Interview with macro master Raoul Pal: The AI competition is giving rise to an "economic singularity," don't easily give up your chips in the next four years

Original source: 《When Shift Happens》

Compiled by: Felix, PANews

Macro investor and co-founder of Real Vision, Raoul Pal, returns to the podcast "When Shift Happens" to delve into why the AI race is the largest capital event in human history and why cryptocurrency holders are in a favorable position. Raoul Pal explains the economic singularity, why traders always lose to long-term holders, and why he continues to buy during pullbacks.

PANews has compiled the highlights of the interview.

Host: A few weeks ago, you shared and commented on an interesting video. It satirizes that the U.S. stock market keeps rising, and as long as you "buy the dip," you can make money. If you don't have money, just borrow to buy. This isn't a pyramid scheme; it's a buy-the-dip plan. What is going on with the stock market?

Raoul Pal: There are two main reasons. The first is obviously liquidity; we are witnessing an expansion of liquidity. The other thing is that we are experiencing the most extraordinary period in human history, where everything else doesn't matter. All capital is flowing into the AI sector, which is the largest competition in history. This is a competition between nations and between companies. Therefore, it will certainly suck up every bit of capital because you can't slow it down.

Host: Tell me about this competition.

Raoul Pal: In this world, no one will allow a single superpower to monopolize AGI (Artificial General Intelligence), so there must be two, and only the U.S. and China can afford this competition. Game theory suggests that no country will stop now because stopping means the other side gains an advantage. Even if a scenario like OpenAI going bankrupt or running out of funds occurs, the U.S. government would immediately auction its assets to companies like Microsoft and Google, never allowing one company to monopolize the advantage. The scale of this game is too large for anyone to stop. It is a game of "converting energy units into intelligence units."

Host: Too big to fail. So, should we always "buy the dip"? Will it have an end?

Raoul Pal: I wrote in "Global Macro Investor" that it won't end unless we reach the economic singularity. The economic singularity refers to the point where the system can no longer cope with the speed of technological development. You know that magical formula: population growth + productivity growth + debt growth. When you count AI and robots as part of the population, our current maximum population is 9 billion, but we could reach 18 billion, 100 billion, or even a trillion intelligent agents. If there are 10 billion or 50 billion intelligent agents, the economic system cannot function as it used to; it runs too fast.

Almost all past technology adoptions have followed Metcalfe's Law (PANews note: the value of a network is proportional to the square of the number of connected users), showing logarithmic growth. But AI is the first observable case of Reed's Law in human history (PANews note: the value of a network increases not only with the number of users but also exponentially due to the effects of group formation), which is exponential on top of exponential. It is estimated that by 2028, the amount of text produced by AI each year will exceed the total amount of text produced in human history from the Gutenberg printing press to the present.

Host: Anthropic mentioned in today's interview that they originally expected a tenfold growth in the first quarter, but it actually grew 80 times. That's incredible.

Raoul Pal: Yes, the economic singularity is what happens when you have economic intelligent agents (agents) that can instantly form capital; that's the significance of meme coins: instant capital formation and destruction. They can instantly establish digital businesses, quickly capture markets, and then exit when the opportunity disappears. Where do large traditional companies fit into this economy? Who are the workers? The system can no longer function normally. Because the speed of carbon-based life (human neurons) is 1 millisecond, and now we are letting electricity pass through sand (silicon, the second most abundant element on Earth) to create intelligence, which is six orders of magnitude faster than human neurons (one million times). It's insane.

Host: Since AI is growing exponentially, many in the crypto space want to switch to AI; they feel the crypto industry is boring now and even fear being trapped. How do you view the investment choices between AI and cryptocurrency?

Raoul Pal: Although the AI industry is extremely hot, I still believe that over the long term, cryptocurrency remains one of the best risk-return investments. However, it is indeed difficult to compete with chip companies like Nvidia, as they are the core part of converting energy into intelligence. However, cryptocurrency has an "infinite TAM (Total Addressable Market)." Around October last year, we witnessed the birth of the agent economy (AI Agents). When these agents begin to scale massively, they will have their own wallets and conduct business on-chain. Previously, we estimated that the crypto market could reach $100 trillion based on human users; now with infinite AI agents, the game has completely changed. Additionally, the Federal Reserve will operate the economy like during the Greenspan era, relying on productivity miracles to reduce the debt-to-GDP ratio. The depreciation of fiat currency will not stop, and the entire financial system is transitioning to blockchain infrastructure, so you just need to outrun the institutions. The worst is over because global liquidity is accelerating.

Host: So for you, Bitcoin dropping back to 60,000 from its recent peak is not a bear market?

