 Whether you're long commodities or you're long equities or you're long technology, everything gets blown up at the same time. A deadly mix of high interest rates and recession fears is hitting the crypto markets hard. Bitcoin has lost over 50% of its value in the last six months. It could see a liquidation spike at some point if we see one in equities and then eventually that will be the final capitulation of the market. How long is this bear market going to last? Where is the bottom? And most importantly, what are the triggers that will invert this trend and spark the next crypto rally? To answer these questions we talk to Raul Paul, macro investor and founder of Financial TV channel Real Vision. But before we start, don't forget to hit the like button and subscribe to our channel. I'm Giovanni, your host and this is a Cointelegraph interview. So let's talk about the macro first. Global markets are not looking good at the moment. You said in a recent interview that we are locked in a mass liquidation phase and that whatever position an investor has at the moment is wrong. Can you expand on this analysis and tell us what it means for the crypto markets? So the market narrative for the last year has been inflation. Inflation with some elements of growth. That narrative is now changing as people realize growth is about to disappear from the economy. And we've started to see the weakening things like the ISM survey and many forward looking indicators. I've just done a huge piece on Real Vision about this, about the forward growth is slowing dramatically. So we get this market, this position for inflation and an okay economy. Suddenly you take economic growth and all positions start looking troublesome. So whether you're long commodities or your long equities or your long technology, everything gets blown up at the same time because the markets really struggle when you change the regime within the markets itself. I think the regime is shifting eventually to inflation disappearing and growth going down. So a more deflationary environment. So what that means is the financial markets already have tightened instead of the Fed. The rate of change of two year interest rates has been the fastest on record and that tends to lead to a slowdown in the economy as those rate rises kick in. So therefore the Fed are unlikely to raise rates as far and as fast as people expect. My guess is they probably stop raising rates sometime in the summer and that will be it. So and because the economy is going to be slowing down and inflation is going to be slowing down, that is exactly the environment the crypto likes. Crypto likes a slower growth, the Fed looking to on hold or maybe on ease. That's exactly what happened in 2018 at the crypto low and we've got a very similar setup now. So we should going forward see a situation where as the Fed narrative changes and the markets start picking it up, we'll see bonds rally, crypto rally, maybe some of the technology stocks rally. So that's the phase I'm looking for from maybe the summer, but we've got to get from here to the summer first. And that's when this issue of positions being liquidated can go on. We're seeing the dollar go up a lot very fast. That unstabilizes markets as well. The equity markets can't find a footing. They've probably got another. If we follow 2018, they've probably got another 10% lower to come. That usual, that last phase, but I think it is going to be a last phase, tends to bring all assets with it. Gold is getting hit today, cryptos can't find traction. Basically, you're saying that until the Fed is not going to decrease interest rates, we cannot expect the Bitcoin market to recover and to continue on an upward direction. Exactly right. I think we need to see the fear of inflation dying somewhat. And the bond market will probably give us our signal. Once the yields start rolling over and not going up every day, they're still going up every day. But once that changes, the narrative changes in markets, then I think the narrative will change for crypto as well. If you had to point at one or more specific triggers that will spark the next creep rally, what would those triggers be? So I think the macro needs to shift. So we can use bond yields, probably our indicator, or maybe oil, if oil breaks down. Until that changes, crypto is not going to have a chance to really sustain a rally. Then we start coming into, okay, we've got, there's a bunch of people who are trying to get the Bitcoin ETF approval coming through again in May. Maybe one of those gets it. I don't think that's not enough to spark the market because, you know, you can buy Bitcoin if you want, and it's just not been going up. But that just helps at the margin. Then I think the ETH merge, when that comes late summer, I think that's going to help too, because that creates a different dynamic and creates very interesting yield strategies for institutions. So I think those things together are pretty meaningful. Still, they cannot play by themselves. There is also need to be this macro background to work in their favor to spark that rally that we're talking about. Exactly right. Because if you think about it, one of the reasons crypto has not gone up is the fact that, and the networks are relatively slow, they've not grown in a while. It's because retail investors' income has not gone up as much as prices. So they've lost discretionary