Raoul Pal - Expect Exponential Growth For Bitcoin And Ethereum

Raoul Pal - Expect Exponential Growth For Bitcoin And Ethereum

In this interview, Raoul Pal discusses the concept of Network Effects and how it applies to cryptocurrencies and other tech innovations. Here is the summary of the content:

The mobile phone revolution was the first of these mega-network affect businesses. What is a network effect? It can be illustrated below:

If there's one mobile phone in the world, it's worth nothing. If we have only two mobile phones, you can speak to one person. But if everybody in the world is connected, it's one of the most valuable things you could have. And once networks become valuable because of wide connections, you can build other things on them.

So, the value of the network grows exponentially. This is called Metcalfe's Law, which says that you can value a network based on not only the number of people on the network but the number of connections they have with each other. Hence, the more people are connected, the more likely it is to create value

The network effect happened during the internet boom when humans couldn't imagine how to value stuff such as Amazon that traded from $99 to $2,000. Amazon was not a normal stock but a network effect stock because it creates a gigantic network. And that whole network effect leads to something called exponential reality.

There's something called Lindy effects and S Curves, which is a network that comes under attack and survives. It's proven to be more robust. And networks are generally distributed in nature. In Bitcoin, that's when the forking happens or when you wonder if the network will survive or not.

Using Facebook, WhatsApp, and Instagram as a use case, their adoption grows and the prices go exponentially. To anybody else, this looks like a bubble, and nobody understands it. But when you put it into a log chart, it's a very smooth progression. This is how you have to look at those exponential assets. This is why Bitcoin has gone up by 2,000,000%, which nothing else has ever done.

So, we have a very skewed risk-reward ratio. On average, Bitcoin goes up by 213%. That's an extraordinary risk-reward ratio every year. And that's the power of exponential reality. Such exponential assets also tend to be very volatile because it's all about network adoption.

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