Oct. 13, 2022

What is the Crypto Winter and How Will It Affect You?

How inflation impacts the crypto economy


Here’s a guide to understanding all things crypto. First, Nora breaks down some crypto basics with Morning Brew’s own Jamie Wilde, who writes the Brew’s Incrypto newsletter (https://www.morningbrew.com/incrypto/subscribe). Then, we’ll find out how to navigate the crypto winter (and what that even means) with Raoul Pal, founder and CEO of Global Macro Investor and Real Vision. 

Host: Nora Ali

Producers: Olivia Meade and Raymond Luu   

Video Editor: Sebastian Vega

Production, Mixing & Sound Design: Daniel Markus

Music: Daniel Markus & Breakmaster Cylinder

Fact Checker: Kate Brandt 

Senior Producer: Katherine Milsop

VP, Head of Multimedia: Sarah Singer 

 

Full transcripts for all Business Casual episodes available at https://businesscasual.fm

 

Transcript

Nora Ali: For Morning Brew, this is Business Casual, bringing you convos with people you know, and some you may not know yet, to make business less intimidating. Because money talks, but it does not have to be dull. I'm your host, Nora Ali. Now let's get down to business.

I know, I know, even the word "cryptocurrency" might make some of you rip your headphones out of your ears and run away. If that's how you feel, then this episode might be even more for you than for your typical crypto connoisseur. The thing is, you can't run away from crypto. It's hard to go a day without hearing about some news in the crypto world, whether it's the $570 million hack that just hit Binance blockchain, the world's largest crypto exchange, or the fact that the Financial Stability Board is weighing in on global rules for crypto regulation this week, or perhaps most importantly, if you have the internet, you know that Kim Kardashian just agreed to pay a $1.26 million fine from the SEC after her illegal promotion of EthereumMax on Instagram. Celebrities—they're just like us, sometimes confused. If even Kim K can get caught red-handed, then it's clear that the world of crypto can be super overwhelming for a lot of people, especially if you're not on the inside.

But what we try to do here on Business Casual is make business less intimidating, and help you feel more comfortable being a part of the conversation, whether you're particularly passionate about a subject or you just don't want to look dumb in front of your coworkers when the topic comes up. So get ready for a little Crypto 101. First we'll hear from Morning Brew's own Jamie Wilde, who writes the Brew's brand new Incrypto newsletter, a free newsletter for people who are into crypto but not you know, into crypto. Jamie breaks down some basic cryptocurrency related terms and helps set the stage for our conversation with Raoul Paul. Now, Raoul is a former Goldman Sachs analyst and hedge fund manager who went on to found two companies, Global Macro Investor and Real Vision, and he's an expert in the crypto space.

As Raoul told us, there are now approximately 300 million people using cryptocurrencies or investing in cryptocurrencies, and people are adopting it at twice the speed as they adopted the internet. Raoul will shed some light on what the so-called crypto winter actually is, and what it means for short-term traders, long-term holders, and people who might be looking to get into crypto right now. He also shared insight into how macroeconomic activity—like inflation, a possible recession—impacts the crypto economy, and what he thinks it means for crypto in the long run. Let this episode be your exploration into what all this crypto talk actually means. That is next, after the break.

Jamie, there is no one I would rather talk to than you about the basics of crypto. Congrats, by the way, on launching your new newsletter, Incrypto. So we'll get to that in a moment. But first, some primers. You're very good at explaining concepts very simply. So to start, what exactly is the blockchain?

Jamie Wilde: What made blockchain make sense for me was thinking about the name really literally. Blockchains literally consist of blocks of data, and that data is cryptocurrency transactions, NFT ownership, and other such Web3 things. Those blocks of data, though, are compiled in slightly different ways on different blockchains, because there are multiple, and then they're linked together into a chain. And once they're put on that chain, they're immutable, meaning you can't go back and change them. And then all of that, the blockchain is encrypted, as in, it's broken up into little fragments and spread across a network of computers. What that does is it makes it more secure and it makes it so that no one person has control over the blockchain.

Nora Ali: And Jamie, that's why we hear the word decentralization all the time. It means one person cannot impact it alone. That was a very good explanation. Thank you for that. Next question. What exactly is a cryptocurrency?

