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#Liquidity Surge Fuels Crypto Expansion: Insights from Raoul Pal
Raoul Pal asserts that the cryptocurrency cycle is not peaking but is instead entering a robust expansion phase that could extend well into 2026. This optimism is fueled by a global liquidity trend intricately linked to government debt dynamics. During a special masterclass on September 25, in collaboration with Global Macro Investor (GMI) head of macro research Julien Bittel, Pal articulated a comprehensive framework connecting demographics, debt, liquidity, and the business cycle to asset returns. He argues that crypto and technology are the only asset classes likely to outperform what he calls the hidden debasement of fiat currencies.
The Liquidity Master Switch: A Game-Changer for Crypto
Pal describes the current macroeconomic environment as unprecedented, stating, “The biggest macro variable of all time is that global governments and central banks are increasing liquidity to manage debt at 8% a year.” He distinguishes between ongoing debasement and measured inflation, urging investors to focus on hurdle rates rather than headlines. “You have an 11% hurdle rate on any investment. If your investments aren’t achieving that, you’re effectively losing wealth,” he warns.
Pal and Bittel’s “Everything Code” starts with trend GDP, which comprises population growth, productivity, and debt growth. As working-age populations decline and productivity remains subdued, public debt has filled the gap, structurally raising debt-to-GDP ratios and creating a persistent need for liquidity. “Demographics are destiny,” Pal emphasizes, citing a declining labor-force participation rate that aligns with rising government debt as a share of GDP.
Understanding the Domino Effect on Liquidity
Bittel introduced what he terms the “dominoes” in macroeconomic trends. GMI’s Financial Conditions Index, which combines commodities, the dollar, and interest rates, leads total liquidity by three months. In turn, total liquidity influences the ISM manufacturing index by about six months, which sets the tone for earnings, cyclicals, and crypto beta. “Our job is to live in the future,” Bittel states, emphasizing that financial conditions lead the ISM by nine months, while liquidity precedes it by six.
In this framework, crypto isn’t an outlier but rather a high-beta macro asset. Bittel notes that Bitcoin’s dynamics align with those of small-cap equities and emerging markets. As the cycle accelerates from a sub-50 ISM toward the high-50s, risk appetite shifts first from Bitcoin to Ethereum, then to larger alternative Layer 1s, and eventually to smaller caps. “Investors expecting instant altseason must recognize the real economy’s phase,” Pal cautions.
The Critical Year Ahead: Navigating the Liquidity Landscape
Both experts stress that the next 12 months are crucial. “We’ve got $9 trillion of debt to roll over this year,” Pal says, noting that this period will likely see maximum money printing. Their base case predicts that policy rates will decline, leading to an improving cycle while central banks focus on lagging indicators like unemployment and core services inflation.
Bittel highlights the sequencing within inflation: commodities first, then goods, with shelter disinflation lagging. This dynamic provides central banks with the flexibility to cut rates, even as growth picks up. “Diversification is dead; hyper-concentration is the way to go,” Pal argues, emphasizing that survival against debasement is critical. GMI’s long-horizon analysis indicates that traditional assets are likely to underperform the combined debasement and inflation hurdle, while Bitcoin and the Nasdaq will likely yield excess returns.
Long-Term Crypto Viability and Market Dynamics
Pal projects that Bitcoin could play a pivotal role in a broader digital asset ecosystem, likening it to gold within a larger framework. He estimates that crypto user growth is approximately double that of the internet at a comparable stage, suggesting that tokens allow investors to own the foundational layer of the next web.
As the current cycle unfolds, Pal and Bittel argue that the liquidity landscape is set to re-accelerate, creating an environment reminiscent of the Q4 impulses of previous years. Unlike the 2020-2021 cycle, where both liquidity and the ISM peaked together, today’s conditions indicate that liquidity is re-accelerating just as the ISM remains below 50, which could lead to a substantial bullish phase extending through 2026.
Pal concludes with strategic advice for investors: maintain exposure to proven, large-cap crypto networks, avoid leverage that could lead to forced capitulation during typical market corrections, and align investment horizons with macroeconomic cycles rather than reacting to daily headlines. “We’re only four percent of the way there,” he emphasizes. “Your job is to not mess this up.”
The total crypto market cap currently stands at $3.67 trillion, illustrating the significant potential that lies ahead for investors who navigate this landscape wisely. For further insights and updates on crypto trends, visit our dedicated crypto section. To dive deeper into trading strategies, check out Binance’s trading resources.
Will the Liquidity Surge Propel Crypto Bull Run Through 2026? Find Out What Experts Predict!
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