Raoul Pal is well known within the cryptocurrency community. He is a long time Bitcoin and Ethereum bull who is heavily followed by many.
He recently made headlines with his prediction that crypto, which presently has a market capitalization of around $2.2 trillion, would hit $100 trillion.
The timeline for this is around 2032.
Hence, we are looking at a 45x from here. The question is how realistic is this?
We know the crypto market has floundered around with regards to the total market cap.
As we can see from this CoinGecko chart, things have not moved much. We are where we were roughly 3 years ago.
Thus, could a massive run like Pal is saying be possible?
Let's dig into it.
$100 Trillion Crypto Market Cap
Pal's analysis bases the potential market cap on the growth rates associated with crypto. We are seeing more adoption across the board. The most noticeable was the inflows into the Bitcoin ETFs once they were released in January.
The industry is preparing for the start of Ethereum ETFs, which could be out by the end of this summer. Estimates are that it will pull in between $5B-$15B.
Here is what he said:
“It’s a $2.5 trillion market cap today. If we just extrapolate out the trend rate of growth, it gets to 100 trillion by about 2032. So this is the biggest wealth generating opportunity in all human history.”
It is a sentiment that many in cryptocurrency carry. We see a massive shift taking place, one which never was seen before.
So what is at the core of this? Is this a realistic outcome?
Before getting to that, we have to state that projections are simply dart throws into the future. It is nothing more than a guess. Perhaps Pal did massive analysis to arrive at this conclusion but $50T or $150T could also be possible.
We simply will not know until we get there.
AI As The Driving Force
Many are speculating whether AI is in a bubble or not.
This is a condition where market expectations exceed the capabilities of the technology. The result is a great deal of hype which, in the markets, results in prices being run up. At present, there is a lot of money being pushed into AI, something many feel is ahead of itself.
We cannot answer whether this is a bubble. What I can say is we are dealing with the fastest advancement in technology ever.
For example, in a chat with Claude3, here is what we get:
The pace of development in generative AI and GPU capabilities has been rapid and is continuing to accelerate. Here's an overview of the growth in these areas:
Generative AI:
- Model size and complexity:
- Doubling approximately every 6-12 months
- Example: GPT-3 had 175 billion parameters in 2020, while GPT-4 is estimated to have trillions
- Performance improvements:
- Significant leaps in capabilities with each new model generation
- Improvements in areas like coherence, context understanding, and task performance
- Multimodal capabilities:
- Rapid expansion from text-only to image, audio, and video generation
- Increasing integration of different modalities
GPU Capabilities:
- Computational Power:
- Roughly doubling every 1-2 years (following a modified Moore's Law)
- Example: NVIDIA's A100 (2020) to H100 (2022) saw about 3x performance increase
- Memory capacity:
- Increasing by about 2x every 2-3 years
- Enables training of larger models and processing of bigger datasets
- Energy efficiency:
- Improving by about 1.5x to 2x per generation
- Allows for more sustainable and cost-effective AI training and inference
- Specialized AI architectures:
- Development of AI-specific chips and architectures optimized for machine learning tasks
Growth Capacity:
- Massive increase in funding for AI research and development
- Major tech companies and startups pouring billions into AI advancements
- Research pace:
- Accelerating rate of publications and breakthroughs in AI
- Collaborative efforts and open-source contributions speeding up progress
- Infrastructure scaling:
- Rapid expansion of cloud computing and specialized AI infrastructure
- Enables training of increasingly large models
- application diversity:
- Expanding into new domains and industries at a rapid pace
- Creating a feedback loop of innovation and demand
When we combine these factors, the result is something that is far exceeding the pace of Moore's Law. Naturally, this will slow down at some point but, for the time being, it is full steam ahead.
The reason why AI is mentioned in the crypto discussion is simply because this is going to increase productivity in a massive way. This is especially true in the digital world which is most affected.
As stated on numerous occasions, crypto is money that was created on and for the Internet. It never existed in another form. That means, whatever enhances the Internet is going to be captured, in some way, with crypto.
Here we are referring to more than just AI tokens. Instead, we are focusing upon networks. AI is going to be a central part of all networks, likely by the end of the decade. This mean the value proposition explodes.
Guess what is capturing the value of these networks and applications? Crypto.
Thus, from this perspective, the logic applied by Pal is solid. We should see massive growth over the next decade.
Massive Explosion
Traders who use technical analysis tell us that when something trades in a range, when it does break out, the move is very powerful. This is true whether it is to the up or downside.
We can see from the chart above how the crypto market cap simply bounced around. There was no real advancement.
This aligns with what is taking place within the industry. While we could make the case there are more people involved with cryptocurrency, it is still a speculation game. The people involved are overwhelming "green candle people".
What is going to get the move to the levels Pal describes?
I think the answer resides in the concept of Web 3.0. We will see enormous numbers when crypto is simply integrated into most of what we do. By this I mean that we are using Web 3.0 and not even calling it that. Instead, it is simply the Internet, albeit evolved.
Tokenization is a transformative process. Building businesses around this takes time especially since a lot of infrastructure isn't in place. We are dealing with a great deal more than market operations. Here we are focusing upon a brand new Internet.
Shifts like this take time especially when human conditioning is involved. People tend not to like change and resist it.
That said, even if the masses were a bit slow at first, they adopted social media in a major way. It is impossible to say that Web 2.0 did not take over.
This is the key: Web 3.0 is a massive transformation of the Internet. Tied to this is the fact that the tentacles of the digital world are extending out. We are seeing more digitized with sensors going into everything.
Here is where crypto enters the picture. This is not only the payment system but also the value capture. The latter is where the huge numbers will enter.
What is the Internet worth?
This is a question that is difficult to answer. Some have taken stabs at it placing it in a range of $10T-$30T. Again, this is nothing more than a guess.
Whatever it is, could we see a huge increase in the value over the next decade? This seems very likely. When we incorporate the idea of robots, the bridge between the digital and physical worlds, we can see how this is going to explode.
Crypto is what captures this value. This was designed for the digital world, something that is only going to take off.
When we put all of this together, Pal's forecast isn't so outrageous.