Jamie Wilde: So a cryptocurrency is a digital asset unlike traditional money, cash. And the reason it's different is because it's not controlled by a government entity or any other authoritative source. Instead, it is stored on that blockchain, which we talked about, in those little bits of data. And that is supposed to make it more secure and it also makes it really good for internet transactions. That was its original purpose. Bitcoin is the first cryptocurrency and still the hugest. And so the reason it's good for internet transactions is, in theory, you wouldn't have to go through a bank. You know, when you online shop, you have to use your debit or credit card. Cryptocurrency, in theory, could be direct, peer-to-peer, no middlemen, no government, no banks.

Nora Ali: So the next question is around NFTs. And I've had many interviews about NFTs. I've asked many people questions about NFTs, but I was driving through Minnesota recently and my little sister asks me, "Nora, what is an NFT?" And she's someone who's just not in this world at all. She's super, super smart, but is just not tapped into this. And I was like, "Wow, it's actually kind of difficult to explain if you have absolutely no basis for what it is." So Jamie, for my little sister, what is an NFT?

Jamie Wilde: So it's a nonfungible token, which I know is gibberish off the bat, but what most people think of them as is like jpgs of apes. You know, they can be digital assets, but what is really core about an NFT is that the proof that you own it is stored on that blockchain that we said earlier. So that's what makes you own one of these digital assets. However, what gets me really jazzed about NFTs is that it doesn't have to just be jpgs of apes. You can also own bits of music or videos, but it doesn't have to be media altogether. In the future, I think we could replace the flimsy paper pink slips to your car, or even I would love an NFT of my college degree. That would be great proof of your college degree. I paid enough for it, you know?

Nora Ali: Yeah, exactly.

Jamie Wilde: I hope that would make sense to your little sister.

Nora Ali: I think it would. What determines the value of an NFT? Is it just supply and demand dynamics? Is it speculation? What makes the value of an NFT go up?

Jamie Wilde: What determines it is whatever the original set price is, usually by the artist, since we do mostly see digital art NFTs, but then you get a lot of speculation around what people think things are worth, and what drives up the value is, I guess in some cases it's how many perks or how much prestige people think they will get. The reason bored apes are so expensive is because you're not just getting...I've said this like three times now, the ape jpg. What you're getting is you're joining this community, you have access to their private messaging channels, you get to put it as your avatar so you have some form of status. And I think that's what tends to really drive up the price. And then of course just mere speculation, people trying to make money off of each other.

Nora Ali: So going back to just the basics of crypto, we've all heard about the so-called crypto winter. It's obviously a very volatile market. So very quickly, what do the optimists say about cryptocurrency, and then what do the pessimists say?

Jamie Wilde: I mean, one thing I found really interesting about this crypto winter is that venture capital firms are absolutely pouring money into the space while it's, you know, on sale. It's on the down. So we have a lot of investment money in there. A lot of startups are getting huge funding rounds. And don't get me wrong, there's a shakeout. Not every company's going to make it through it and you're really going to have a proof of concept test here whether you can make it through it. But the optimists see it really creating a new phase of the internet, to the most extreme degree. They think that it could change financial services, it could lead to people owning golf courses together. It could change how we work, if we were to work using what are called decentralized autonomous organizations. So it's really this catchall technology similar to the internet that could impact a lot of different places. And that's what optimists think will happen. Pessimists think it's a flash in the pan, that cryptocurrency will crash in the same way that we saw Terra Luna crash earlier this year, one of the cryptocurrency coins...

Announcer: It's one of the worst scandals in the history of the crypto industry. We're talking $55 billion of paper wealth wiped out. You're looking at a similar scale to the Madoff Ponzi, right? That was, I think, a $65 billion paper wealth destroyed.

Jamie Wilde: And I think they just also see all of the speculation and money being put into it as not constructive towards that future that we are talking about, which I somewhat agree on. I actually think the crypto winter and the pullback in that mania could be a really good driving force for the space.

Nora Ali: A necessary culling of the companies that aren't actually going to sustain themselves, and the cryptocurrencies themselves that maybe aren't based on anything real. Okay. Jamie, where can our listeners get Incrypto into their inboxes?

