As the saying goes on social media: "We are all long Bitcoin—some just don’t know it yet."

On November 24, Academy Securities' renowned strategist Peter Tchir warned in his latest report that the end of the "Free Money" era is now backfiring on markets through hidden leverage. Over the past two years, companies could multiply their stock prices simply by announcing massive spending plans—a logic that has now collapsed, becoming a key driver behind the recent Nasdaq slump.

Recent market volatility has been severe, with the Nasdaq 100 leading losses of over 3%, while the more representative S&P 500 Equal Weight Index fell just 0.9%. This divergence highlights that the pain is concentrated in tech and high-growth sectors.

On October 10, Bitcoin experienced a sharp sell-off during U.S. market hours, plummeting from $122,000 to $105,000. This "inexplicable" crash not only devastated crypto assets but also exerted direct liquidity pressure on broader equity portfolios through ETFs and related listed companies.

This phenomenon reveals a dangerous signal in the current market structure: cryptocurrencies, AI infrastructure, and passive U.S. stock investments have formed a highly interconnected "chain reaction." With passive investments now surpassing active ones, billions in pension and safe-haven funds—via ETFs like QQQ—are deeply tied to "digital asset reserve companies" like MicroStrategy (MSTR) and the capital expenditure cycles of AI giants.

Investors are now collectively focused on crypto market stability. Goldman Sachs trader Brian Garrett noted that many clients view Bitcoin’s performance as a barometer for future risk appetite: "If Bitcoin stabilizes, the year-end stock rally could get back on track."

**The Collapse of "Free Money"** Peter Tchir attributes past market euphoria to the "Free Money" effect—where companies announcing spending of $X saw market cap growth exceeding $X, effectively creating "free" shareholder wealth. This logic thrived in two areas:

1. **AI and Data Centers**: Tech giants were rewarded for merely pledging to build more data centers ("if you build it, they will come"). Now, mere spending announcements no longer boost stock prices, raising doubts about ROI. If stocks stop rewarding spending, companies may cut back, threatening economic momentum.

2. **Crypto and Digital Asset Reserve Companies (DATs)**: Firms like MSTR enjoyed massive valuation premiums by financing Bitcoin purchases, driving stock gains far above crypto holdings. But this loop is breaking, with many DATs trading closer to NAV, signaling the end of "wealth creation out of thin air."

**Passive Investing’s Amplifier Effect** Passive investing exacerbates the situation. Tchir notes that 55 cents of every $1 flowing into Nasdaq 100 ETFs (QQQ) goes to a handful of companies like MSTR.

Bloomberg data shows passive giants Vanguard, BlackRock, and State Street are top holders of MSTR, with QQQ alone holding nearly $1 billion in MSTR shares. If index providers like MSCI adjust rules (a decision due January 15), massive fund flows could follow. Inclusion would avoid forced selling; exclusion could trigger mechanical ETF outflows.

**Soaring Correlations and Wealth Effect Reversal** Bitcoin’s market cap has dropped from ~$2.5 trillion to $1.85 trillion, erasing $650 billion in wealth and reversing the "wealth effect."

With crypto ETFs now in mainstream portfolios, investors can no longer mentally separate crypto from stocks. Panic from crypto losses spreads faster than when assets were held in cold wallets. Some investors were shocked to find non-crypto assets highly correlated with Bitcoin—a sign of liquidity pressure forcing sales of liquid assets (like tech stocks) to raise cash. This cross-asset selling has driven Nasdaq volatility and the VIX higher.

**Macro Uncertainty and the Fed’s Dilemma** The Fed’s path is murky again. Market expectations for a December rate cut swung from 34% to 63% in a day. While jobs data is mixed and inflation risks linger, the end of "Free Money" could slow AI/data center spending, cooling the economy and giving the Fed reason to cut.

Meanwhile, 10-year Treasury yields rebounded as a safe haven, but rising Japanese yields (30-year JGBs hit 3.3%) may weaken long-term demand for U.S. debt.

Tchir concludes that economic risks are higher than ever. If crypto fails to stabilize, its liquidity crunch and wealth destruction could end not just tech’s party but broader economic growth.

All eyes are on Bitcoin’s bottom—the first signal that the "pain trade" is over.

As Goldman’s Brian Garrett put it: "Many clients believe if Bitcoin turns around, the year-end rally could reignite."