Rewards1: Tariffs: A Cauldron of Uncertainty

Tariffs: A Cauldron of Uncertainty

The S&P 500 and Nasdaq just chalked up their worst week since the March 2020 pandemic-fueled crash.

We're just two days into the new global economic reordering, and investors are in full panic mode.

Last Wednesday, President Trump announced the most sweeping tariff package in history. And it sent a shockwave through global markets.

The administration imposed a universal 10% tariff on nearly every U.S. trading partner starting April 5. And reciprocal tariffs of up to nearly 50% starting April 9.

Some commentators are calling it "shock and awe."

Since President Trump announced the tariffs, the S&P 500 and Nasdaq are down 11%. And as of this writing, both are indicated to open Mondays trading down 2%.

Nothing has been spared.

Even gold – considered a safe haven during market volatility – and crude oil are down 3% and 14%, respectively, since the administration rolled out universal tariffs.

To put that in terms of dollars, we saw nearly $6 trillion worth of invested capital eviscerated in just two days.

According to President Trump, it'll be worth it in the long run. He believes his tariff regime will level the playing field between the United States and its trading partners and reshore U.S. manufacturing operations.

Sounds good, right?

In theory, yes. But in practice, how will the United States compete with low-cost labor from countries like Vietnam or China?

I don't have the answer, and neither does the market. That is a big reason why stock prices are crashing right now.

No one knows how this situation will get resolved. In the interim, corporate profit margins will get squeezed… Earnings will drop… And many smaller companies will go out of business.

Here's what we do know…

The market initially thought President Trump was bluffing and his tariffs threats were just a negotiation tactic. But now, investors realize we may be in for some long-term uncertainty as the trade war escalates.

Will this create a punishing recession? No one knows. Will this bring America's trading partners to the negotiation table, resulting in lower tariffs? No one knows.

We are in a cauldron of uncertainty.

Here's what we do know. If this ends up being an unmitigated financial disaster, there's only one hand to play: Money printing.

The Fed will lower rates, buy trillions of dollars of U.S. bonds, and generally flood the world with liquidity.

This makes bitcoin the single-best insurance hedge you can have in your portfolio.

Think it through. If the tariffs work, great. The market stabilizes, and the party goes on. But if tariffs don't work and we go into a recession, the Fed will act and act decisively.

And if it does, bitcoin will boom higher.

Even though bitcoin is currently selling off with the rest of the market, it is the single-best insurance you can buy for the guaranteed turbulence ahead.

When Markets Break, You Need Asset Insurance

After the dot-com bubble popped in 2000, the Federal Reserve cut rates from 6% to 1% to help spur the economy.

The cheap money policy led to reckless lending practices. A few years later, the entire house of cards collapsed.

The years 2000 to 2010 were a lost decade for investors. Meanwhile, the price of gold soared 393%.

Gold shining during market turmoil is no surprise. Historically, it's been viewed as disaster insurance. When the spaghetti hits the fans, investors flock to gold.

But if bitcoin had been around during the first decade of the 2000s, I believe it would've outperformed gold.

I know that sounds crazy because bitcoin is generally considered a risk asset, not a safe haven like gold. And bitcoin's crazy volatile.

But hear me out…

The last time the Fed pulled the economic levers too hard was in 2023.

That's when it hiked interest rates from 0.25% to 5.5% over 16 months – the fastest pace of rate hikes in history – to battle record-high inflation.

What followed was three of the four largest bank failures in U.S. history.

First Republic Bank, Silicon Valley Bank, and Signature Bank went belly up in spring 2023. These banks held over half a trillion dollars in assets. Many of which were highly sensitive to rising rates.

And when the Fed hiked rates, the value of those assets plummeted.

Over a five-day period, the S&P 500 fell 6%, and banking stocks fell 15%. Meanwhile, gold and bitcoin surged 10% and 46%, respectively.

So why did bitcoin outperform gold when the spaghetti hit the fan this time?

Like gold, bitcoin is a hedge against people in charge screwing up. In this case, the central bank ham-fistedly manipulated rates higher to combat inflation.

In response to the 2023 banking crisis, the Fed opened a new lending facility. It essentially enabled banks to exchange impaired debt $1 for $1 with a new loan.

Now, I believe the Fed made the right move in this situation. It needed to rein in inflation, even if that meant a few regional banks going under.

However, the rate hikes reduced confidence in U.S. banks. People started looking for sound money storage outside the banking system.

That's why after first dropping from $25,270 to a low of $19,569 (22%) in the initial panic that swept through the market, bitcoin quickly rallied to $30,000 as money sought a sound safe haven.

Why did people flock to bitcoin? Because bitcoin isn't controlled by any single person or entity. No one can print more bitcoin. Its issuance is strictly regulated by code. And you can hold it yourself. You don't have to rely on a bank.

Like gold, bitcoin benefits from central banks flooding markets with cheap money.

It bears repeating: If things don't go according to plan with the trade war, the Federal Reserve will cover up any mess the government makes the same way it always does – by printing money.

With a transition as big as the one President Trump is aiming for, you're going to see a few companies go under and consumers stretched too thin.

Company bankruptcy filings are already nearing their COVID highs in 2020. And consumer credit card debt recently made a new record high of $1.21 trillion… Businesses and consumers were already on the edge, and this might just push them over.

This isn't the only reason I believe people will choose bitcoin over gold as disaster insurance.

The bigger reason behind this change is because the world is becoming ever more digital. From the internet to artificial intelligence (AI), nearly everything we do in modern society is done online or wirelessly.

Millennials and Gen Z are the first generations to be born into a completely online world. And they overwhelmingly prefer digital assets to gold.

A survey by DeVere Group, an independent financial advisory firm, found that more than two-thirds of Millennials prefer bitcoin over gold as a safe-haven asset.

Here's the bottom line: Gold and bitcoin function similarly and offer many of the same benefits. Bitcoin is equally scarce, durable, and private as gold.

But it's more easily stored, transported, and exchanged than gold. That makes gold the horse… and bitcoin the car.

That's not to say bitcoin won't drop in price during market turmoil. As Daily Editor Teeka Tiwari recently wrote…

I want you to know that bitcoin is a great asset. But even if you own great assets, you still get buffeted by volatility. There's nothing you can do about that. What you have to focus on is that when the volatility ends, which it will, your assets will go back up in price. And more than likely, they'll go back up to new highs.

And that's why I believe bitcoin is the safe haven of choice for these turbulent times…

A Hedge Against the System Getting It Wrong

President Trump is trying to overhaul the entire global trade regime. It might work. It might not.

In the meantime, buckle up for some wild volatility between now and the time we find out. And make sure you buy some disaster insurance just in case.

Just as you wouldn't hesitate to buy fire insurance before your house goes up in flames… You shouldn't wait to buy bitcoin as insurance should the government begin printing money to cover up its mistakes. By then, bitcoin will be much higher.

When investors lose faith in governments and central banks, assets like bitcoin boom higher in price.

Just like people realized bitcoin was "sound" money during the regional banking crisis of 2023, I believe they'll see it as a "disaster insurance" against a trade war in 2025.

Keep stacking bitcoin!

Houston Molnar