Raoul Pal: Shift In Inflation Narrative Caused Current Crypto Volatility

According to Raoul Pal, a macro economist and the Chief Executive of Real Vision, a shift in narratives is the cause for the current bearish sentiment in the crypto market.

Pal shared his view on the crypto market in a conversation with Yassine Elmandjra during Ark Invest’s virtual Big Ideas Summit 2022. The economist touched on the topic what follows when the inflation rate frustrates market expectations.

“Why we’re seeing volatility right now is the shift of narratives. Markets don’t like that shift. The narrative was the inflation shift. The inflation shift last year. I think what happened is inflation was real and inflation destroyed marginal spending and marginal investing and I think we saw it in meme stocks.

We’ve seen across the market, we’ve seen it in cryptocurrencies where the marginal investor got marginalized because they didn’t have enough money. I think that was one of the features of what happened and the bond market was pricing in some more inflation, but not a great deal.”

According to Pal, the future indicators show both growth and inflation slowing faster than the general market expects.

“My general view, and I’ve held this for a while now, is that the central banks are more likely to get away with one hike, two hikes max before they’re looking at stimulative measures again because I don’t think the economy has got traction and we don’t know what the true traction is of the economy until maybe two years, three years after the pandemic recession has followed through.”

What follows, are monetary policies that will be bullish for crypto, the Real Vision CEO predicts.

“Very typical of every recession I’ve ever followed is basically there is a growth slowdown that comes fast afterward. The market panic starts talking about recession again. Usually, that doesn’t happen. There’s generally more stimulus, so I think it’s very supportive of crypto prices overall.

I think crypto’s gone through that transition phase. We saw the marginal spending, investing in crypto go down. I think now all I’m doing is speaking to large institutions about investing so I think the ongoing investment thesis continues and I think that the central banks will be more dovish than people expect going forward so we should have a longer cycle with more tailwinds than most people expect right now.”