Jamie Wilde: Yeah, so if you head over to morningbrew.com/incrypto, you can sign up and it'll be in your inbox every Tuesday and Thursday to start, with plans of expanding to a third day in the future.

Nora Ali: Ooh, very exciting. Well Jamie, thank you so much for being here with us.

Jamie Wilde: Thank you so much, Nora. It was fun to talk to you.

Nora Ali: Jamie Wilde writes our Incrypto newsletter for Morning Brew. Up next, my conversation with Raoul Paul. Welcome, Raoul, to Business Casual. We're excited to have you on.

Raoul Pal: I'm excited to be here. Thank you.

Nora Ali: So before we get into our conversation about crypto, I would like to start with an icebreaker. This is called OG Occupations. So Raoul, what was your very first job, your OG occupation?

Raoul Pal: My OG occupation was customer support to a business that was very much like Bloomberg. That was my graduate training job. I came out of university, did that, teaching people how to do technical analysis in financial markets, of which I had no idea what that even was. Tried to learn it on the job.

Nora Ali: What's the best kind of job? Where you learn it on the spot.

Raoul Pal: But I have worked in pubs, I've worked in a garage. I've worked everywhere. So I've done all sorts of jobs in the meantime.

Nora Ali: Okay, wonderful. Well, your job today is to teach us all about the crypto market, and on this podcast we like to make business concepts less intimidating. So we'll treat it like a little bit of a 101 on crypto. Lots of buzzwords out there. So we just want to make this digestible for our listeners. So let's start with the context of where we are right now. The state of the economy is in many ways disarrayed. So in your own words, how would you describe the state of the overall economy right now?

Raoul Pal: So my view is that we're still paying for the effects of Covid that caused all sorts of problems. Like nobody could manufacture anything, nobody could ship anything, planes couldn't go anywhere. And so as Covid starts to ease, people came back out of their houses, back into the office, back to consuming things, and there were no goods to be bought because all the shelves were empty, because nothing got manufactured. So that caused this huge rise in inflation. Then the next thing, the central banks think, "Oh my god, inflation," because inflation's pretty bad because most people's wages haven't gone up as much as prices have. So everyone feels poorer. So the central banks think, "God, we need to do something about this." So that's the Federal Reserve and the Bank of England and all these guys, and they raise interest rates and that usually slows down the economy, and it has. The economy is actually falling off a cliff because they probably over-tightened.

So even though we kind of know things are bad, the forward-looking stuff that I look at using my kind of macro framework suggests things are going to get really quite ugly over the next six to nine months. So what the Federal Reserve is doing when they raise interest rates is they're taking what's known as liquidity out of the system. So what they're saying to banks and others is, "We're going to allow you to have less money to use around the system." So that means it's harder for anybody to borrow money, it's got more expensive, your mortgage has gone up, your rent's gone up. So everybody stops spending and the economy slows down, and that brings down inflation because there's less demand for goods. But it has other effects as well. Obviously, people start becoming unemployed again, which, you know, people were kind of saved a bit by Covid, by the stimulus checks and what happened.

But this time around, there's nobody really wants to save them, because the Federal Reserve has said, "We actually want unemployment to rise." So they want you to lose your job so you buy less goods so the price of goods falls, which is kind of a bit screwy, but that's what they want. And that whole mechanism of the Federal Reserve doing this has unwound a whole bunch of asset prices. So the stock market fell, I think the NASDAQ's down 30% as we're speaking. And the S&P's down 25%. The bond market collapsed. It's one of the biggest falls in the history of the bond market. Housing prices are coming down very fast. The price of oil to the price of commodities has collapsed; the price of cryptocurrencies has collapsed. So it's been a really, really tough nine months in financial markets and for people's savings and investments, and potentially for their jobs too.

Nora Ali: So why has the price of crypto crashed, specifically, and maybe provide some context on how cryptocurrencies historically have moved, given the types of inflation or the rate of inflation we're seeing now, given how the stock market is moving now, given the broader context, why we're seeing this crashing crypto?

