Source: “When Shift Happens”

Compiled by: Felix, PANews

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Raoul Pal: Why the AI Race is History’s Biggest Capital Event & Crypto Holders are Poised for Unprecedented Gains

Macroeconomic investor and Real Vision co-founder, Raoul Pal, recently returned to the “When Shift Happens” podcast to deliver a compelling deep dive into the artificial intelligence (AI) phenomenon. Pal articulated why the ongoing AI race represents the most significant capital event in human history and, crucially, why cryptocurrency holders are uniquely positioned to benefit from this transformative shift. His insights covered the looming economic singularity, the enduring superiority of long-term holding over active trading, and his rationale for consistently buying during market pullbacks.

PANews has distilled the key takeaways from this insightful discussion.

The Unstoppable AI Juggernaut: A Race Against Time

Addressing the current state of the stock market, particularly the relentless “buy the dip” narrative, Raoul Pal highlighted two primary drivers: an overarching expansion of global liquidity and the unparalleled, all-consuming AI revolution. He describes AI as the “most extraordinary period in human history,” eclipsing all other concerns as capital floods into the sector.

Pal emphasized that the AI race is not merely a corporate pursuit but a geopolitical imperative. “No one will allow a single superpower to monopolize AGI (Artificial General Intelligence),” he stated, positing that only the US and China possess the resources to compete at this scale. This competitive dynamic, governed by game theory, dictates that no nation can afford to slow down, as doing so would grant a decisive advantage to rivals. Even in a hypothetical scenario where a leading AI entity like OpenAI faced bankruptcy, its assets would be immediately acquired by tech giants such as Microsoft or Google, ensuring no single entity gains an insurmountable lead. This colossal endeavor, which Pal characterizes as “converting units of energy into units of intelligence,” is simply “too big to fail.”

Economic Singularity: Beyond Human Comprehension

The relentless pace of AI development, Pal argues, is propelling us toward an “economic singularity.” This is a point where the traditional economic system can no longer adapt to the speed of technological advancement. He referenced the conventional economic growth formula (population growth + productivity growth + debt growth) and suggested a radical re-evaluation: if AI and robots are considered “population,” the potential for intelligent agents could skyrocket from 9 billion human beings to trillions. Such an explosion of intelligent entities would render current economic models obsolete, as the system would operate at an unimaginable speed.

Historically, most technological adoption has followed Metcalfe’s Law, exhibiting logarithmic growth. However, AI is unique, representing the first observable instance of Reed’s Law in action – an exponential growth on an exponential scale. Pal cited a staggering projection: by 2028, AI’s annual text output is estimated to surpass all human-generated text since the invention of the Gutenberg press. This exponential acceleration is already evident, with companies like Anthropic reportedly experiencing 80x growth in Q1, far exceeding their 10x expectations.

This singularity, Pal explains, manifests when “economic agents capable of instant capital formation” emerge. He draws a parallel to meme coins, which demonstrate rapid capital formation and destruction. These AI agents could build digital businesses, capture markets, and dissolve just as quickly. In such an economy, the role of traditional enterprises and human workers becomes profoundly challenged. The sheer speed differential—human neurons operating at milliseconds versus silicon-based AI at speeds six orders of magnitude faster—underscores this impending paradigm shift.

Crypto vs. AI: A Synergistic Future, Not a Zero-Sum Game

Despite the undeniable allure of the booming AI sector, Pal maintains that, over the long term, cryptocurrency remains one of the most attractive risk-reward investments. While acknowledging the difficulty of competing with foundational chip companies like Nvidia, which are central to the “energy-to-intelligence” conversion, he highlights crypto’s “infinite Total Addressable Market (TAM).”

