Former Goldman Sachs executive Raoul Pal says that risk-on assets like crypto and equities are set to go for a run as macroeconomic conditions become more favorable.
In a new edition of the Global Macro Investor newsletter, Pal says that Bitcoin (BTC) is mostly driven by the available money supply (Global M2) in the financial system across the world.
“Paul Tudor Jones once said, when the money taps are back on you want to back the fastest horse. In the case of 2020/2021 he was referring to Bitcoin. This time, it will be crypto overall…
Here’s a chart of BTC vs Global M2. Notice anything strange? Yes, we can’t scale the top of the chart because when M2 goes up considerably, Bitcoin goes EXPONENTIAL.”
While many investors are concerned about relatively high-interest rates and the probability that they go higher in the future, Pal says it’s not as big of an issue as most believe. According to the macro guru, risk assets like stocks and crypto still stand to benefit even Federal Reserve continues to raise interest rates.
“Higher rates are a red herring. Many will disagree but, in my view, it’s a false narrative. The fact is that higher rates are not a hurdle for tech or the broader market, and this is why I really don’t care if rates stay at let’s say 3% (which I don’t think they do).
You’ve heard me say this many times: it is the rate of change in rates that matter, not the level of rates. It’s total bullshit to suggest that if rates are stuck at 4% then growth stocks, crypto etc., will suffer endlessly. This is not how the world works. You can also throw out that nonsense about cost of capital. The adoption of technology is far too fast for that to matter.
Consider the case of Google overleaf… producing average annual returns of almost 30% with no debt. Now, do you think google gives a shit if the cost of capital is at 1% or 5%? Absolutely not! And neither do investors…”
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