Raoul Pal: That's just an uncomfortable pullback in a bull market. I've been in the crypto space since 2013, and a 50% pullback in Bitcoin is quite normal; other altcoins tend to drop even more severely, like Solana did in the last cycle before its surge, dropping 80%. The difference is that the pullback in 2021 was very quick, with a rapid rise after the crash; whereas this pullback has been more volatile and prolonged over months, making people feel very painful. But looking at it from another angle, the longer the consolidation period, the longer and larger the potential bull market after the breakout.

Host: The problem is that in 2021, the drop was fast and the rise was also fast, but this time the market is very turbulent and time-consuming. Moreover, some well-performing companies (like stablecoins, RWA) have no tokens, and retail investors cannot invest, making everyone feel that the promise of early wealth has been broken.

Raoul Pal: I don't think that's true; product-market fit is key. Just because your altcoin hasn't risen doesn't mean the promise is broken; the market owes you nothing. People have gotten used to the easy days of making money with their eyes closed in the past few years, but liquidity in 2024 is still constrained, and we haven't entered the real "banana zone" (referring to a period of crazy price increases). While ordinary people may not be able to buy equity in stablecoin companies, that's not a problem at all; you just need to hold the underlying Layer 1 tokens. This is our "universal basic equity." If a large part of the future economy is dominated by AI and agents, and they use crypto networks, we just need to hold Layer 1 tokens to share in their success. We didn't have such an opportunity in the internet era, and now there's no excuse to miss it.

Host: What have you accumulated during the recent downturn?

Raoul Pal: I bought some Sui and a bit of Zcash. I didn't chase Zcash when it skyrocketed last year, but I started buying during the pullback. In the value storage space, privacy is valuable. This is a very simple "left-side curve" trade (intuitive trade): it's Bitcoin with privacy features. The "right-side curve" trade (thoughtful trade) considers its quantum resistance properties. While this may invite government crackdowns, it offers very important protective attributes in the future.

Host: Can you explain in detail why smart contract Layer 1 will capture most of the value in cryptocurrency over time?

Raoul Pal: Layer 1 is the investment-grade infrastructure layer. Just as the operating system market eventually has only three or four major players, Layer 1 will ultimately converge to 3 to 5 core chains. How to understand the value of Layer 1? If you unplug Ethereum today, the economic value you destroy is enormous: all Layer 2, DeFi, NFT, RWA would go to zero. ETH's current valuation may even be underestimated. Bitcoin has a very singular function; its goal is to capture a share of global savings, but the scalability of smart contract infrastructure is limitless.

Host: So which Layer 1s will prevail?

Raoul Pal: ETH has the densest economic value and developer wisdom resources (security, Lindy effect, etc.), just like Microsoft; buying it is unlikely to be a mistake. Solana has proven to be successful; it is more efficient, faster, and cheaper. Although Sui is still early, when the market dropped 80%, ETH, Solana, and Sui were the only three tokens that maintained economic density. Sui's programmability within a single block, transaction speed, and finality speed are on a completely different scale. Evaluating blockchains cannot use traditional "discounted cash flow (DCF)" models because the purpose of the network is to provide the cheapest and fastest service; valuing it based on how much transaction fee it generates is nonsense. The cheapest, fastest, and most programmable chain will ultimately outperform the market.

Host: Some say DeFi is "dead" after experiencing a large number of hacks in the past few months. How could traditional financial institutions put money into easily hackable DeFi?

Raoul Pal: But this will only force people to develop better products. Just like we install antivirus software on our computers, hacking attacks are everywhere. Every bank actually has teams dealing with hacking attacks and the proportion of stolen funds; they just don't publicize it. I predicted back in 2014 that the entire financial system's infrastructure would shift to blockchain. Why? Because it is the most efficient way to output energy, the financial system will always migrate to the most profitable and efficient track. Moreover, DeFi is actually more suitable for machines (AI agents) than for humans. Machines don't even need front-end websites; they can rebalance assets and conduct instant transactions across multiple chains and using various stablecoins with minimal friction. They will be the largest user group of DeFi, and we may not even notice these transactions.

Host: Do you think NFTs will gain immense value due to the aforementioned wealth effect? I bought Crypto Punks and XCOPY, and their prices are stagnant; I don't even want to look at them.

Raoul Pal: This is because the activity of NFTs is a function of the prosperity of the crypto economy. You have to wait until the overall crypto market reaches a scale of tens of trillions of dollars. When ETH rises from its current price to 5000, or breaks upward, you will see a massive revival of NFT activity. Think about it; we are experiencing the largest turning point in human history: we will no longer be the top intelligence on Earth, and art is the medium that records the culture of our time. When people make big money in this massive machine economy, they will naturally buy "trophy assets" (PANews note: referring to those assets that are extremely scarce, in prime locations, or have significant historical and cultural value, showcasing the buyer's social status and providing immense psychological satisfaction, often "hard to come by" in the market), just like tech tycoons, real estate moguls, and hedge fund barons buy art after getting rich.

