by Dr. Chris Kacher
Trump's declaration of 100% tariffs on China as of Nov 1 spurred a cryptocrash with the largest liquiditation in history of beyond $20 billion. Meanwhile, gold and silver held strong.
In contrast, the S&P 500 and bitcoin had sharp selloffs on the tariff news. Nevertheless, if we take a broader view, a material change has occurred where for the first time ever, gold has been surging while the S&P 500 enters its third year of a bull run. With risk-assets booming and Big Tech ruling the market, precious metals and stocks have been making record highs simultaneously. The simultaneous rise of gold, leading stocks driven by AI tech which propel the S&P 500 and NASDAQ Composite to new highs, and bitcoin suggests a unique market state where traditional safe havens and disruptive digital assets all exist in strength. Markets are increasingly pricing in a new reality.
Global liquidity is the single most important macroeconomic driver for markets today and explains 90+% of market movements.
Recently, commercial banks and the U.S. Treasury (via deficit spending) have outpaced the Federal Reserve as the primary creators of new dollars, flooding the system with cash.
Only three institutions create fiat—central banks (ie, the Fed), Treasury, and commercial banks. At present, only the latter two are expanding liquidity in the U.S. This is also largely true in other countries.
This excess liquidity, combined with technological investment in AI and the energy sector, fuels asset prices and will continue to shape market behavior through 2026 and beyond.
The “debasement trade” refers to investing in assets (like gold, bitcoin, and stocks) expected to outpace inflation and protect purchasing power in an era of ongoing currency debasement.
In essence, this suggests a world where money creation and investment are being driven from outside the central bank, and where understanding the huge role of liquidity is crucial for navigating the macro landscape of the next several years. This is why the inflation megatrend will remain alive and well.
Willy Woo who uses key metrics to track the short, medium, and long term price performance of bitcoin showed that his leading medium term signal of capital/investor flows pulled back slightly as shown by the solid blue line but is largely free from carnage. That said, keep in mind that market shakeouts can take weeks to resolve. Volatility is likely to rule the day in the short term. We could see further fallout in the days ahead as fear pushes investors into a defensive position.
Nevertheless, Woo writes, "Our internal liquidity model continues to hold up well with a slight dip, given the fast pull back we see liquidity as resilient and not structurally concerning."
This lines up with global liquidity which continues to pump. So smart money could see this as a buying opportunity, creating a sharp V-bottom, much as we saw in April.Keep a close eye on price/volume action in bitcoin, leading stocks, and major indices the coming days which will determine position sizes in either direction or flat out cash for those who prefer to wait until the dust settles. But dont wait too long. Back in April, huge buying volume defined the major low across markets creating a V-shaped recovery.
