Key takeaways
Binance VIP Voices is a regular AMA series where leading experts provide the public with analysis and insights from the field of institutional crypto trading. Our first episode featured Raoul Pal, who has over 30 years of experience in hedge funds and asset allocation and entered the digital assets industry in 2012.
Raoul Pal spoke about the significant evolution of institutional investment strategies towards cryptocurrencies, focusing on tokenization and yield-bearing assets. He predicts a significant increase in institutional investment in crypto markets, which could push the stock market value to more than 10 billion in the coming years.
Raoul Pal explains that although the digital asset market shares certain characteristics with traditional markets, its higher volatility and growth phase present both increased risks and more attractive returns potential. According to him, adding digital assets like Bitcoin to a diversified portfolio can paradoxically reduce its overall volatility while providing the possibility of substantial returns.
Keep reading for a recap of Episode 1 of Binance VIP Voices with Raoul Pal, CEO and Co-Founder of Real Vision Group and Global Macro Investor. For clarity, this transcript has been edited and/or shortened.
Welcome to Binance VIP Voices, our AMA series that sheds light on the world of institutional cryptocurrency trading. This initiative consists of regular episodes where seasoned experts examine the narratives that define the sector.
Beyond simple conversations, these analyzes enable an ongoing dialogue with the architects of the crypto economy, from hedge funds and proprietary trading firms to automated market makers and over-the-counter (OTC) desks. . Each episode lets you learn more about the evolving role of institutional entities in the future of crypto.
Our first episode featured Raoul Pal, who has over 30 years of experience in finance and entered the digital assets industry in 2012. Before joining the crypto space, Raoul Pal worked for Goldman Sachs, then ran a $500 million hedge fund on behalf of GLG. He is the co-founder of Real Vision, a financial media company that publishes in-depth interviews with major investors, and EXPAAM, an investment firm focused on digital assets.
This article is a summary of our AMA with Raoul Pal. The speaker's comments have been edited and/or shortened for clarity. This informative article solely reflects the personal opinions of our guest, which are not necessarily endorsed by Binance. Follow our social media accounts for the latest news from upcoming episodes with the important figures who lead, innovate and inspire in the world of cryptos.
1/ Classic trading compared to crypto trading
From an institutional perspective, what are the main differences between traditional trading and crypto trading?
Raoul Pal: “All markets are the same. They [Digital Assets] are simply more volatile than what most investors are used to putting their money in because they are at an earlier stage in their growth cycle. They are riskier, but can pay off big over time. They also play an important role in portfolios by diversifying them over the months and years. The hedge fund industry is not yet mature enough to raise a lot of funds, and liquidity is less. To summarize, it is a less liquid and more volatile market, but has the potential to offer better returns. However, it remains very risky. »
2/ The evolution of the crypto strategy of institutions
How are institutional investors adapting their strategies to integrate cryptocurrencies into their portfolios in 2023 and 2024?
Raoul Pal: “They are allowed to invest in these assets, and many of them launched in 2021. They have since built large teams responsible for issues like tokenization of their assets. Obviously, there are no ETFs, which is something institutions are looking forward to. So they are all figuring out what to do. They started with venture capital investments and are now moving towards more liquid markets and new structured products. They are also interested in yield-bearing assets like Ethereum, which is a significant change, as these offer both yield and the risk-return profile of the technology. The industry is booming, and I also believe the hedge fund industry will grow significantly from where it currently stands in this space. »
3/ The influence of institutions on crypto markets
In your opinion, what influence will the arrival of institutional investors have on the future of the cryptocurrency market in the coming years, and what are your expectations for the adoption rate?
Raoul Pal: “Institutions will join the sector en masse during the next bull market or economic cycle. Wealthy managers were the first to get started, because they could freely invest their capital. Institutions, including investment banks, are ready and just waiting for price confirmation to get in on the action too. This asset class could exceed 10 billion by the end of this cycle thanks to institutions offering crypto products in their networks, making capital inflows easier. It will be the aggregate mechanisms of funds, and not individuals, which will be at the origin of the growth of capital in this sector. »
4/ Strategies of financial institutions beyond 2024
How do you see the role of financial institutions evolving after 2024, particularly in terms of offering innovative products to qualified investors rather than retail investors?
Raoul Pal: “Their economic model will change radically. For example, [banks] have become interested in stablecoins and are looking to blockchain to solve infrastructure issues and to execute foreign exchange transactions. Investment banks are trying to integrate securities onto the blockchain and are exploring how they can use the technology in the derivatives market. All exchanges are considering whether they should use blockchain channels and are considering how to offer digital asset-based products to customers. So they look at this aspect at all levels of their business. It is only a matter of time before central banks have their digital currencies, and Goldman Sachs has been working in this direction since 2015. Franklin Templeton has placed a money market fund on the blockchain, the Fidelity team started authorizing Bitcoin payments in its cafeteria… A huge movement has started. Asset management companies are gearing up to offer the right products to clients, and I am very proud to see how far we have come. »
5/ The integration of digital assets into institutional portfolios
How should asset managers new to the crypto market integrate digital assets into traditional portfolios to maintain balance and manage risk?
Raoul Pal: “Even though [Bitcoin] is the most volatile asset in a portfolio, it can actually significantly dampen volatility while providing excellent excess returns. It fits very well into wallets. For example, if the Goldman Sachs asset allocation team presents Bitcoin to a traditional asset management firm, explaining its principle and integrating it into models, that firm will likely adopt it. These teams reassure customers. Models show that Bitcoin is very accretive to portfolios, and even in the smallest portfolios it can make a huge difference. The problem is that these companies do not yet know where to place it, and this is the most delicate point to manage. »
Watch Raoul Pal in the first episode of Binance VIP Voices.
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