is cofounder of Real Vision which is bringing disruption to financial media in a big way. At the Wealth Gap we very much like the approach Raoul has taken and how he is distributing high quality financial knowledge and making it accessible to the masses.
Raoul has been doing the rounds online talking about crypto and the macro-sphere for a while now. He has hundreds of features and interviews going over all the main areas with all the key people in the industry.
Recently he has grabbed our attention by talking about a potential trading opportunity that we here at The Wealth Gap (the founders) believe in and have positioned ourselves for over the last couple of years.
The trade is in the cryptocurrency Ethereum.
Get Ready for that Red Pill
The justification and thought process for the Greatest Trade is documented in the steps below. As always, we try to keep it simple. There is a lot more depth that we have left out for brevity and simplicity. As always one should always do your own research (DYOR) to confirm any thesis.
The Macro
1. The central banks are stimulating the economy. They are not prepared to let the stock markets go down at this time as evidenced during the Corona Crash when the Federal Reserve went nuts printing money and injecting into the market.
The money printer is not likely to stop anytime soon. With interest rates at global lows and rate rises unlikely the central banks have only one weapon available, print more money. This is a continuing debasement of the currencies. This is not a drug that they can ween the economy off easily without causing significant problems. Going cold turkey risks crashing the stock market as investors panic sell and start taking protective actions. No politician wants that on their watch, its political suicide… so the music will go on until someone pulls the power.
Crypto Growth
2. Huge network affects are playing out here, growth is mirroring and exceeding the uptake of the Internet during the 1995-2010 period.
Bitcoin and Ethereum are running on network adoption rates that are almost double the speed at which the internet expanded. This is huge growth and we are fast on the way to 1 billion users. This ecosystem is now fully entrenched and only going to grow at a staggering pace going forward.
Brain Drain
3. Raoul notes that large numbers of players in the traditional macro world are moving to crypto companies.
The smartest and brightest in the fields of both finance and technology are transitioning into this field as it is one of the most innovative spaces available at present.
With headlines like the above becoming common place we are now seeing heavy hitters take the leap almost daily.
This technological realm represents a new frontier (a wild west) rich with opportunity and potential. It is extremely enticing for those looking to build a future for themselves. Expect more leavers from traditional roles over to Crypto sphere.
Transfer of Wealth
4. Currency is flooding into the new crypto currency asset class at an ever-increasing pace.
Cryptocurrencies are popular with Generation Z (born from 1997) and Millennials. These two groups are also due to be the beneficiaries of a huge wealth transfer as the Boomers die and pass their wealth down the generations.
Combine this wealth transfer with the existing inflows of money into crypto from retail and institutional investors alike and we can see that we are still only at the beginning for this industry. Let’s also not forget as of the 7th September 2021 we also had the first Country (El Salvador) start buying!
Scarcity
5. There will never be more than 21 million Bitcoin. Ethereum is also demonstrating increasing scarcity after its latest upgrade.
Bitcoin and now Ethereum are scarce assets. In the case of Bitcoin there will only ever be 21 million coins while 18 million have already been mined and are in circulation. The vast majority of those are being held by strong hands (savers / believers) for the long term. Once you begin to feel the Bitcoin scarcity in your bones the decision to HODL (Hold on for dear life) is much easier.
Fact: Globally there are now 56,000,000 millionaires!!
As Bitcoin has a 21m hard cap that means there is only enough Bitcoin to give each millionaire 0.375 BTC….!
18m BTC are already in the hands of long term HODL’ers with the rest being bought up by institutions and now countries. That starts to makes the last 3m coins look REALLY SCARCE and the value will reflect that over time.
Ethereum
6. Recent upgrade (EIP 1559) enabled Ethereum (which you can read about here) to start burning its own token, thus increasing its own scarcity.
Ethereum, has recently upgraded its network (EIP 1559) enabling it to burn a portion of the gas fee that would normally have gone to the miners. While there is no hard cap on the number of ETH in circulation EIP 1559 has recently burned more ETH than has been created. This upgrade therefore increases the scarcity of Ethereum. Don’t worry about the technical detail just understand that over time more and more Ethereum will be removed from the supply. This plays again to the scarcity of the asset while the demand is growing!
Supply
7. Onchain data shows vast amounts of Bitcoin and Ethereum being pulled off exchanges and transferred into cold storage or staked. This is a supply shock in waiting.
Cold storage is one of the safest places to store your crypto and is the chosen destination for long term investors. The increasing amount of crypto going into cold storage suggests that a lot of investors are in it for the long haul. Now we have a situation where a vast amount of tokens are being held with the long term in mind.
Supply Shock
8. When more and more people are chasing a decreasing amount of something the collective hive mind will eventually realise that they may never get their hands on said item.
A supply shock in a short period will likely trigger parabolic buying action and a monumental shift in price as people clamour to get a piece of the pie. This is the Greatest Trade potential setup looking for that golden opportunity where you are able to take action and benefit from this parabolic move.
A High Risk, High Reward Play
We cannot guarantee success (if it was guaranteed it would already be priced in) but we feel the above steps will lead to a large price rise for Ethereum over the short term.
Will it be permanent price increase?
Unlikely. As we know cryptocurrencies are notoriously volatile. Raoul expects a sell down when Ethereum 2.0 is launched as the staked Eth will be unlocked and investors will want to cash in on their gains. This seems logical and plausible.
The Greatest Trade is a trade after all and should be treated as one. Capital is always at risk and this is not financial advice. Only risk what you can afford to lose.
Do you think Raoul is right about this?
Until Next Time
The Wealth Gap Team