The emergence of the “agent economy” since late last year is a game-changer. As AI agents scale, they will operate with their own on-chain wallets, conducting business autonomously. This shifts the TAM calculation from human users to an unbounded number of AI agents, fundamentally altering the market’s potential. Furthermore, Pal anticipates continued fiat currency devaluation, driven by central banks’ reliance on productivity miracles to manage debt-to-GDP ratios. The entire financial system, he asserts, is inexorably migrating to blockchain infrastructure, positioning early adopters of crypto to front-run institutional adoption. With global liquidity accelerating, Pal believes “the worst period is over.”

Navigating Market Volatility: The Enduring Power of “Buy and Hold”

Pal dismisses recent Bitcoin pullbacks, such as the drop to $60,000 from its peak, as merely “uncomfortable corrections in a bull market.” Drawing on his decade-plus experience in crypto, he notes that 50% Bitcoin drawdowns are normal, with altcoins often experiencing even steeper declines (e.g., Solana’s 80% drop before its last cycle surge). While the current consolidation has been more protracted and emotionally taxing than the rapid V-shaped recovery of 2021, Pal suggests that “the longer the consolidation, the longer and larger the bull market might be after the breakout.”

Addressing investor frustration over non-tokenized, high-performing entities (like stablecoin issuers or RWA projects) and the perceived broken promise of early wealth, Pal refutes this notion. “Product-market fit is king,” he states, emphasizing that the market owes nothing to individual altcoins that haven’t performed. He contends that retail investors, accustomed to easy gains, are forgetting that 2024’s liquidity is still somewhat suppressed, and the market hasn’t yet entered its true “banana zone” (a period of parabolic growth).

Crucially, Pal advocates for holding underlying Layer 1 tokens as “universal basic equity.” If AI and agents dominate the future economy and leverage crypto networks, holding these foundational tokens grants participation in their success. “We didn’t have this opportunity in the internet era; now there’s no excuse to miss it,” he urges.

During recent dips, Pal revealed his additions included Sui and Zcash. He views Zcash as a simple “left-side of the curve” trade, an undervalued privacy-focused asset akin to Bitcoin, while its quantum-resistant properties represent a “right-side of the curve” trade, offering crucial future protection despite potential regulatory hurdles.

The Undervalued Foundation: Smart Contract Layer 1s

Pal firmly believes that smart contract Layer 1s will capture the lion’s share of cryptocurrency value over time. He likens them to “investment-grade infrastructure,” predicting a convergence to 3-5 dominant chains, much like the operating system market. The value proposition of Layer 1s is immense: “If you pull the plug on Ethereum today, you destroy an enormous amount of economic value: all Layer 2s, DeFi, NFTs, RWAs would go to zero.” He suggests ETH might even be undervalued, highlighting its infinite scalability compared to Bitcoin’s singular focus on global savings.

When identifying potential winners, Pal points to:

• Ethereum (ETH): “The densest economic value and developer intellectual resources,” offering robust security and the Lindy effect. “Like Microsoft, you can’t go wrong buying it.”
• Solana: Proven as a successful, more efficient, faster, and cheaper alternative.
• Sui: Still early, but demonstrated remarkable resilience during an 80% market downturn, maintaining economic density alongside ETH and Solana. Sui’s programmability, thousands of transactions per second (TPS), and finality speed operate on a “completely different magnitude.”

Pal dismisses traditional discounted cash flow (DCF) models for valuing blockchains, calling them “nonsense” because networks aim for the cheapest, fastest service. Instead, he argues, “The cheapest, fastest, most programmable chains will ultimately outperform the market.”

DeFi’s Evolution: Built for the Machine Economy

Responding to concerns about DeFi’s viability following recent hacks, Pal asserts that such incidents merely “force people to develop better products.” He draws a parallel to traditional banking, where hacks are common but often unpublicized, and internal teams constantly address security. Pal reiterated his 2014 prediction that the entire financial system’s infrastructure would migrate to blockchain due to its superior efficiency and profitability.

Crucially, he posits that “DeFi is actually more suitable for machines (AI agents) than humans.” These agents, operating without front-end websites, can execute “extremely low friction asset rebalancing and instant transactions across multiple chains using various stablecoins in milliseconds.” They will constitute DeFi’s largest user base, with their transactions largely unnoticed by humans.

