Former Goldman Sachs executive Raoul Pal says that the crypto markets could go on a parabolic surge sooner than most people think.
In a recent Real Vision Crypto video, the macro guru says that the crypto market could witness a steep ascent as it flashes vibes of the 2015-2016 bull market when the entire space rallied by over 700% in a matter of months.
According to Pal, the macro backdrop suggests that a crisis is coming, and the Federal Reserve will have very little choice but to come in and introduce bailout packages.
“What’s interesting (is) it’s a similar kind of setup from the 2015-2016 cycle. So we’ve got a similar structure and a similar market.
2019 was a bit weird because we had that big correction over all of 2019 after a huge run to begin with – 300% up then a big correction down and then we went parabolic.
I have a feeling we might go parabolic earlier here because I think we’re getting closer to a banking crisis within the regional banks that will require the Federal Reserve to step in. Interest rates are getting out of control, so interest rates going up and the yield curve inverted, bad news bears for the banks.
You can use the KRE ETF (Regional Banking ETF) to see where we are in that, but if that starts breaking $35, $30, then it’s game on for more cowbell to come because the Fed are going to have to bail these people out. And then we’ve got the commercial real estate problems behind it.
So that’s the kind of backdrop of why the cowbell will come…”
At time of writing, the KRE ETF is trading at $43.13.
Pal also says that the crisis will give the Fed an excuse to reverse its hawkish stance and provide the government with liquidity to pay for its massive national debt.
“Maybe that’s the reason the Fed is tightening rates even further is to create a crisis so they can cut rates, so they can monetize the debt. Because if they don’t, they have to print more money because the interest rates are higher to pay for the debt payments, and that becomes a total catastrophe.
The key point is liquidity up.”
Traditionally, debt monetization is when a government borrows money from its central bank to fund expenses. In this case, the US government could sell bonds directly to the Federal Reserve, prompting the agency to issue fresh liquidity.
