This episode dissects the market shockwaves from Trump's 'Liberation Day' tariffs, analyzing the immediate $1.7 trillion market value destruction and its ripple effects across traditional finance, crypto, and the strategic landscape for AI compute.
Trump's "Liberation Day" Tariff Announcement
- On April 2nd, Donald Trump announced sweeping trade measures dubbed "Liberation Day," including a universal 10% tariff on all imports and higher "reciprocal tariffs" targeting specific countries. These weren't truly reciprocal but based on trade imbalances, hitting major partners like China (34%), the EU (20%), and Japan (24%) with unexpectedly high rates, impacting over 180 countries.
- The stated strategy aims to decrease US import dependence (framed as national security), boost domestic manufacturing, address perceived unfair trade practices, and generate revenue for tax cuts. David highlights the visual of Trump holding a poster detailing these tariffs, emphasizing the dramatic nature of the announcement.
Immediate Market Reaction: Stocks Plunge, Crypto Holds Range
- The announcement triggered immediate market turmoil. David notes that S&P futures, initially up 1.7%, plummeted shortly after Trump's 4:00 PM speech began, erasing over $1.7 trillion (initially mentioned as $2 trillion, clarified later as $1.7 trillion based on the title) in market cap within minutes. Alex Thorne confirms the volatility occurred right after the equity market close, a rare timing for such significant market movement.
- Crypto markets experienced volatility but remained within recent trading ranges. Alex observed Bitcoin briefly spiking to $8,850 before dropping sharply to $8,200 (later mentioned as $8,500 then lower) as the tariff details emerged, while Ethereum dipped below $1,800 (later mentioned as $1,777). David contrasts this with the continued decline in stocks, suggesting crypto showed relative resilience, finding support at previously established lows.
The Tariff Calculation Controversy
- Significant confusion arose regarding the calculation of the announced "reciprocal tariffs." Alex explains the market initially expected tariffs matching what other countries impose on specific US goods. However, analysis revealed the figures on Trump's poster were derived from trade imbalances multiplied by a factor (0.05), not actual reciprocal tariff rates.
- David points out the incoherence between Trump's justification (reciprocity) and the actual calculation method (trade imbalance focus), which baffled investors and policymakers. He highlights the Twitter drama where users reverse-engineered the formula, later seemingly confirmed, albeit confusingly, by White House Deputy Press Secretary Kush Desai using algebraic notation. Alex praises this as a prime example of social media acting as a check on power.
- Trade Imbalance: Simply the difference between the value of goods a country imports and the value of goods it exports. The US generally runs a trade deficit (imports more than exports).
Global Responses and Geopolitical Shifts
- International reactions were swift and negative, with the EU preparing retaliatory measures, China expressing firm opposition, Japan calling the tariffs regrettable, and others like South Korea, Canada, and Mexico planning countermeasures. Alex notes Switzerland's official statement expressing confusion due to the policy's incoherence.
- Alex emphasizes the potential for significant geopolitical realignment, particularly noting reports (from Chinese state media) of China, Japan, and South Korea potentially coordinating their response. He states, "if it's true that they are going to act in concert with China like that is a massive deal... pushing our allies into the hands of our antagonists." This highlights the risk of isolating the US and accelerating a multipolar world order.
Analyzing Trump's Strategy and Market Uncertainty
- The market grapples with interpreting Trump's actions: Is it short-term posturing for negotiation, or a genuine, long-term push for reshoring manufacturing? David points out the time mismatch – tariffs are immediate, but shifting manufacturing takes years. This uncertainty fuels market declines.
- David references a tweet from commentator Guy Capital admitting he was wrong to dismiss the possibility of blanket tariffs, reflecting broader market surprise. He suggests that taking Trump's consistent, decades-long pro-tariff stance at face value has often been the correct market interpretation, rather than assuming complex hidden strategies. Alex adds context from Trump's "Art of the Deal," suggesting a pattern of extreme opening positions followed by negotiation, though the current follow-through seems unusually strong.
Economic Context and Potential Stagflation
- Alex contextualizes the tariff shock within a potentially weakening US economy, citing discounted GDP forecasts, weak manufacturing data, and rising credit delinquencies. He notes the administration (via Treasury official Bessant) appears willing to tolerate short-term market pain, downplaying the stock market as a "micro meter of sentiment."
- Alex explains the economic risks of tariffs: they reduce global efficiency and tend to be stagflationary (causing inflation in the imposing country while potentially slowing its growth). He defines Stagflation as a period of stagnant economic growth combined with high inflation. The combination of tariffs potentially raising consumer prices and existing economic weaknesses creates a challenging outlook.
- "There's more they can bear is what they're signaling," Alex says, indicating the administration might tolerate further market declines before changing course.