NFTs: The Trophy Assets of a New Era

For those lamenting stagnant NFT prices, Pal explains that NFT activity is directly correlated with the overall prosperity of the crypto economy. A significant resurgence will occur “when ETH rises from its current price to 5000, or breaks higher,” and the crypto market reaches “tens of trillions of dollars in scale.”

He envisions NFTs as “trophy assets” in the coming machine economy. As humanity enters an era where it may no longer be the dominant intelligence, art will serve as a vital record of our culture. Wealth generated in this new economy will naturally flow into scarce, culturally significant digital assets, mirroring the behavior of past tech and real estate magnates.

Pal is so confident in this future that he’s launching an NFT fund. This fund will target two categories: “grail assets” (e.g., Alien Punks, XCOPY, Beeple) with established social consensus and high-convexity works from mid-tier artists. He cites examples like “Die with the most likes,” which humorously documents the decline of the American middle class, and AI art pioneer Kim Asendorf. Pal projects that if such artists’ works reprice from 20 ETH to 200 ETH, and ETH itself sees a 10x increase, investors could achieve a remarkable “100 times double return.” He advises against worrying about “ordinary NFTs” as the entire sector is poised for a massive repricing, even suggesting that common Punks will prove to be good trades. The fund will also engage in NFT collateralized lending, generating over 15% yields to bolster ecosystem liquidity.

A Bullish Outlook for 2026-2027: The Perfect Storm

While Bitcoin can be considered a proxy for AI investment due to its role as a digital store of value benefiting from fiat depreciation, Pal reiterates that Layer 1 smart contract platforms offer a more direct and potent bet on the future. He emphasizes the overarching “buy and hold” strategy, asserting that in an era of AI agents, persistent fiat devaluation, and increasing on-chain activity, selling is illogical unless absolutely necessary. “This is the retirement plan for all humanity,” he declares, urging individuals to accumulate these assets over the next four years leading up to the economic singularity.

Pal’s models demonstrate that buying when an asset is 1-2 standard deviations oversold in its logarithmic trend channel and holding yields astonishing compounded returns, far outperforming attempts at market timing. He notes that the most profitable accounts at major brokerages are often “dormant accounts,” belonging to those who simply “did nothing.” Chasing highs and lows, he argues, is an inefficient use of emotional and psychological energy. His advice: “If the price is overbought by two standard deviations, you can sell a little to enjoy life; otherwise, shut up, buy the dip, and hold patiently.”

For those struggling to maintain conviction during prolonged 60-80% portfolio drawdowns, Pal’s approach is simple: “I don’t care at all. I live off my salary. If I have spare money and the market is severely oversold, I keep buying. Because my core logic hasn’t changed: tomorrow will be more digital than today.”

Looking ahead to 2026-2027, Pal paints an overwhelmingly optimistic picture:

• Institutional Inflow: Banks are entering the space, and stablecoins are poised for explosive growth.
• Regulatory Clarity: The “Clarity Act” is expected to be signed, enabling widespread blockchain development.
• Macroeconomic Tailwinds: The US government’s trillions in debt and interest payments necessitate continued money printing, ensuring increased global liquidity. A strong business cycle will recycle more income into speculative assets.
• Undervalued Crypto: Crypto assets are currently at historically cheap levels relative to traditional assets like the Nasdaq, within their long-term logarithmic uptrend.
• Sentiment Reversal: The market has endured the longest and lowest “extreme fear” period in history (Fear & Greed Index below 10).
• Geopolitical Stability: Pal sees a high probability (70%) of a permanent resolution to the Middle East conflict, removing a key inflationary and liquidity-tightening risk.

This confluence of factors, Pal concludes, forms a “perfect storm of bullish combinations.”

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(The above content is an excerpt and reproduction authorized by partner PANews. Original link)