Why do most people lose money in cryptocurrency trading? The counterintuitive path to wealth by former Goldman Sachs executive Raoul Pal

Original Title: Raoul Pal: How to Get Rich in Crypto (without getting lucky) | E120

Compiled by: KarenZ, Foresight News

Raoul Pal, a former Goldman Sachs executive, author of "Global Macro Investor," and founder of Real Vision, is well-known for successfully predicting the 2008 financial crisis. Recently, in a conversation with "When Shift Happens" and a speech at the Dubai Sui Basecamp, Raoul Pal delved into how to steadily accumulate wealth in the cryptocurrency space, discussing topics such as Bitcoin, Ethereum, Meme coins, AI, NFTs, the Sui ecosystem, Bitcoin strategies, investment strategies, macro trends, and market directions.

Highlights from Raoul Pal's conversation with When Shift Happens

1. How to Get Rich in Crypto Without Luck?

How can one get rich in Crypto without relying on luck? Simply buy Bitcoin and adopt a DCA (Dollar-Cost Averaging) strategy. Newcomers often fall into the trap of seeking quick riches, a mindset fraught with danger. Once you start envying others for achieving 100x returns, you've entered a perilous zone; losing rationality and succumbing to greed can easily ruin your investments. The Crypto space is filled with risks, such as DeFi attacks and wallet thefts, which require investors to remain vigilant and maintain rationality.

2. On Meme Coins

When it comes to Meme coins, Raoul Pal stated that he does not hold Fartcoin but does hold SCF (Smoking Chicken Fish) and DODE. Although SCF has dropped 90%, it is currently showing a good rebound trend. He particularly warns investors not to let Meme coins like Fartcoin, WIF, or BONK occupy too large a proportion of their portfolios, as these coins have an 85% chance of going to zero. He was even surprised that LUNA did not evolve into a Meme coin, as he initially thought people would go crazy buying it.

3. Stay Away from Market Panic and Return to Value Investing

If investors feel panic about the market, Pal suggests they should calmly return to life and stay away from trading screens. Those 5-minute and 1-hour candlestick charts do not provide substantial help in investment decisions. Many people fantasize about becoming successful traders and earning 100x returns, but the reality is that true wealth accumulation in this field comes from those who consistently buy and hold long-term.

4. Beware of Crypto Yield Risks

Regarding Crypto Yield, such as earning returns through staking, there are also risks involved. For ordinary investors, when faced with an opportunity that seems to offer a 20% return, it is crucial to be aware of the risks that come with it.

5. How to View Michael Saylor's Bitcoin Buying Strategy?

The Bitcoin strategy of Strategy is creating leverage within the system. Strategy purchases Bitcoin by issuing convertible bonds, which essentially involves selling options at a lower cost. Once these options are bought by arbitrageurs (options traders), they will hedge on trading platforms to manage Bitcoin price fluctuations and the risks of MicroStrategy stock options. Additionally, arbitrageurs will exploit the fluctuations between MicroStrategy's NAV and Bitcoin prices, as well as market tools like perpetual contracts and spot-futures spreads.

Currently, the buyers of Strategy's convertible bonds are mostly TradFi hedge funds and other institutions. Sovereign wealth funds like Norway's may only focus on the Bitcoin aspect, while large hedge funds like Citadel, Millennium, and Point72 are also engaging in arbitrage. These institutions are experienced in risk management and may receive systemic support, with reasonable position size control, making them less prone to liquidation. In stark contrast, traders who excessively use high leverage face significant risks, with many cases of trading failures due to over-leverage in the market.

6. Raoul Pal's Capital Allocation

Regarding capital allocation, Raoul Pal stated that Sui accounts for 70%, far exceeding Solana now. The adoption and developer activity of Sui are performing well. In addition, he holds some DEEP (DeepBook), which is a liquidity layer protocol within the Sui ecosystem.

7. The Value and Potential of NFTs

As an innovative technology that can permanently store and trade non-transferable assets, Pal is optimistic about the future of NFTs. From a macro perspective, the current Crypto industry is valued at $3 trillion. If it grows to $100 trillion in the next decade, it will create a massive wealth of $97 trillion; even a conservative estimate of $50 trillion would still generate a wealth increment of $47 trillion.

This wealth will flow to different people. Art is upstream of everything, and digital art, as an emerging field, is expected to become an important destination for wealth. In the digital art space, we have XCOPY and Beeple, which have given rise to the generative art movement. I have spent a lot of time talking to some very famous people who are highly interested in this field. After crypto OGs have made enough money, they have a strong desire to collect artworks. For example, CryptoPunk symbolizes your identity and can connect you with like-minded individuals. From institutions to super-rich individuals, ordinary people are gradually realizing the importance of digital art. We are still in the early stages. I own many artworks, and I believe this spans over a decade.

8. The Advantages and Prospects of Ethereum

Regarding Ethereum, its network capacity has surpassed current system demands, and adjustments may be made to some mechanisms, returning to Layer 1. The status of EVM is akin to Microsoft, as many banks, insurance companies, and large enterprises around the world rely on Microsoft rather than Apple or Google.

Once you have a business sales model, it is almost impossible to remove it from the company because you do not want to change it or take risks. From the Lindy effect (the longer something has existed, the greater the likelihood it will continue to exist), Ethereum has stood the test of time and meets the needs of the financial market well. Will Goldman Sachs or JPMorgan build on Solana? Unlikely. Ethereum may bring a new narrative to the market and is expected to outperform Bitcoin in the short term. Looking ahead five years, unless they mess everything up, its importance will become increasingly prominent.

