Raoul Pal believes that certain assets perform better in liquidity environments than others and that European equities have historically underperformed other asset classes. This is due in part to European investors' preference for bonds over equities, as well as Europe's slower economic growth compared to other regions.
In contrast, the United States has a more robust equity culture, and certain asset classes, such as technology stocks and cryptocurrency, have performed better there. This is due to the fact that they benefit from long-term trends driven by the adoption of new technologies and are not as affected by the depreciation of the US dollar.
It should be noted that investing in any asset class involves risk, and past performance is not a guarantee of future results. Before making any investment decisions, it is critical to carefully consider your investment goals, risk tolerance, and diversification strategy.
Bitcoin did face selling pressure in the week ending April 23rd, as bond yields rose and US dollar liquidity fell. These factors all contributed to a drop in Bitcoin's value, which fell by 9% to $27,600, its largest single-week percentage loss since early November.
The six basis point increase in the yield on the 10-year US Treasury note to 3.58 percent, its second consecutive weekly gain, has made risk assets, including cryptocurrencies, less appealing to investors. This is because higher bond yields can result in higher borrowing costs, which can have an impact on economic growth and corporate earnings, making riskier investments less appealing.
Pal discusses investing and states that the goal of investing is to purchase assets that will increase in value over time, making your future self wealthier and better off. The speaker mentions how the Federal Reserve's balance sheet can affect the value of investments, but cryptocurrencies can be powerful because they have different return profiles and are influenced by liquidity. He also mentions that cryptocurrencies have large cycles that are linked to monetary and liquidity cycles, but the overall value of cryptocurrencies is increasing. They compare this to other assets with lower volatility, such as the S&P 500.
According to the Coinbase report, the correlation between Bitcoin and Ethereum returns has been decreasing since mid-March, coinciding with BTC's outperformance and increased regulatory scrutiny of non-Bitcoin digital assets. Following the successful completion of the Ethereum blockchain's Shanghai upgrade on April 12th, which allows validators to withdraw staked ether, the decline in correlation has become more pronounced.
This declining correlation may have an impact on quantitative strategies that rely on cross-hedging one asset for another or on using Ethereum as a hedge for less liquid altcoins. This trend is important for institutional investors because it may influence their investment decisions and strategies. Investors must keep track of the correlation between different assets in their portfolios and adjust their strategies accordingly.
Pal appears to be optimistic about cryptocurrencies, particularly Bitcoin as a store of value and potential reserve asset for sovereign wealth funds. They believe that as cryptocurrencies gain popularity, their value will skyrocket. He also mentions how Ethereum's smart contract capabilities and yield-generating opportunities have the potential to make it an appealing investment option. However, he acknowledges that cryptocurrency volatility remains a concern and warns against holding too much of it.
Source:
Money Talks, 24 April 2023, "
People Have NO IDEA What's Coming... | Raoul Pal Latest Prediction",
https://www.youtube.com/watch?v=wrqt3knfUtw
