What if the Stock Market Falls 30%?

Key Concepts

• Bitcoin ETF vs. Direct Purchase: Cost differences (transaction fees, expense ratios), security considerations (self-custody vs. fund management), and accessibility.
• Market Correlation: The increasing correlation between Bitcoin and non-profitable tech stocks, and whether crypto can significantly impact the broader stock market.
• Gas Prices & Recession: The relationship between low gas prices and economic downturns, and the current factors influencing oil prices.
• Market Downturn Preparation: Framing potential market declines as “time travel” to previous price levels and the importance of dollar-cost averaging.
• High-Net-Worth Financial Planning: The availability of financial advice for individuals with substantial assets and the need for a comprehensive retirement plan.
• Dollar-Cost Averaging: A strategy of investing a fixed amount of money at regular intervals, regardless of market fluctuations.
• Expense Ratio: The annual fee charged by an ETF to cover operating expenses, expressed as a percentage of assets under management.
• Cold Storage: A secure method of storing cryptocurrency offline, minimizing the risk of hacking.

The Compound: Ask the Compound - December 2025 - Summary

Introduction & Market Overview

The episode begins with a discussion of the strong US stock market performance over the past three years (2023: +26%, 2024: +24%, 2025: nearly +20%). The hosts pose the question of whether a significant market correction (20-30%) in 2026 is plausible and how investors should prepare. The email for questions is ask the compound show@gmail.com.

1. Bitcoin ETF vs. Direct Purchase

The first question addresses the pros and cons of purchasing a Bitcoin ETF versus buying Bitcoin directly on an exchange like Coinbase. Bloomberg’s Eric Belchunis is brought on as an expert. He highlights the significant cost differences:

• Transaction Costs: Coinbase charges approximately 1.4-1.5% per transaction, while an ETF has minimal trading commissions (2-3 basis points spread) and an annual expense ratio (20-25 basis points). He notes the irony that crypto intermediaries operate with fees reminiscent of 1970s stockbrokers.
• Security: ETFs offer the convenience of secure storage managed by established financial institutions (BlackRock, Fidelity, etc.) utilizing cold storage, mitigating the risks of self-custody (potential for hacks, loss of access, or even physical threats). He referenced a case of someone being kidnapped for their Bitcoin passcode.
• Accessibility: ETFs simplify transactions and provide easier access for investors, while direct ownership allows for greater control and the ability to transfer Bitcoin to personal wallets.
• Holding Period: If holding for 4-5 years, the ETF’s expense ratio is less impactful than the one-time transaction fee of a direct purchase.

2. Crypto’s Impact on the Stock Market

The next question explores whether cryptocurrency volatility could trigger a stock market decline. The hosts present data showing an increasing correlation between Bitcoin and non-profitable tech stocks. However, they argue that:

• Market Size: The $3 trillion crypto market is dwarfed by the $70 trillion US stock market, making it unlikely to cause a widespread crash.
• Risk-On/Risk-Off Asset: Crypto primarily behaves as a risk-on/risk-off asset, moving in tandem with tech stocks during periods of market sentiment shifts.
• Leverage & Liquidation: Frequent liquidations within the crypto market absorb shocks without necessarily impacting broader markets.

3. Low Gas Prices & Recession Signals

The discussion turns to whether low gas prices indicate an impending recession. The hosts present historical data from the Federal Reserve:

• Historical Trends: Gas prices have often fallen during recessions, but low prices don’t guarantee a recession.
• Current Factors: The current low prices are primarily due to increased oil production and extraction efficiency, not necessarily a decline in demand. Oil prices are currently at levels not seen since 2005.
• No Direct Correlation: Low gas prices are not a reliable predictor of economic downturns.

4. Preparing for a Market Downturn

A viewer, Boris, asks about preparing for a potential 20-30% market decline. The hosts suggest:

• “Time Travel” Perspective: Framing a decline as a return to previous price levels (e.g., January 2024) can reduce anxiety.
• Dollar-Cost Averaging: Continuing to invest consistently during downturns can capitalize on lower prices.
• Long-Term Focus: Maintaining a long-term investment horizon is crucial.

5. High-Net-Worth Retirement Planning

Ryan, a high-income earner with a complex portfolio, seeks advice on maximizing retirement savings and creating a comprehensive plan to achieve $300,000 in annual retirement income (requiring approximately $7.5 million based on the 4% rule).

• Availability of Advice: The hosts emphasize that financial advice is readily available for high-net-worth individuals, despite a historical focus on lower-income investors.
• Need for a Financial Advisor: Ryan is advised to consult a wealth management firm to consolidate his “hodgepodge” of investments into a well-structured retirement plan, incorporating tax planning, estate planning, and risk management.

Conclusion

The episode concludes with a recap of the key takeaways: market corrections are possible, understanding the nuances of crypto investment is crucial, low gas prices aren’t necessarily a recession indicator, and proactive planning is essential for navigating market volatility and achieving long-term financial goals. The hosts encourage viewers to submit questions and announce their next show will feature Mr. Bill Sweeper. They also request reviews on podcast platforms.