Raoul Pal: So crypto is a function of two things, technological adoption and the macro, the liquidity that the central banks are providing. Those two things are the key drivers. So if you zoom out of a log chart of crypto that everybody always tells you to do, you can basically see things like bitcoin go up, just up over time, and a lot, up a lot. But it's very volatile. You get these kind of big ups and downs. So the question is, is what drives the big up and then what drives the ups and downs? The big up is driven by the adoption of technology. There's now 300 million people using cryptocurrencies or investing cryptocurrencies. It's growing at about 100% a year or so. It's the fastest adoption of any technology the world has ever seen. So people are adopting this twice the speed of the internet. That's why it's been so profitable. 

But it's also very volatile. And it's very volatile because when the central banks remove liquidity, which they've done in 2013, 2015, and various other points, cryptocurrency collapses because there's less money around for people. And this particular example, what's just happened over the last year, is to do with the fact that most investors in crypto are actually retail investors and they dollar cost average. So they put in some of their paycheck every month. Now the issue is, if your paycheck's gone down in purchasing power terms, you have less money to invest. So suddenly cryptocurrencies are less active, the networks are less active, and the price has gone down. So does that change the long-term picture of the adoption of blockchain technology? Well, when you look at it and you see everybody from Nike to Gucci to Ticketmaster, you name it, all using blockchain technology, it's not going away. We're just in this period where it looks pretty ugly and feels pretty ugly.

Nora Ali: So there isn't anything fundamentally concerning about crypto right now. I just want to reiterate what you said. This is retail investors, regular people who don't have as much money that they have to spend to invest in crypto. Is that right?

Raoul Pal: That's right. But then if you think of the big financial market participants that we've been waiting for to enter the market, some of them have, so these are the big pension funds and hedge funds and others. They're also struggling from lack of liquidity, because their portfolios are going down from what the Federal Reserve are doing. So they have less money to put into crypto. So I spend a lot of time speaking to these big institutions and they're all ready to get involved, but they just don't have the cash right now, much like we don't have the cash because everybody's feeling the pinch. So if everybody's feeling the pinch, it's not going to drive up the price. But once this situation eases, it'll start driving up the price.

Now there's another piece of magic that happens with crypto, is crypto doesn't do well in inflation because of the reasons I said. But when the central banks start printing more dollars or euros or pounds or yen or whatever it is, that's called debasement of the currency, quantitative easing. And that is when crypto does really well. So one of the reasons I've been very closely following the prices in crypto recently is because, as we start getting a worse and worse economy, we know eventually rate rises will give way to rate cuts, and those conditions are literally perfect for cryptocurrencies.

Nora Ali: Let's back up a little bit. You mentioned that the adoption of crypto blockchain tech or the infrastructure around cryptocurrencies has been adopted faster than any other tech we've seen. Why is that? What's your hypothesis as to the rapidity with which it's adopted?

Raoul Pal: There's two reasons. One, I think it resonates with people that it is a different answer to the financial mess that we live in, these hugely debted economies driven by central banks and government policies, and people want a different way out. So it resonates as a narrative to people. But what's super powerful about crypto versus almost anything else is the fact of how it works with behavioral economics. Because token systems are incentive systems by nature. So to explain it to at a simpler level, Facebook is a viral set of products, whether it's Instagram, Facebook, WhatsApp. But we as users get to use those things, but we don't get any rewards except connecting with our friends or whatever. And the shareholders got rich as the network grew. So three and a half billion people use Facebook technology right now.

But with crypto, it's like we'd all been given Facebook shares. So imagine if every time you logged into Facebook or used Facebook, you got shares. So if you own parts of the network, well what are you going to do? You're going to tell everybody about it, which is why you get this weird world of everybody's shilling cryptos because it increases the size of the network and therefore the value goes up. So it's viral by nature; it's kind of designed to be viral. So it's very difficult to stop because of the human psyche behind it.

Nora Ali: What is the actual utility of cryptocurrencies as it stands now, whether it's the ability to transact, other use cases, and what do you see as the main use case for crypto in the next decade or so?