income. So therefore, people can only dollar cost average less, can get less involved. So what we're seeing is activity within ETH, for example, where people are trading NFTs and that money stays within the ETH economy, and there's been a sum switching amongst Solana, Avax, Luna, that kind of stuff. But the space isn't growing because of this issue with wages and inflation. So that dynamic needs to shift somewhat. Besides this macro economic background that is not favorable for crypto at the moment, you still predicted in a previous interview that Bitcoin has all the chances to get to $1 million in a period between three and five years from now. So how does it get there? Well, don't forget, when crypto rallies, you tend to get these kind of three to 500% rallies in the bull legs. So that's $150,000 in the next rally, let's say, if it goes up 5x, and then it corrects a bit and then it goes up again. It doesn't take long for the performance to the compound. So whether it's three years or seven years makes no real difference to any of us. The point being is the long-term logarithmic trend of Bitcoin remains in place. And that trend will play out and how it plays out, but over time we know where it's going. Yeah, that's interesting because you also said that you don't believe anymore in this four-year halving cycle that has been used in the previous year to kind of predict the movements of the crypto markets overall. Why don't you believe anymore in these four-year halving cycles and what is the framework that you are using now? I don't not believe in a halving cycle. I just think it's less relevant as more players have come into the space. So it doesn't become the predominant driver but one of the drivers. And as we talked about, macro is a big driver in the space that it never was before, because there are different participants in the market. The different participants, the institutional investors and the hedge fund investors have also changed somewhat the structure of the markets. So that depends when they have availability of capital and they don't have availability of capital. So the market as it broadens out in its ownership and participants changes structure over time. But the key structure has always been the logarithmic network adoption model, which is Metcalfe's law. That is the key structure of markets. Whether there's a cyclicality based on the halving cycle or not, it's kind of largely irrelevant. What we're trying to say is over time adoption is everything. Yeah, for sure. The network effect is what actually brings value to these technologies. Yeah, and also I've done a lot of work on, okay, what are the predominant drives of network effects? And I found that two variables explained most of price. They are the number of active addresses, but more importantly, the value transacted on the chain. So Bitcoin is valued more than Ethereum for two factors. There's slightly more wallets in Bitcoin active wallets, but Ethereum's catching up very fast. And there is the value exchanged in Bitcoin is higher. So for example, we're seeing Terraluna buying Bitcoin, big size. We see micro strategies, big size. These size of transactions mean that the value of the network, if you've got big transactions and a lot of people doing them, makes it more valuable. ETH has a lot more transactions than Bitcoin, but they're smaller in value. So the total value being exchanged on ETH is actually less than Bitcoin, even though the number of participants is, I don't know whether it's higher now or not, but either way, it's that value transacted that's the key part of valuing the network itself. Talking about this network effect. So crypto has been compared very often to the early stage of the internet. So with a massive upside potential, still a lot of time has passed, a bit of time has passed, some years already. And basically crypto is still being compared to the early internet, even though it's been around for over a decade. So do you think that this comparison with the early internet still fits at the moment? And if so, what does it take for crypto to get the same mass adoption as the internet did at a certain point of its development? So the actual fact is, is I took the internet when it had 5 million users and crypto when it has 5 million users put them on the same chart and then looked what happened from then onwards. So we're at year six. Crypto has been outperforming the internet. It's growing at twice the speed. So this is the fastest growing adoption of all technology, which I say all the time to people. So it's exploding faster. So we get to like somewhere between one and a half and four billion users in another five years from here. The internet never, never grew at this pace. So this is much faster than the internet. So then in answer to your question, what do, what does it, what does it take time? Just takes time. We know that everybody is building in the space. Everybody is creating asset products for people to invest in. People are working on wallets, people are working on DeFi, people are working on social tokens, people are working on NFTs, people are working on all sorts of projects which will broaden out into a wider audience. The integration into the web two world, another super important thing that's not there yet, but it will come. So it's all, it's all happening and it's happening faster than anything we've ever seen before. So people