The Cascade
Trash
I want to talk about what’s actually happening in this market.
Because it’s not the economy. It’s not earnings. It’s not even the tariffs, though that’s the headline they want you to blame.
It’s leverage unwinding. And I have receipts.
The Setup
FINRA margin debt hit $1.214 trillion in November 2025. That’s a record. The second fastest surge since March 2000, right before the dot-com crash. Deutsche Bank flagged it. The Fed flagged it in their November Financial Stability Report. Nobody cared because stocks only go up.
Margin debt to GDP hit 3.88%, another record. Higher than 2000. Higher than 2007. Every single time we’ve seen this kind of leverage buildup, it ended the same way. Not if. When.
Then Crypto Detonated
January 20, 2026. Bitcoin drops below $90k. $1.8 billion in positions liquidated in 48 hours. 93% of them were longs. People betting on up, getting carried out on stretchers.
January 21. $1 billion liquidated in a single day. 182,000 traders rekt. Not institutions. Retail. Guys in Discords running 50x leverage on Binance.
January 26. Another $750 million wipeout over the weekend. Bitcoin’s “liquidation treadmill” kicked in. Price drops, triggers margin calls, margin calls force sells, sells drop price, more margin calls. Self-reinforcing doom loop.
January 29. Bitcoin slides below $85k. Another $1 billion gone. Bloomberg called it “leveraged beta to risk assets.” Translation: crypto isn’t a hedge for anything. It’s gasoline on a fire.
Today, February 5. Over $700 million in crypto liquidations in 24 hours. The cascade continues.
The Contagion Spread
Here’s what the headlines won’t tell you.
The same people holding levered crypto are holding stocks. When they get margin called on Bitcoin, they don’t just sell Bitcoin. They sell everything. Whatever has liquidity. Whatever they can dump at market.
That means your quality names get hit. ETFs get hit. The forced selling doesn’t discriminate. It’s not about fundamentals. It’s about meeting margin.
Michael Burry warned about this exact setup this week. He said falling crypto collateral forces metal selling in a feedback loop. And guess what? Silver crashed 17% in 24 hours. Gold dumped 12%. The CME had to hike margin requirements to stop the bleeding.
This isn’t sector rotation. This is leverage unwind spreading across asset classes.
The Algos Made It Worse
When the selling started, the bots didn’t stabilize anything. They amplified it.
These systems read order flow. They see selling, they front-run more selling. They see stops getting hit, they target the next cluster of stops. They don’t care about your thesis. They don’t care about fair value. They see momentum and they pile on.
On the way up, algos juice gains. On the way down, they accelerate the destruction.
One trader on Hyperliquid lost $220 million in a single ether liquidation on February 1st. One guy. That liquidation hit the order book, triggered more liquidations, and suddenly $2.5 billion in crypto positions were wiped out in 24 hours.
That’s not a market. That’s a machine eating itself.
What’s Actually Happening
A liquidity event dressed up as a macro event.
Yes, tariffs matter. Yes, rates matter. But the velocity of this move isn’t about policy. It’s about positioning.
Too many people on one side of the boat. Margin at all-time highs. Crypto leverage through the roof. Options stacked on options. Everyone assumed someone else would buy higher.
Then the music stopped.
And the cascade began.
This Is Why I Preach What I Preach
Position sizing. Cash on hand. No leverage. Trim into strength, buy into weakness.
When the overleveraged puke, you want to be the one with dry powder. Not the one getting liquidated at 3am because some degen in Singapore couldn’t meet margin on his Bitcoin futures.
The good news? Cascades end. Forced selling exhausts itself. The overleveraged get wiped out, and the market finds real buyers again. That’s when quality separates from garbage. That’s when the Wealth Ladder does its job.
We’re not there yet. But we’re getting closer.
Stay liquid. Stay patient. Let them puke. Then we go shopping.
Your analysis is very much reassuring. With due respect, I am not sure if position sizing helps in this kind of situation. With a few exceptions, my stocks have strong fundamentals and significant upside. All of them are down, regardless of the respective position size. The two lessons I learned: 1) Staying away from hype and leverage is not enough to protect my portfolio when the storm hits. 2) Downside protection is required, particularly for more substantial positions. Someone wrote that risk management is the key to successful investing. I had to learn the hard way.
Spot on. Leverage unwind is the real driver, not the headlines. FINRA margin debt hit $1.214T in Nov ’25 — record high, second-fastest surge since dot-com peak. Crypto’s getting flushed first, but the selling pressure is spilling over. Weak hands capitulate, algos pile on. Cash stays king until it’s done. Then we hunt value. Stay sized right. 🔥