Raoul Pal: So crypto breaks down to a whole bunch of different things. So you've got at one level with bitcoin, which is like an asset that the central banks and the governments can't mess around with. Okay, so therefore over time it should maintain its value. Now it's very volatile still because it's still early in its adoption. But it was the advent of Ethereum and the smart contract that was the big game changer, because almost everything we do, including me coming on this podcast, is a contract. Everything, whether you buy a ticket for something, whether you go somewhere, almost all human activity is some form of contract. Now those can go on blockchain and be recorded. So before, if you buy a car, you have to go to the center and register it and do all of this stuff—it's a pain in the ass. But what happens is, is on blockchain, it could be authenticated by a distributed network of people, which means it's more secure in terms of who confirms that that contract exists, and therefore it can be policed.

So that opened up to things like decentralized finance, but that opens up even more. And this is the rise of Web3 suddenly. This launches things like NFTs, which are nonfungible tokens, which are essentially smart contracts. And those smart contracts allow us to do a number of different things, whether it's attach a picture to it, artwork to it, music to it, or some sort of contract itself. So we're seeing concert tickets turn into NFTs, we're starting to see airline tickets turn into NFTs, we'll see hotel bookings turn into NFTs and some form of blockchain. So all of these things, it's like a rebuild of the financial system from transfer of payments to store of value to finance itself—the borrowing and lending that goes on in markets. But then it's spilled into culture and tokenization of culture and community and brand, and that was the NFTs where we are now.

Also, the other thing that's coming is ID. So identity online is a nightmare right now. We've seen all of the rise of the bots. We've got the rise of AI to deal with, deepfakes. Society is not ready to deal with the scale and speed at which AI is coming at us, and deepfakes both in visual form or audible form or the creation of content by AI such as GPT3 written content or open AIs, DALL-E, all of this stuff is terrifying. We don't know who's a human and who's a robot, who's trying to use us and who isn't. So what we can do is put our identity on the blockchain and we can even hide the details, but have a proof of the identity, and that allows us to operate in a digital world as we're moving towards the metaverse that separates the humans from the bots.

Nora Ali: This example you used of putting your identity on the blockchain in this world where we see deepfakes and you don't know what's real and what's not, and what's AI or not on the internet, what does that mean practically? How would one go about doing that, either now or in the future?

Raoul Pal: So right now you could have a deepfake video image designed by AI that says a politician says, "Florida's been destroyed by this hurricane that's going through as we speak today, and everybody's going to die." Now if you put that on Twitter, you would see Joe Biden saying this in his voice and you could not distinguish it from the original. So what happens if the politicians use it? We get Joe Biden to say, "We're going to send a nuclear warhead to Russia?" What does that mean?

Nora Ali: I guess what I'm trying to understand is, just functionally speaking, how would we be able to identify via blockchain tech who actually is Joe Biden, who actually is Nora Ali?

Raoul Pal: So if Joe Biden makes a speech and it's videoed by XYZ, let's say the White House, it would then get put on blockchain to say, "This is an authenticated original version and you can trace it on chain to say 'Yes, it got authenticated by the White House and then agreed by the distributed ledger.'" So when every time I look at that video, I can get the token to say, "This is authenticated and real." But if I don't have that token, I don't know that's the case. Now, right now, the White House would have to send out a tweet. Now, is the tweet real? We've seen that too.

Nora Ali: Right.

Raoul Pal: So it really is a problem at scale that people haven't really thought through, but the moment you can authenticate it on a blockchain, you know what's real and what's not.

Nora Ali: That makes sense. Okay, we're going to take a really quick break. More with Raoul when we come back. Raoul, let's get into the practical side of investing in crypto. You've said there's two types of people in the crypto market—there's traders and there's long-term holders. How do you think long-term holders right now should ride out this so-called crypto winter? I know you said this is not a permanent thing right now. How should long-term holders be thinking about this wave in crypto right now?

Raoul Pal: Well, there's a piece of magic, and I alluded to it earlier. We know that the adoption is going up and the adoption of a network drives up price. It's called Metcalfe's Law. So here we are at the most oversold levels, almost in history of crypto. Yes, the price move has not been as big as it was in earlier stages, but the levels of how oversold it is are enormous. So here we are looking at this saying, "Okay, it's been driven by the macro, it's been driven by the central banks, liquidity, inflation, and our job is to look forward the next two years, three years, five years, and say, 'Is this current state of affairs going to be permanent or temporary?'" Well, a history of economies is, the business cycle goes up and down, it's cyclical. So therefore with the cheap levels we're kind of at key trend lines, and almost every time we get here, the crypto market 10 or 20 Xs from here.

