Tech
Macroguru Raoul Pal Predicts a ‘Banana Zone’ for Cryptocurrencies: ‘Don’t Bend It in Half’
May 15, 2024 09:39 am | 3 minute read
Macro guru Raoul Pal highlights the “Banana Zone,” a concept related to his “Everything Code” framework, which aims to explain the cyclical nature of global liquidity and its impact on asset prices, particularly in the technology and crypto sectors.
What happened: Pal points out that the global liquidity cycle, which has shown clear cyclicality since 2008, drives the summer and autumn macro seasons. He attributes this perfect macrocycle to the zero interest payments worldwide and the 3-4 year debt maturity in 2008.
Pal’s “Everything Code”.
The Everything Code suggests that the business cycle repeats itself as liquidity increases until the currency devalues and the debt is rolled over, preventing a potentially catastrophic debt spiral. This devaluation lowers the denominator (fiat currency), causing an optical increase in asset prices.
Growth assets, such as technology and cryptocurrencies, perform best during these times due to their secular adoption-driven trends. Pal compares the adoption rate of cryptocurrencies to that of the Internet, suggesting that the cryptocurrency market capitalization could grow from $2.5 trillion to $100 trillion over time.
Read also: Arthur Hayes: ‘Major economies will print even more money’ over the next 24 months
The “banana patch” of cryptocurrencies
Pal notes that while tech experiences its own mini-Banana Zone during the macro summer and fall, the effect is more pronounced in the crypto sector due to its outperformance relative to tech.
The transition to macro summer is relatively predictable, thanks to the repetitive cycle outlined in the Everything Code, and which ushers in a growth in liquidity, which tends to create the Banana Zone.
While acknowledging that the chances of significant changes in this pattern are low, Pal cautions that nothing unfolds perfectly and that the structure or nature of the final phase of the fall remains uncertain. He advises investors to expect surprises along the way, such as sharp corrections or long sideways markets.
All Code x Banana Zone
Despite these uncertainties, Pal believes that the Everything Code provides the best framework for understanding the market dynamics at play. According to him, with the right time horizon, portfolio management and patience, investors can navigate the Banana Zone and beyond with a low probability of making mistakes.
The Macro Guru suggests traders take partial profits in the current cycle and reminds his followers not to “bend mid-curve,” as “the numbers go up over time.”
What’s next: The influence of Bitcoin as an institutional asset class it is expected to be explored in depth at Benzinga’s next event The future of digital assets event on November 19th.
This content was partially produced with the help of artificial intelligence tools and was reviewed and published by Benzinga editors.
Image: Shutterstock
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