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GM. This is Milk Road – the newsletter that keeps you cool, calm, and collected when the market is in a mood.
Here’s what we got for you today:
- ✍️ The worst day of liquidations (ever)
- ✍️ Where to from here?
- 🎙️ The Milk Road Show: Massive Crypto Crash: How Tariffs Impact Bitcoin and the Market? w/ Matt Cole
- 🍪 Gold hits a new ATH
Prices as of 2:00 PM ET. Click here for our Fear & Greed Index.
CRYPTO JUST SAW ITS WORST SINGLE DAY OF LIQUIDATIONS (EVER) 😰
Help! I just checked my portfolio, and am stuck in a ‘cool cool cool’ loop…
Yesterday, we saw $560B wiped from the total crypto market cap in a 24hr period, with over $2.2B worth of liquidations. Lemme say that again: $560B Gone. $2.2B+ liquidated. All in a single day!
These liquidations are higher than the worst days of FTX, LUNA, and COVID! 👇
…so what the hell happened?
1/ Trump raised tariffs on the US’ three largest trading partners
If you didn’t already know:
Most import taxes on goods coming from the US’ two largest trading partners (Canada and Mexico) previously sat below 1%.
The idea here is that these new tariffs will incentivize US companies to onshore their production, create American jobs, and lower the US’ reliance on foreign trade.
…but that’s not to say the US’ trading partners are just going to take this lying down.
Canada has already announced 25% tariffs on any goods imported from the US, China is said to be planning a retaliation, while Mexico has (apparently) already cut a deal to get their tariffs walked back.
Ok, but what do import costs of physical goods have to do with magical internet money?
2/ Trade wars 🤝 inflation fears
The worry here is that this will lead to short term inflation within the US (as importers raise their prices to make up for the increased import taxes).
Which, in turn, could force the Federal Reserve to pause or even increase interest rates to counteract these increases.
And interest rates directly impact the amount of fresh cash sloshing around the market (the less money there is entering the market → the less cash finds its way into crypto).
3/ Alright, so how worried should we actually be here?
Right now, the effects of these tariffs are only really being felt in crypto – because it’s the only asset class that trades over the weekend.
Which means market makers (aka: the big dogs with all the money) had an opportunity to amplify these momentum shifts in real time – but only within crypto.
In this case, that means they likely saw the fear hitting the market and did the following:
- Sold billions of dollars worth of crypto →
- Pushed prices down harder/faster in the process →
- Forcing people that were trading with borrowed money (aka: using leverage) to sell their crypto and repay their loans →
- Pushing prices down even further…
Then, once everything bottoms out? The big dogs buy back in → push prices back up → and net an instant gain (on paper).
PSA: This is why we don’t use leverage – it’s the quickest/easiest way to hand your money over to market makers.
As for the stock market? It seems largely unfazed. In early trading, both the NASDAQ and S&P 500 are actually sitting above last Monday’s lows.
Meaning that – for now – the panic seems to be mostly contained within crypto markets. 👇
Alright – that’s everything that happened.
…but where to from here?
Keep scrolling to find out. 👇
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WHERE TO FROM HERE? 🤔
Our crystal ball is currently in the shop, and our ouija board is going straight to the spirit world’s voicemail…
So our answer to the headline’s question isn’t going to be exact.
But we’re not alone – hell, if predicting the immediate effects of sudden macro movements was easy, everyone would be rich.
That said, what we can give you are the two main theories on our ‘Trump tariff bingo card’.
1/ Trump’s playing the long game
The basis of this theory is simple: Trump wants to bring a whole bunch of production back to the US and is looking to price out the competition through tariffs.
If this is the case, the US appears to be in a pretty good position to do so (it’s pretty self sufficient). 👇
And when we zoom in on this particular battle with Mexico and Canada – the cards all appear to be stacked in the US’ favor…
Translation: Canada and Mexico’s economies need the US, more than the US economy needs Canada and Mexico.
So if the ‘incentivize US companies to onshore production by making imports WAY more expensive‘ game is being played here – we can likely expect medium term pain, for long term economic gain.
(At least in theory...the debate on whether tariffs actually work is a big one and we don't have the time or the expertise to dive into that today).
The other option?
2/ Trump’s playing the short game
This is the old ‘create a problem that only I can fix and use it as leverage to get something I want’ trick.
(Kinda like how your older brother would promise to stop punching you if you gave him the PlayStation controller).
The theory here is that Trump wants Canada and Mexico to increase their efforts to protect their respective borders, lowering illegal immigration and fentanyl trafficking in the process.
And from where everything stands right now – this seems to be the most probable of the two games being played.
Source? This. 👇
Which suggests – if a similar deal gets quickly sorted with Canada – the current pain being felt in the crypto market could well be short lived.
And if history is anything to go by – a crash like this was actually to be expected.
In the past three bull runs, we’ve seen a big ol’ pullback in Jan/Feb of the final year of the cycle, which has (previously) been followed by an insane rip up n’ to the right. 👇
So let’s all cross our fingers/toes/eyes – and hope that history is about to repeat itself. 🤞
P.S. Want a big-brained opinion on Trump’s tariffs? We just sat down with Matt Cole on today’s episode of The Milk Road Show! Check it out below. 👇
YouTube | Spotify | Apple Podcasts
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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.
