🔴 Flash Crash URGENT Update: Drinks With Raoul Pal (Round 19)

Despite recent market volatility and a government shutdown, the long-term outlook for crypto and risk assets remains bullish due to expected liquidity increases driven by global financial conditions and central bank actions, urging patience and a buy-and-hold strategy.

• Patience and a long-term buy-and-hold strategy are key to profiting in current market conditions.

• Global liquidity, driven by PBOC actions and a resolution to the U.S. government shutdown, is expected to surge, propelling risk assets higher.

• Current market weakness and low volatility present an opportunity for strategic investment in assets like Bitcoin, aligning with historical seasonal uptrends.

Current market volatility, including a 'flash crash' and underperformance of crypto assets, is attributed primarily to a temporary liquidity trap caused by the U.S. government shutdown impacting the Treasury General Account. However, underlying global financial conditions and actions by central banks, particularly the PBOC, signal a significant liquidity increase on the horizon. Investors are advised to maintain a long-term, patient approach, focusing on buy-and-hold strategies rather than short-term trading, as the 'banana zone' of accelerated growth for risk assets is expected to resume once liquidity issues resolve.

Market Volatility & Liquidation

• 00:02:33 Last week experienced a significant market liquidation, described as a 'flash crash,' where automatic liquidations compounded due to pricing oracle issues on Binance. This technical event is not a cause for long-term concern, as such incidents typically recover quickly. Current market weakness should be viewed as an opportunity to buy assets at lower prices, particularly for those holding stablecoins.

Patience & Trading Strategy

• 00:04:16 Short-term trading is often unprofitable, as the most successful participants in the crypto space adopt a long-term 'buy and hold' strategy. Those who have made substantial wealth since 2010 did so by holding positions, rather than attempting to time the market through swing trading. It is crucial to be patient and allow market cycles to play out, as 'no game plays out perfectly' or exactly like the last.

Global Liquidity & Business Cycle

• 00:26:02 The business cycle, which drives economic growth and earnings, is heavily influenced by liquidity. The GMI Financial Conditions Index, which leads the ISM survey by nine months, indicates weakening financial conditions (easier liquidity) ahead. While global liquidity has experienced a recent pullback, largely due to the U.S. government shutdown, it is expected to rebound and drive the business cycle and risk assets higher towards the end of the year and into the next.

PBOC and Liquidity Infusion

• 00:30:50 A significant factor poised to boost global liquidity is the People's Bank of China (PBOC) balance sheet. China is currently the only major government actively expanding its balance sheet, a powerful force multiplier that previously drove the crypto cycle in 2017 when the U.S. was tightening. The acceleration of PBOC's balance sheet usage, expected to peak around 2026, signals an impending surge in global liquidity that will support asset prices.

Government Shutdown's Impact

• 00:37:04 The current U.S. government shutdown has created a temporary liquidity trap, as the Treasury General Account (TGA) cannot release funds into the system. This has led to underperformance in crypto, which is further out on the risk curve and more susceptible to liquidity fluctuations, compared to the Nasdaq. Once the government reopens and begins spending, a massive injection of liquidity is anticipated, reversing the current weakness and driving asset prices higher.

Market Seasonality & Opportunity

• 00:43:42 Historical seasonality patterns suggest that while August through November often see flat performance, the end of the year typically brings strong gains for Bitcoin, Nasdaq, and the Russell 2000. Additionally, Bitcoin's Bollinger Bands are at historic lows, indicating suppressed volatility which often precedes significant price increases. This presents an opportunity to buy cheap calls, as volatility is expected to rise with market uptrends.