Host: So how do you plan to allocate your NFT investment portfolio? Is it only the top "holy grails" that are worth buying?

Raoul Pal: I am actually preparing to launch an NFT fund. Many high-net-worth individuals, family offices, and even OGs in the crypto space who have made money but have never bought digital art don't know how to buy. Our foundation is divided into two parts: one part invests in "holy grail" assets (like Alien Punks, XCOPY, Beeple, valued from hundreds of thousands to millions of dollars), which already have proven social consensus. The other part invests in mid-tier but highly convex (Convexity) artists' works. For example, "Die with the most likes," who humorously and somewhat crudely documents the decline of the American middle class; or the German artist Kim Asendorf, who is at the forefront of AI art. If these artists' works are repriced from 20 ETH to 200 ETH (5 to 10 times), and ETH itself may also rise 10 times in the future, you will achieve an astonishing 100-fold return.

Don't worry about ordinary NFTs because the entire industry is still small, and everything will be repriced. Even if you buy ordinary Punks from the same series, it's still a good deal. Additionally, our fund will also engage in NFT collateral lending, earning over 15% returns, reinvesting to support liquidity for the entire art ecosystem.

Host: Is Bitcoin an investment proxy for AI?

Raoul Pal: You could say so because AI will drive economic growth, and the depreciation of fiat currency due to massive debt will benefit Bitcoin as a digital store of value. However, Layer 1 smart contract platforms are a better and more direct bet.

Host: You say everyone is too focused on cycles, while the big picture is so clear: unless absolutely necessary, you should never sell.

Raoul Pal: That's right. In this era of agents, depreciating fiat, and everything going on-chain, why would you sell? If we know the long-term direction of market capitalization, why sell? This is humanity's pension plan. The economic singularity is about four years away, and you have four years to hold as many of these assets as possible; they will help you navigate the greatest uncertainties ahead.

Host: Can you provide data to prove that "buy and hold" outperforms those trying to trade in and out?

Raoul Pal: Absolutely. I've done models. If it reaches the oversold zone of 1 to 2 standard deviations at the lower end of the logarithmic trend channel, you buy in and do nothing; the compounding is astonishing. If you try to sell at the top and then buy back at the bottom, 99% of people can't do it; it's too difficult. People often chase prices during the rise. I've been in this industry for 35 years, and I don't know anyone who can consistently make big money through short-term trading. Those who make big money are actually earning asset management fees.

It turns out that the people who make the most money in cryptocurrency are those who "do nothing." Why do the most profitable accounts at major brokerages often belong to "dead accounts (forgotten accounts)"? Retail investors try to buy high and sell low, and not only do they fail, but they also expend a lot of emotional and psychological energy, getting angry or euphoric over daily price fluctuations, which is absolutely the least efficient use of personal energy. If you have spare productive energy, study AI, and then hold onto your Bitcoin tightly. If the price is overbought and reaches two standard deviations, you can sell a little to enjoy life; otherwise, just keep quiet, buy the dip, and hold patiently.

Host: How can people maintain faith when their portfolio drops 60-80% and continues for months?

Raoul Pal: I don't care at all. I live off my salary. If I have spare money and the market is severely oversold, I just keep buying. Because my core logic hasn't changed: tomorrow will be more digital than today.

Host: Now that AI stocks are soaring, many charts are going straight up. Will this attract people away from the boring cryptocurrency to buy AI?

Raoul Pal: Your duty is to be a mercenary for your own capital; go where the money is. But I believe the compound return rate of cryptocurrency is higher. Compared to Nasdaq, Bitcoin is currently severely oversold in its long-term trend. This means that relative to Nasdaq, you should allocate more to cryptocurrency now.

Host: Finally, please give us some optimistic hopes for 2026 to 2027 to help boost morale.

Raoul Pal: There is a lot of good news. First, banks are entering the space, and stablecoins will experience explosive growth in the next two years. The regulatory "Clarity Act" will be signed, allowing almost everyone to start building on the blockchain. Macroeconomically, the U.S. government has trillions of dollars in interest to roll over and pay, and they must continue printing money, which will increase global liquidity. The business cycle remains strong, and more people's income will be funneled into speculative assets. Most importantly, current crypto assets are at the cheapest low point in the long-term logarithmic upward trend compared to assets like Nasdaq. We have also experienced the longest duration and lowest reading of "extreme fear" in history (the Fear and Greed Index falling below 10), and it is very likely that the Middle East conflict will be permanently resolved. This is simply a perfect storm of bullish combinations. I believe the probability of this positive bullish outcome is 70%, with the remaining 30% of bearish risk mainly stemming from the Middle East conflict failing to resolve, leading to inflation and liquidity tightening, but I haven't seen any signs of that yet.