Why are gold, US stocks, and Bitcoin all falling? What are the reasons behind the simultaneous decline in these major assets? Many investors are asking why these markets are dropping together and what factors are influencing this trend. In this article, we will analyze the key reasons and provide insights into the current financial environment.

Article by: c00k1e, Rhythm BlockBeats

Based on various economic data released by the U.S. government, the U.S. economy is now very strong, very standardly good.

But against this backdrop, overnight, almost all assets—from U.S. stocks to gold, from Nikkei to commodities, and even our most familiar cryptocurrencies—collectively plummeted as if they had conspired together. This indiscriminate, all-encompassing crash caused many to instantly revert to those panic-driven days. What exactly happened? Did the Middle East conflict finally spill over into the financial markets? Or did Trump say something shocking again? Or is a long- brewing perfect storm finally arriving? Surface explanation: geopolitical conflict, Trump’s “trash talk,” and the MAG7 trust crisis Every time the market drops, the first scapegoat everyone thinks of is geopolitics. Recently, tensions in the Middle East have been high, which is naturally a significant factor affecting market sentiment. After all, war means uncertainty, and uncertainty is the enemy of capital. Gold and silver, as traditional safe-haven assets, once hit new highs before the crash, which itself reflects market risk aversion. Another person who is often the first to come to mind is Trump. The president has recently started to comment on the dollar again, openly saying he “doesn’t mind a weaker dollar.” As soon as he said this, the dollar index fell sharply, hitting a nearly two-year low. For a global financial system accustomed to a “strong dollar,” this is undoubtedly a heavy blow. But are these the full truths? If it’s just geopolitical conflict, why did even safe-haven assets like gold crash together? If it’s just Trump’s words, isn’t the market’s reaction a bit too intense? It’s like watching a suspense movie—often, the culprit isn’t the first person to appear or the one who looks most like the villain. The real “mastermind” is hidden even deeper. User @sun_xinjin pointed out an interesting observation: he noticed that the forward PE of MAG7 (the seven largest U.S. tech stocks) has started to decline. This may seem like a small detail, but it reflects a bigger shift—the market is beginning to lose confidence in these tech giants’ massive capital expenditures. In the latest earnings season, the market has become unusually “picky.” Beating expectations is now considered meeting expectations, and significantly surpassing expectations is seen as exceeding expectations. If there’s even a slight dislike in the earnings report, stock prices will drop sharply. This has caused MAG7 and the NASDAQ index to remain high for several months. Some say this signals the beginning of the end of the epic rally that started in May 2023. The market’s main focus has temporarily shifted away from MAG7 to “storage, semiconductor equipment, gold, silver, copper, and energy commodities.” Bank liquidity and the paradox of balance sheet reduction At the same time, @sun_xinjin also pointed out another deeper issue: bank reserves remain low, and SOFR and IORB are not loose. SOFR is the overnight financing rate, and IORB is the interest rate on bank reserves. The difference between these two indicators reflects the liquidity condition of the banking system. When this gap widens, it indicates that liquidity in the banking system is tightening. Currently, this gap is not loose, and such tightness reduces the likelihood of the Federal Reserve’s new Vice Chairman Kevin Warsh advancing its balance sheet reduction plan. Because, with bank reserves already low, further balance sheet reduction is like continuing to drain a waterless pool, which will further exacerbate liquidity tensions. But this is precisely the problem. Market expectations of balance sheet reduction are themselves pushing up long-term bond yields, which in turn raise mortgage rates, freezing the real estate market. This is also why, when global funds face a liquidity crisis, they tend to indiscriminately sell all risk assets. It’s not just a “dollar arbitrage unwind,” but a broader liquidity crisis. It’s not that there’s no money in the market; it’s that all the money is fleeing risk assets and rushing into dollars and cash. Everyone is selling everything just to hold onto dollars and liquidity. This is the real core of this global asset crash—a risk appetite shift and deleveraging triggered by the narrative of fiscal unsustainability. Will 312/519 repeat? Will this be a new “312” or “519”? Let’s review history: 312 (2020): When the COVID-19 pandemic erupted globally, it triggered an unprecedented global liquidity crisis. Investors sold everything to buy dollars, and Bitcoin plummeted over 50% within 24 hours. This is very similar in underlying logic to the current liquidity crisis, both driven by external macro factors creating an extreme demand for dollar liquidity. 519 (2021): Mainly triggered by Chinese regulatory policies. This was a typical collapse driven by a single, powerful regulatory action, with the impact concentrated within the crypto industry. Compared to these, the current situation resembles more the 312 scenario. Macro liquidity is tightening. Global funds are withdrawing from risk assets to fill liquidity gaps. In this environment, cryptocurrencies, as risk assets, naturally suffer the most severe impact. However, this recent bullish crypto rally owes much to Trump’s policy friendliness after taking office. Yet, no one can predict what Trump will say tomorrow. In a fragile market structure, even a relatively unfriendly remark could unleash the destructive force of 519. Impact of the AI bubble Returning to the initial question: what is the real reason behind the global asset plunge? It’s not geopolitics, not Trump’s words, and not some “dollar arbitrage trade,” but a paradigm shift in the market. The epic rally starting in May 2023 was built on the narrative of the “AI revolution” and “invincible tech stocks.” But now, this narrative is being questioned. The market is asking: can these huge capital expenditures really generate the expected returns? Meanwhile, the long-term bond market is sending a signal: fiscal unsustainability is no longer just a theoretical issue but a real one. The market no longer believes that rate cuts can solve this problem because the root isn’t interest rates but fiscal policy. The market has begun preparing for a “post-optimism era,” and it has realized that the current impressive economic data might already be the cycle’s peak. Against this backdrop, cryptocurrencies, as risk assets, are being sold off first, but this is just the beginning. Finally, this could be an opportunity to reassess asset allocation. When everyone is panic-selling, the true value valleys will appear. But only if you have enough ammunition to survive until then.