Domestic Manufacturing and the Future of Work
- While acknowledging the goal of boosting domestic manufacturing as potentially noble, David questions its feasibility and desirability. He uses the example of tariffs on textiles (affecting countries like Cambodia, Malaysia, Indonesia) hitting companies like Nike, arguing that the resulting US manufacturing jobs might not be attractive to American workers or could be quickly automated.
- Alex expands on this, discussing a generational and cultural shift in the US away from manufacturing trades towards college-educated professions. He argues that re-architecting the economy and workforce perception around manufacturing is a long-term challenge, suggesting the country isn't currently culturally prepared for this shift, despite the potential for high earnings in skilled trades.
Circle IPO Filing: A Look Under the Hood
- Circle filed its S1 registration statement for an IPO, planning to list on the NYSE under the ticker CRCL. An S1 Filing is a document companies file with the SEC to register their securities for public offering, providing detailed financial and business information.
- The filing revealed $1.7 billion in revenue and $155 million in Net Income (profit after all expenses) for the fiscal year 2024. David highlights analyst conversations focusing on high operating costs (over $250M in compensation) and the significant revenue share going to distribution partner Coinbase.
Circle Business Analysis and Stablecoin Landscape
- Alex provides historical context on Circle (founded 2013, previous ventures like Circle Trade and Poloniex) before its focus on USDC, now with ~$60.7 billion in circulation. He initially underestimated the stablecoin business model but now sees it as crucial, potentially acting as a de facto public-private CBDC. "This kind of is the CBDC right and this is the CBDC of the United States," Alex remarks on USDC's potential role.
- David summarizes key concerns raised by analysts: lack of USDC growth year-over-year until recently, declining gross margins, dependence on high interest rates for profitability, and intense competition, especially compared to Tether's leaner operation and higher profits. The filing is seen by some as potentially a "Hail Mary" for liquidity before a wave of institutional stablecoin competitors arrives.
FDIC Greenlights Bank Crypto Activities
- A significant regulatory development occurred as the FDIC (Federal Deposit Insurance Corporation), the US agency insuring bank deposits, gave banks a clearer path to engage in crypto activities. This involved removing "reputational risk" as a subjective barrier in bank examinations, effectively dismantling a key aspect of "Operation Chokepoint 2.0."
- Alex explains this follows the OCC (Office of the Comptroller of the Currency), another bank regulator, rescinding previous guidance (Interpretive Letter 1179) that required banks to get specific pre-approval for crypto activities like custody or using stablecoins (which stemmed from earlier permissive letters 1170, 1172, 1174). Banks now face fewer arbitrary hurdles specific to crypto technology. This is a major step towards enabling broader bank participation in the crypto ecosystem.
Eric Trump's Bitcoin Mining Venture
- News emerged of Eric Trump pursuing a Bitcoin mining venture, reportedly involving Hut 8 and potentially acquiring a stake in American Bitcoin Mining to go public. Alex notes the public mining sector is one of the few crypto areas accessible to US public markets, alongside exchanges like Coinbase.
- Alex emphasizes that Eric Trump appears genuinely knowledgeable and engaged with crypto, citing his eloquent explanations at conferences. "He's not a tourist," Alex observes, suggesting this venture might have more substance than other celebrity or politically-adjacent crypto involvements. This highlights the increasing intersection of political figures and the crypto industry.
CoreWeave IPO and the AI Compute Pivot
- The successful IPO of CoreWeave, a company that transitioned from Ethereum GPU mining to providing AI compute infrastructure, garnered attention. David notes its strong stock performance post-listing. AI Inference refers to the process of using a trained AI model to make predictions or decisions on new data.
- Alex, whose firm Galaxy Digital partners with CoreWeave, discusses the immense and growing demand for AI compute power. He sees the pivot from crypto mining (which built expertise in energy acquisition and data center operations) to servicing AI as a major trend. "Bitcoin mining was the real crypto and AI play," Alex asserts, highlighting the strategic value of mining infrastructure in the AI era.
The AI Infrastructure Stack: Energy and Hardware are Key
- David reflects on the foundational layers of AI, arguing that the compute, energy, and hardware infrastructure are becoming more critical and interesting than the rapidly evolving AI models themselves. He emphasizes the projected need for a massive increase (potentially >10x) in energy production, linking it to discussions around nuclear power.
- Alex agrees, stressing the fundamental need for more electricity and compute capacity. This points to long-term investment theses focused on the physical infrastructure underpinning AI, a crucial area for researchers and investors tracking the convergence of AI and physical resource management.
Conclusion
Trump's tariffs inject massive uncertainty, while Circle's IPO and FDIC changes signal stablecoin maturation. The CoreWeave success highlights critical AI compute demand, converging with crypto infrastructure. Investors and researchers must track macro policy, stablecoin evolution, and the AI compute build-out to navigate risks and identify opportunities.