just need to chill out a bit. Yeah, maybe some people would expect things to get very fast, but at the end of the day it is happening actually as faster than people are realizing. It is very fast. I mean, Bitcoin was at three and a thousand two years ago. It's now 10x that. What do people want, blood? I mean, it's like, you know, it goes sideways for a while. That's all okay. It's gone up 10x. It's gone up 20x. You know, that kind of stuff. It's, it's crazy how fast it's gone up. It's like, well, it's not going up today. Therefore, everything's screwed and this is the worst thing ever. People just have to be patient and Santana horizon. Okay. And so you mentioned that people are building in the space and basically it's still, it's just a matter of time. But if you had to point that at one specific use case that you think will be like the breakthrough to mass adoption, it will be, it will be payments. It will be something else. What is the, the aspect of the crypto industry that you think will be the one that will break through into the mainstream first? So I think three things. One is the use of central bank digital currencies, whether they're private sector currencies or not. I think that becomes pretty big. I think DeFi itself for the financial system is pretty large. And I think that the combination of, I think tokenizing culture by NFTs and social tokens is the big consumer unlock. That's the big thing that people are going to get involved in that they don't realize much like people didn't realize where YouTube is going until it went there. This is the scale of what is about to happen when we participate in the cultural economies around us, whether that's sports teams, music, fashion, film, TV, books, all of those big cultural things. We're seeing art go this way. That's the start. And so now let's talk about your portfolio, your crypto portfolio. So last year in November, I think you revealed that your position into Ethereum overcame the one in Bitcoin and that 85% of your portfolio was then in Ethereum. So can you tell us, has something changed since then? And do you still think that Ethereum has a higher upside potential than Bitcoin? Yeah, I think ETH still has a higher expected future value than Bitcoin for me at this stage. I haven't changed my portfolio at all. I bought some NFTs. That's the only change I've made to my entire portfolio. I dollar cost average in. I don't have much Bitcoin anymore for no real reason, except I think that Ethereum outperforms. I've got a basket of NFTs within it, and I just sit and wait. So if you had to sum up its 85% Ethereum and then 15% other stuff. Exactly. I've got some D5, I've got some social token stuff. I've got some layer ones, just a balance, a broad balance of exposure and some metaverse as well. Any layer ones that you feel very passionate about that you have in your portfolio? I think that Solana is going to do well. I think we had a quiet period of Solana. This seems to be a lot of activity. I'm not over-waiting it particularly, so I'm observing it because nothing really matters until crypto starts going up again. But I've got my eye on Solana right now. Could that change? Possibly. Again, I'm not really making big strategic bets. It's not the time right now because the market's going sideways. And I remember that in our last interview that was actually at the late 2020, you said that Ethereum was not so attractive to you at the moment because institutional money was not going into Ethereum, was going into Bitcoin. So then a year later or so, you kind of changed quite dramatically that position. So can you tell us what pushed you to take this very big position into Ethereum and basically scaling back on Bitcoin? Yeah, I understood that Metcalfe's law was the valuation model. Once you understood that, it was clear that Ethereum was growing faster as a net worth in Bitcoin. So that made my decision. It was very clear to me. Then I also noticed that the institutions had started becoming much more interested in Ethereum because of its broader base use case, that it wasn't just the money, it was the internet of value and Web3 was resonating and also DeFi was built essentially on Ethereum. And then the move to proof of stake is going to create a secure yielding instrument, which is very attractive to institutions in a world starved of yield. So there's a number of reasons why I really like Ethereum over Bitcoin at this junction in time. That may change in three years time. It's unlikely to change for a while, however. And so if you are so bullish in Ethereum, I believe that you don't believe in the theory of an Ethereum killer replacing Ethereum anytime soon. I think that Ethereum will lose market dominance over time just as Bitcoin has. As more people come into the space, some of these other layer ones take some space away from Ethereum, but they're all going up in market cap over time. So it makes no difference. Just because you share the ecosystem with others, as long as the ecosystem itself is growing, that's fine. It's not a zero sum game. So I would expect ETH dominance over time to fall. Now, is that going to be replaced by Solana, Avax, Luna? I don't know. Could it be something else? Possibly. But definitely dominance of both Bitcoin and ETH will decline over time. Rowley, it was great, as always, to talk to you. So I hope to see you soon on our show again. Fantastic. Thanks so much.