Now that's not a guarantee that it does it next time. So your risk/reward is highly favorable, and you've got the shifting macro where we're going from maximum pain in the economy to starting to see the central banks change their course and start adding liquidity back because they've broken the economy. So therefore you really should be focused when everybody's scared and everybody's puking their crypto, that Eth and bitcoin, you should be thinking, "Now's the time to accumulate it."

And I learned this the hard way. The big lesson even for me who's been in financial markets for 30-odd years, is when you've got an asset that trends so strongly and is so volatile, these selloffs are your friend, unless something fundamentally changes with the story, and we don't see that. We don't see it's something banned by every government. People haven't walked away from it. It's the same with the personal computer, same with Amazon. Amazon when it went public fell 96%, and then it went up, and then fell at 80% and then down and then up and down. And it had the same adoption curve as people adopted the Amazon network. And really the only person who ever managed to hold onto it was Jeff Bezos, because everybody else panics out all the time and he became the richest man in the world.

Nora Ali: He's doing fine. Yeah.

Raoul Pal: Yeah.

Nora Ali: Well, what would a fundamental change then look like? You mentioned something like regulation or the central bank gets involved. What would be a fundamental change to the crypto market?

Raoul Pal: I think it's really hard because it's now so big. So we saw that China bans it.

Announcer 2: China cracking down and leading to a massive plunge in the price of bitcoin over the past 24 hours. The country responsible for 75% of crypto mining is now further banning financial institutions from providing any services related to digital currencies...

Raoul Pal: Market goes down a bit, then nothing happens. India bans it, unbans it, bans it again, nothing really happens. So it's actually difficult to think what is the existential threat now? Well, the one threat people say is if the global internet is turned off. But again, that's a distributed network and with Elon Musk's Starlink, it's actually harder to do, because these networks of phones and data are now not in sovereign states. There're in space. I don't see the existential threats. You can have threats like the US regulates it, tells everybody bitcoin is bad, you're not allowed to own it, much like they banned gold in the 1930s. It doesn't stop gold being an asset, it just changes where it's held and by whom. So I don't see the big existential threat. 

The one people talk about is quantum computing, because cryptography is based around solving a complex mathematical problem. But most of the new stuff, and even Ethereum now, is proof of stake. So you're not solving mathematical formulas of which quantum computing, so that will be an existential threat for bitcoin. Now again, most people understand the threats, so it's not a black swan. If you understand the threat, there's tons of smart people in the space. So they're working on quantum proofing various protocols.

Nora Ali: Let's take this opportunity to take another quick break. More with Raoul when we come back. Okay, Raoul, let's talk about how you pick between different cryptocurrencies. You've been quoted as being bullish on Sol, which is the native token of the Solana blockchain, which claims to be the fastest blockchain in the world. And you've said that it will outperform Ethereum. What are you basing that off of? And more generally, what makes one cryptocurrency better than another one?

Raoul Pal: The better is a subjective thing. It depends what you want to use it for. So bitcoin not being the fastest, cheapest, is not a problem because it's more decentralized. So people want that element. So different people want different elements. All I look at is, break it down. What drives price? Price is driven by Metcalfe's Law. Metcalfe's Law is how you value a network. It's the number of people on the network and the number of connections between them. So why I got very bullish on Ethereum is I could see that people were building a lot on Ethereum, and the Ethereum user base was growing fast as a rate of change. It was earlier in its adoption and therefore the price goes more exponential earlier on. Because when you go from one person to 50, that's a 50X increase. When you go from 50 to 100, it's a doubling, right? So that's what drives the value of these things. So I was very, very bullish on Ethereum and I still am; it's the majority of my investments. 

