...BTC was my way to gain exposure to highest beta Risk On trade given my sidelined position on equities, just in case the bull continues pushing higher in the final Melt Up
....still possible for equities to make new highs after Trump's tariff concerns but he is only pushing global economy to the edge
...BTC was meant to be only a modest exposure, but now it has proven once again that AUD Gold is the best hedge for adversities.
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Why is crypto crashing on tariffs?
Here's our take:
1. At first glance, you may think that trade wars would benefit crypto, a decentralized system
2. However, over the last 24 hours, $2.3 BILLION was liquidated from crypto, an even larger 24-hour liquidation than the collapse of FTX
3. So why is this happening? The first answer is that crypto has become increasingly correlated with risky assets
4. Throughout 2024, the correlation coefficient between Bitcoin and the S&P 500 hit 0.88 at its peak (with 0 being no correlation and 1 being absolute correlation)
5. As stock market futures sell off on expectations of higher inflation and slower GDP growth, crypto follows
6. On top of this, markets are pricing-in reduced LIQUIDITY
7. If the last 5 years have taught us anything, it's that crypto markets weaken when liquidity dries up
8. Where does this liquidity go? Ironically, a lot of it flows back into the US Dollar which just hit a 52-week high
9. The US Dollar becomes the "safest risky asset" during trade wars because it's the most "stable" currency
10. This comes as self-directed retail investors bought $1 billion+ of crypto ETFs in December alone
11. Record levels of retail capital has flowed into crypto markets amid Trump memecoin launches which has broadened price swings
12. The perceived loss of STABILITY in crypto worried retail investors last night, causing Ripple and other currencies to fall 40%+
13. In particular, the 45-minute candlestick at 8:30 PM ET appeared to be fear-driven and its subsequent reversal was telling
14. Overall, crypto markets view trade wars as de-risking events with weaker economic growth, less liquidity, a stronger US Dollar, and less stability During the last trade war, crypto markets were worth under $300 million. Today, crypto markets are over 10 TIMES larger and far more integrated with financial markets. More volatility is to be expected.
https://x.com/KobeissiLetter/status/1886401457420632316
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