Raoul Pal is the founder of Global Macro Investor and Real Vision, global macro financial research institutions, and one of the most well-known KOLs in the current crypto field. This article sorts out Raoul Pal’s views on personal social media platforms, and Rhythm BlockBeats organizes and translates them as follows:
A lot of things have happened in the field of digital assets this year, but almost nothing happened. This is the problem… The following is my analysis and views on these problems.
Why is 2021 not like 2017 before?
Let’s first look at some on-chain data:
BTC trading volume has stagnated since its rise in 2020
There is not much growth in active wallet addresses…Retail activity seems to have reached its peak in early 2021
However, retail activities have been replaced by institutions (here we are measuring wallet addresses with deposits of more than 10 million U.S. dollars). Although it is still increasing overall, the volume is still small.
At the same time, if you add the price to make corrections, you will find that large investors hardly come back after being liquidated…
If Metcalfe’s law applies, then the current growth in the popularity of the Bitcoin network should be very slow, which is also the reason for its low price. The same is true for Ethereum, but Ethereum also has some different factors at play, so it performs better. The strong narrative surrounding the fields of DeFi and NFT has made Ethereum’s transaction volume still higher…
Ethereum addresses are also increasing…
But as people continue to turn to new narrative opportunities in this horizontal market, Ethereum’s active addresses have stagnated throughout the year.
But for Ethereum, higher transaction volume means more Token will be burned (more demand). On the other hand, the pledge of ETH Token also reduces part of the supply.
The maintenance of high transaction volume, the pledge and burning of a large number of Tokens are the reasons why Ethereum has outperformed Bitcoin by four times in 2021. However, because there is no inflow of new capital, and other PoS public chains are beginning to attract more and more attention, the transaction volume of Bitcoin and Ethereum is constantly being looted. It is this background environment that allows people to constantly transfer assets between various fields in order to find higher returns: first DeFi, then NFT, and then to the current L1. As we have seen, the entire market has been in a deadlock of horizontal development.
It is worth noting that many L1 public chains also have the same “staking + burning” mechanism as Ethereum, but their market value is relatively small, so once the transaction volume increases, their prices will increase faster. In fact, all assets driven by network effects require increasing adoption or popularity if they want to achieve value growth. This is why you will see some projects that achieve network effects create explosive price movements, because the market is deciding which networks are truly attractive and which are not.
This rotation actually shows that the market is expanding, but it also makes it more difficult to find quality investments, because investors now need more knowledge to generate high returns. For those who are highly concerned about the details of each area of the market, this dynamic mechanism is a good thing; but for newcomers, they are facing a market driven by a high degree of FOMO When the attention of early investors begins to turn to the next narrative, these newcomers are often firmly trapped on the top of the mountain.
Where will the funds come from in 2022?
My view is that the key reason why the market sees a decrease in retail activity is because the increase in people’s real wages is much lower than the increase in real CPI. People’s cost of living is still rising sharply, making it more difficult for retail investors, a group of “marginal investors”, to actively participate in investment in the crypto field. Some of them cannot even afford their daily disposable income. I think that for some time to come, we will still not see stable economic growth and low inflation. Therefore, the crypto market will have to rely on institutions and hedge funds to allocate more meaningful capital. I believe this stage coming soon. This view is likely to be verified in the first quarter of next year, or even January, but we have to wait and see now…
Most investors who are holding a wait-and-see attitude now tell me that they are most afraid of regulatory issues. Yes, this will also become a key topic for some time to come. It will keep many large institutions away from the encryption field. After all, allocating funds to venture capital institutions can better avoid the risks brought by the exaggerated market and supervision.
At the same time, I think that the funds they allocate to hedge funds are insufficient, perhaps because the market and capital believe that most hedge funds have not proven themselves to be experts in the field of encryption. Of course, I admit that I am biased. After all, I have established a crypto hedge fund, but I still hope that more institutions can participate in the fund.
Another key driver of digital asset prices is the Fed’s balance sheet. We can see that when the year-on-year expansion of the balance sheet reaches its peak in 2021, the digital asset market has also reached its peak accordingly.
Fed balance sheet year-on-year change rate
Total crypto market value
Of course, as time goes by, the encryption space will become deeper and deeper, more and more application scenarios, and the entire market value will continue to grow. But for now, if you want to increase the value of the leading Token, you need new funds to enter the market. I think the current market is more suitable for the “HODL” model: holding some high-quality projects with a good reputation on the premise of holding one’s core assets. In addition, unless you know what you are doing, don’t blindly chase high…
With the continuous inflow of new capital, there will be a broader rebound in the market, which will further drive the FOMO sentiment of retail and institutional investors, forming an upward cycle. I believe that this day will come. All you need to do is put a long line to catch a big fish, fasten your seat belt, don’t overinvest, and don’t use leverage. The best advice I have received in my career comes from Paul Tudor Jones (fund legend). He once told me that the best investors he knows are those whose investment time frame exactly matches their thinking time frame. So if your investment model is also based on Metcalfe’s law, then the range you need to consider is years, not weeks or months.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/listen-to-macro-experts-tell-you-why-there-is-currently-no-capital-to-enter-the-crypto-market/
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