The concepts of Bitcoin's Lightning Network and payments have limited effects on price increases; Bitcoin's core value lies in its role as a store of value; the same will happen with ETH.

9. On AI

The development of AI is rapid, and its performance has surpassed 99% of analysts. After deep reflection, Pal believes that the rise of AI raises profound questions about consciousness and the future role of humanity. He suggests that people actively engage, deeply understand, and skillfully use AI technology.

Secondly, we do not know what this means for employment and how we create wealth, but I know what humans excel at. What can humans do that AI cannot? That is to be human.

I developed an AI Raoul that can read the news daily, which is also written by AI, and I built a chatbot trained on my own voice, with training data covering all of its X content, YouTube content, and 100 books. Now, Real Vision users can interact with this chatbot. Pal predicts that soon these two technologies will merge, and this transformation will have a profound impact on the podcast and media industries, with the media content everyone encounters in the future being uniquely personalized. Moreover, human memories and behaviors may ultimately become "nutrients" for AI, achieving a form of "immortality."

10. Market Attention and Quality Project Selection

This is a game of attention. People's focus on key tokens is scattered, and the duration of many narratives is relatively short. Pal emphasizes that holding Bitcoin is always a wise choice; additionally, buying Solana at the bottom of the cycle and purchasing SUI last year are also good strategies.

Investors should focus their attention on the top 10 or top 20 tokens, particularly those projects that can continuously enhance network adoption, as these projects often have higher investment value. According to Metcalfe's Law, project potential can be assessed based on active user numbers, total transaction value, and user value.

Bitcoin has a large number of network users, and sovereign nations are participating in its purchase, which is why Bitcoin is more valuable; Ethereum has a vast user base and rich applications. Although the emergence of L2 has made the situation slightly more complex, it still possesses significant value. Investors should actively seek projects that see simultaneous growth in user numbers and application value, such as Solana, which saw its developer community grow steadily at the bottom of the cycle, maintaining stable user numbers, and the emergence of Bonk further boosted market confidence in Solana (Note: The host mentioned that in a previous conversation with toly, toly stated that Mad Lads was a turning point for Solana); Sui is similar.

Highlights from Raoul Pal's Speech at the Dubai Sui Basecamp

1. Core Macro Factors: Liquidity and currency devaluation. Cryptocurrencies and the economy exhibit a four-year cycle driven by the debt refinancing cycle. Since the global debt peaked in 2008, we have maintained economic operations through borrowing new to pay old.

2. Aging Population and Economic Growth: The aging population slows economic growth, requiring more debt support to maintain GDP growth. This phenomenon is prevalent in many parts of the world, and the correlation between debt and GDP can clearly illustrate this dynamic.

3. Liquidity Drives Everything: The net liquidity of the Federal Reserve is a core indicator. From 2009 to 2014, liquidity was mainly provided through balance sheet expansion, followed by the introduction of tools like bank reserve adjustments. Currently, total liquidity (including M2) is crucial, showing an astonishing correlation with Bitcoin (90%) and Nasdaq (97%).

4. Currency Devaluation Mechanism: Currency devaluation is akin to a global tax, with an implicit inflation tax of 8% annually, plus 3% explicit inflation, meaning you need an annual return of 11% to maintain wealth. This explains why young people are flocking to the crypto space—traditional assets (real estate, stocks, etc.) offer insufficient returns, forcing them to seek high-risk assets for excess returns.

5. Wealth Disparity and Crypto Opportunities: The rich hold scarce assets, while the poor rely on labor income (which declines in purchasing power year by year). The crypto system disrupts this pattern—young people seek breakthroughs through high-risk assets.

6. Performance of Crypto Assets: Since 2012, annualized returns have been 130% (including three major corrections), Ethereum at 113%, and Solana at 142%. Bitcoin has appreciated 2.75 million times cumulatively, which is extremely rare in the investment field, and crypto assets are gradually becoming a "super black hole" for attracting funds.

7. The Sui Ecosystem Has Huge Potential. DEEP (DeepBook liquidity layer protocol) has recently performed the best. The SOL/SUI ratio indicates SUI's relative strength.

8. Analysis of Current Market Misjudgments: People often interpret the current market narrative using liquidity conditions from three months ago (such as tariff panic), but this is flawed. In reality, the tightening of financial conditions in Q4 2024 (rising dollar interest rates, increasing oil prices) has a three-month lag effect. The economic surprise index (comparing the U.S. and globally) indicates that the current economic weakness is only temporary. Looking back at the Trump tariff cycle in 2017, the dollar rose and then fell, followed by liquidity driving asset prices up significantly.

9. Global M2 and Asset Relationships: When global M2 hits a new high, asset prices should rise in sync. Taking Bitcoin as an example, its price trend typically shows a breakout, a retest, and then accelerates in the "banana zone." Compared to the 2017 cycle, Bitcoin's increase that year was 23 times; although the current market is different, a considerable increase is still expected. The market is currently in the correction phase after breaking through the first part of the "banana zone," about to enter the second part, which usually welcomes altcoin rallies.

10. Business Cycles and Bitcoin Trends: The ISM Manufacturing Index is an important leading indicator. When this index breaks above 50, it signals a return to economic growth, increased corporate earnings, and active reinvestment of funds, leading to accelerated Bitcoin price increases. If the ISM index reaches 57, Bitcoin's price could even hit $450,000. As the business cycle warms up, increased household cash encourages a rise in risk appetite, making the investment logic for altcoins similar to that of junk bonds and small-cap stocks.

Note: Raoul Pal is also a board member of the Sui Foundation.