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This article is a publishing of Raoul Pal’s outstanding Twitter thread shared on Monday 14 November. You can read it all on Twitter, here. Make sure to follow Raoul in appreciation for his excellent work.

The Crypto Cycle & Leverage and where we are now…

Crypto is cyclical. Always has been. Its value is derived from a simple formula:

Value of the underlying technology
Global Liquidity

This is why I often say it trades like a call option on the future.

The global liquidity cycle leads to large boom and busts in the space. Each time we have a boom, everyone not in the space yells “Bubble!” and truly enough, eventually prices collapse and we get to the “It’s all a scam! It’s a Ponzi! It’s never coming back!” phase of the cycle.

But prices never return to the previous low… more on that in a bit.

The first one of these was the 2010/11 cycle where prices fell 92%…the “Scam! Ponzi! It’s never coming back!” phase this time was Mt Gox…

The next was 2013/2015 – this time prices fell 85%. The Scam! Ponzi! low was Bitfinex


Then again in 2018 – down 83%…The ETH DAO hack, ICO bust and BTC forking wars was this Scam! Ponzi! FUD…


This time it’s the CeFi and FTX collapse and here we are again in the Scam! Ponzi! phase. At all these phases, people tend to leave the space (and come back in the next bull run).


This brings me on to leverage. When I refer to leverage I am mainly referring to business models that require leverage. It is almost impossible to manage open-ended leveraged balance sheets when the collateral falls 80% or your cashflows fall 50% over the cycle.

Also, retail shouldn’t use naked leverage as large price swings are frequent and you lose your capital, fast. Options are much better as you only have defined risk, like my wrong ETH bet in 2021. It could only ever cost me 5% of my bag. The risk I did run was counterparty risk.

The boom/bust phase is driven by global money supply. When money is tight, people go bust. Also there is less money for speculation.

This is when the tide goes out and you can see who is swimming naked…


But this tiresome “Scam! Ponzi” nonsense hides the fact that the network growth in BTC (taken from using the low to low) is 125% per year, which is astonishing growth…

Each Scam! Ponzi! low leads to very large price increases (unlike any other asset) as liquidity comes back and the network keeps growing…

Liquidity will soon turn…you don’t need a super cycle of liquidity like 2020, just a positive cycle for crypto to perform as the network keeps growing…

In the last cycle, ETH became dominant as its network effects grew faster and its returns were even larger than BTC…roughly twice the increase.


Here we are again…somewhere near the bottom of the cycle (ETH probably bottomed in June) and the lows of despair are pervasive as everyone loses their minds, just as they did at the bottom phase of each previous cycle…

…but the network keeps growing over time…

It’s a game of survival.

Have a long-term time horizon.
Add on the despair lows (you’ll never get the exact low).
Don’t use leverage.
Store your shit on a cold wallet.
Say in the game.
Filter out all the noise.

The “Scam! Ponzi!” crowd will be buyers in the next cycle. Repeat.