But Solana, I noticed that a fast blockchain is going to capture different use cases where we really need speed and cheapness. And Solana also has been focused on the kind of mass adoption stuff. So they got NFTs and they did quite well from NFTs, but I see conversations that they have and what they're working on. These are the guys who built a phone. So they're thinking of consumer adoption. While other chains like Avalanche might be looking at financial system adoption. So I think consumer adoption, because there's a lot of consumers out there. And I think that if the trend of adoption for crypto continues as it is, we'll have a billion users by 2024 and we'll have 3 billion users by the end of the decade, 3 or 4 billion users. So that means that chains like Solana should do well if they're focusing on that part of the market. I see it's earlier in its cycle because Solana only came out two-odd years ago, and so therefore if I'm right—and it's an if—then we should see it outperform because it's earlier in adoption. So it's going from the one to 50 and not the 50 to 100 and it should see a huge growth in its network. Now I may be wrong, it may be another chain that catches the world's attention, but Solana feels like a decent bet...but I wouldn't bet my house on it.

Nora Ali: So I've been advised by my financial advisor to put at least a little bit of money in bitcoin because there is a risk to missing out on the potential upside. So for our listeners out there who are new to crypto, generally even NFTs, I guess, if you want to dabble because you don't want to miss out on the upside, but let's say you're pretty risk-averse, what is a prudent way to begin? Where do you start?

Raoul Pal: You're going to have to open your own Coinbase wallet or FTX wallet or whatever it is, Kraken...any of the exchanges, and buy some. Now you can buy it from your PayPal account. That's how I got my sister-in-law in. I'm like, "Here's your PayPal account. Do this."

Nora Ali: Very easy.

Raoul Pal: Then you need to decide, "Okay, how risk-averse am I?" Usually if you're young and you're not saving this money for a specific thing like a house, but you're saving it for your future, then you can be more aggressive with risk because you have a long time for it to realize the returns you're expecting. If you're trying to do it for a house, then don't, for goodness’ sake, hope that bitcoin's going to save you for your house deposit, right? Not going to help.

Nora Ali: No.

Raoul Pal: So that's where you need to think about: Where am I risk adverse? And then you think, "Okay, is bitcoin going to capture this or not? Or do I need to buy more things?" So my suggestion has always been, bitcoin is this kind of safe asset, this kind of OG. Ethereum is the best manifestation that we have today of the broader Web3 big idea. Maybe a balance between those two is a pretty straightforward way to start.

Then once you've got a wallet and you see these things go up and down or in your PayPal account, you'll get a feeling for, "How does the volatility make me feel? Does it make me feel sick when it falls 50%?" Because it will. "Do I feel too elated and think I'm a god when it goes up 10X?" You will, and you have to learn to manage your emotions. Think about how I want to add to my investments, when I want to take money off the table because I can use it for other things, but that's where I'd start.

Nora Ali: Yeah, definitely. Well Raoul, before we let you go, we do have a segment called Shoot Your Shot. So we'd like to know what is your moonshot idea? This is your biggest dream, your wildest ambition. It could be personal, professional, it's your chance to Shoot Your Shot.

Raoul Pal: We've talked all about investments here. The best single investment you can make is in manifesting your vision of your future self. We all work and invest for this vision of our future selves. We're kind of slaves to it, and people go around it the wrong way. The moonshot is to see that vision, look backwards and say, "How do I make that happen?" And realize that the only point scoring system there is, it's not money, it's not status, it's your quality of life. If you align your journey with quality of life, doesn't mean you can't be wildly ambitious. Doesn't mean you can't just want to be in a cottage in, you know, Hudson River Valley. It doesn't matter what you want, but maintain your quality of life above all things.

And that whole journey becomes much easier and it anchors you on what's truly important, because money is not the important thing. It's how you live your life. Because there's no point looking back when you are 80 years old and saying, "Well, that was a pretty shitty journey." You know, life is a bunch of ups and downs, but if you have a quality of life...This is why I live in the Cayman Islands. This is why I lived in Spain for 10 years, because I really care about what quality of life does. It gives you a really good feeling of security. That hey, if the world went to shit, still live in the sunshine, I can still go and swim in turquoise waters every day and snorkel. That costs zero.

