Macro strategist and former hedge fund manager Raoul Pal shared some analysis from his monthly global macro investment report early this week. The report is exclusively for Global Macro Investor clients. This month’s core focus is on bitcoin, particularly how the cryptocurrency compares to gold.

Pal previously co-managed the GLG Global Macro Fund in London after departing Goldman Sachs where he co-managed the hedge fund sales business in Equities and Equity Derivatives in Europe. He retired from managing client money in 2004 at the age of 36 and founded Global Macro Investor and Real Vision Group.

“I think its the world’s best trade and of which I’m irresponsibly long,” Pal wrote about bitcoin. He then proceeded to outline Bitcoin’s key features, such as its fixed supply and how its transactions are immutable, distributed, and decentralized, “making it incredibly secure,” the former hedge fund manager detailed, asserting:


“Something that has a finite fixed supply and is incredibly secure has true value,” Pal emphasized. “The fact that it is divisible, portable, transferable and exchangeable makes it have potentially more value than any other store of wealth, or any other form of money.” In contrast, he pointed out that gold lacks ease of use and transportability in the digital world.

“My guess is that bitcoin will trade at rates higher than bonds, not because of credit risk or inflation — bitcoin suffers from neither — but because the value of that collateral is worth more due to its ‘pristineness,'” Pal opined. “Bitcoin is pristine collateral. The greatest form of collateral. Its blockchain ownership structure reduces the huge black swan risk of who owns what. It is all recorded and more importantly, provable.”


The strategist also explained that gold was used as collateral but its role has diminished as central banks choose bonds over it. “Gold also is not easy to use because it has to sit in vaults and its ownership needs to be proven and transferable and in the world of re-hypothecation, even central banks have re-lent the gold out so no one knows the owner, unless you own it and store it yourself,” Pal detailed, affirming:

In my opinion, bitcoin is the best reserve asset and best collateral asset ever seen. It is the hardest asset ever produced, with an impossible-to-change formula for supply that gives it predictability like no other asset ever.

Government bonds, especially U.S. Treasuries, are the current collateral for the world, he continued, adding that the current system is failing due to the action of central banks. “When debt loads became unsustainable, meaning that the weakest borrowers couldn’t get access to enough collateral, instead of the price of collateral rising, thus forcing firms to go bust, central banks began to increase the supply of collateral and reserves (quantitative easing),” he described. The central banks’ action devalues the collateral either abnormally or over time as fiat money’s purchasing power falls.

Bitcoin’s value, on the other hand, is protected as central banks cannot create more of it. Therefore, “its value during collateral shortages (recessions) goes up, forcing only the strongest creditors to have access to it and thus allowing the business cycle to work in weeding out the weakest creditors.” Believing that bitcoin solves all of the existing financial system’s collateral problems, Pal concluded that in his view bitcoin will become the more desirable form of collateral, adding that he sees this as the killer application.

The macro strategist revealed in a tweet last week that he owns a lot more BTC than gold, and he also owns some ETH. Believing that bitcoin outperforms gold overall, he stated, “Gold can go up 2x or 3x or even 5x while bitcoin can go up 50x or even 100x.”