Nora Ali: That sounds very nice. Okay, very, very last thing. It's time to play a quick game of Bullish or Bearish, Crypto Edition. So the following are some lesser-known cryptocurrencies; these were sourced from an article on analyticsinsight.net. You might know some of them. You might not. Just base your bullishness or bearishness on just the description of it. Okay. So the first one is Potcoin. As the name suggests, Potcoin refers to a network that empowers the marijuana industry. It's a digital currency that enables customers to buy and sell cannabis products anonymously. It also provides a banking solution that assembles the marijuana businesses and customers on a single peer-to-peer platform, enabling customers from around the world to make transactions. Bullish or bearish on Potcoin?

Raoul Pal: Bearish.

Nora Ali: Why?

Raoul Pal: Because it's all about adoption. If nobody's really using that, and what they're trying to do is get around regulation. If you get around regulation, somebody's going to come after you.

Nora Ali: Okay. Okay. So we are bearish on Potcoin. How about on coins that are generally based on an industry? Are you bearish generally on that?

Raoul Pal: Uh, it depends. Everything sounds amazing, right? But most of these things go to zero. That's the dirty secret here.

Nora Ali: Yeah. Okay. Next step is Garlicoin. It claims to be an investor-friendly, decentralized crypto. Its primary focus is based on three aspects: cheap and fast transactions, low barrier to entry, and a massive focus to grow the Garlicoin community. Sounds like all the generic things that you would want in a cryptocurrency, right?

Raoul Pal: That's right. So this is basically...this is basically a mean coin and mean coins, when the world is feeling bullish, they go up a lot, and when the world's not feeling so good, they go to zero. So I'm going to go bullish on Garlicoin.

Nora Ali: Bullish. Great. Bullish on Garlicoin. Okay, next step is Dentacoin. It's a cryptocurrency created for, you guessed it, dentists by dentists. It's a digital coin and blockchain function to serve the global dentist community. It aims to help patients and dentists share data, medical records, and other critical information through its network. Bullish or bearish on Dentacoin?

Raoul Pal: Doesn't need a token. Bearish.

Nora Ali: How would you go about doing that without a token, then? Just via the blockchain, I guess.

Raoul Pal: Just the database. I mean, we've got medical records on databases already.

Nora Ali: Yes. Okay, amazing. So we are bearish on Dentacoin. Okay, last one, quickly. It's called Bongger, with two gs, another crypto that aims to support the cannabis revolution. It's a social project that aids humanity in various aspects as a currency and acts as a funding asset, again, for the marijuana industry. It also provides support to the medical, pharmaceutical, and basic scientific research revolving around cannabis and its uses. Bongger, bullish or bearish?

Raoul Pal: I prefer that to the other one, than Potcoin. So I'm going to go bullish on Bongger because they're trying to do research, you know, they're trying to fund research, other stuff, and they've just said it's kind of not a use case. It's more like an NFT. It's like it's just a community token. And I don't mind...I quite like community tokens.

Nora Ali: Trying to further the cannabis space. Okay, great. That's it, Raoul, we're going to leave things there. That was super fun. Thank you for joining us on Business Casual.

Raoul Pal: Not at all. Great to see you.

Nora Ali: This is Business Casual and I'm Nora Ali. You can follow me on Twitter @NoraKAli, and I would love to hear from you. If you have ideas for episodes, comments and thoughts on episodes you love, fun segment ideas, just shoot me a DM and I will do my very best to respond. You could also reach the BC team by emailing BusinessCasual@morningbrew.com, or give us a call. That number is (862) 295-1135. And if you haven't already, be sure to subscribe to Business Casual on Spotify, Apple Podcasts, or wherever you listen. And if you like the show, please, please, please leave us a rating and a review. It really, really helps us. And guess what? We are on YouTube. So if you've ever wondered what I look like or what our guests look like, full episodes are available at youtube.com/morningbrewdaily. Business Casual is produced by Katherine Milsop and Olivia Meade. Additional production sound design and mixing by Daniel Markus. Kate Brandt is our fact checker, and AB Silver is our senior booking producer. Sarah Singer is our VP of multimedia. Music in this episode from Daniel Markus and The Mysterious Breakmaster Cylinder. Thanks for listening to Business Casual. I'm Nora Ali. Keep it business, and keep it casual.