Judging from the various economic data released by the U.S. government, the U.S. economy is currently in very good shape—exceptionally and standardly good.

Yet, against this backdrop, overnight, from U.S. stocks to gold, from the Nikkei to commodities, and even to the cryptocurrency we are most familiar with, almost all assets seemed to have coordinated a collective plunge. This indiscriminate, all-encompassing crash has instantly brought many back to those days dominated by panic.

What exactly happened? Has the Middle East conflict finally spilled over into the financial markets? Did Trump say something shocking again? Or has a long-brewing perfect storm finally arrived?

Surface Causes: Geopolitical Conflict, Trump's 'Loose Talk,' and the MAG7 Trust Crisis

Whenever the market falls, the first scapegoats that come to mind are geopolitical factors. The recent tensions in the Middle East are certainly a significant factor affecting market sentiment. After all, war means uncertainty, and uncertainty is the natural enemy of capital. Gold and silver, as traditional safe-haven assets, had hit new highs just before the crash, which itself reflected the market's risk-aversion sentiment.

Another person who is often first blamed is Trump. The former president recently began commenting on the U.S. dollar again, publicly stating that he "wouldn't mind a weaker dollar." As soon as these words were uttered, the U.S. dollar index fell, hitting a new low in nearly two years. For a global financial system accustomed to a "strong dollar," this was undoubtedly a heavy blow.

But the question is, are these the full truth? If it were just geopolitical conflict, why would safe-haven assets like gold also plummet? If it were just a remark from Trump, wouldn't the market's reaction be too extreme?

It's like watching a suspense movie—the culprit is often not the first one to appear or the one who looks most like a villain. The real "mastermind" is hidden deeper.

X user @sun_xinjin mentioned an interesting observation: he noticed that the forward P/E ratios of the MAG7 (the seven major U.S. tech stocks) have started to decline.

This may seem like a small detail, but it reflects a larger shift—the market is beginning to cast a vote of no confidence in the massive capital expenditures of these tech giants. During the latest earnings season, the market has become exceptionally "picky." Beating expectations is now the equivalent of merely meeting expectations before, and significantly beating expectations is now the equivalent of just beating expectations before. If there is even the slightest undesirable aspect in the earnings report, the stock price plummets.

This has led the MAG7, along with the Nasdaq index, to consolidate at high levels for months. Some say this is a sign that the epic rally that began in May 2023, led by the MAG7, is starting to fade. The market's main focus has temporarily shifted away from the MAG7 to "storage, semiconductor equipment, commodities like gold, silver, and copper, and energy."

But this is only the surface phenomenon we can directly observe.

Bank Liquidity and the Paradox of Quantitative Tightening

At the same time, @sun_xinjin also mentioned another deeper issue: bank reserves remain low, and SOFR and IORB are not loose.

SOFR is the Secured Overnight Financing Rate, and IORB is the Interest on Reserve Balances. The difference between these two rates reflects the liquidity conditions of the banking system. When this difference widens, it indicates that liquidity in the banking system is tightening.

The current situation is that this difference is not loose, and this lack of looseness reduces the likelihood of the Fed's new vice chair, Kevin Warsh, advancing his quantitative tightening (QT) plan. Because, with bank reserves already low, further QT would be like draining water from an already depleted pool, further exacerbating liquidity tightness.

But this is precisely the problem. The market's expectation of QT itself is pushing up long-term bond yields, which in turn raises mortgage rates and freezes the real estate market.

This is also why global capital, when facing a liquidity crisis, chooses to indiscriminately sell off all risk assets. This is not just a unwinding of "dollar carry trades" but a broader liquidity crisis.

It's not that there is no money in the market; it's that all money is fleeing risk assets and rushing into the U.S. dollar and cash. Everyone is selling everything just to get back U.S. dollar cash and liquidity. This is the true core of this global asset crash—a risk preference shift and deleveraging process triggered by the narrative of fiscal unsustainability, affecting the entire world.

Will 312/519 Repeat?

Could this be a new "312" or "519"?

Let's review history:

312 (2020): At that time, the COVID-19 pandemic broke out globally, triggering an unprecedented global liquidity crisis. Investors sold off all assets to obtain U.S. dollars, and Bitcoin plummeted over 50% within 24 hours. This is most similar in underlying logic to the liquidity crisis we are experiencing now—both were driven by extreme demand for U.S. dollar liquidity due to external macro factors.

519 (2021): Mainly triggered by Chinese regulatory policies. This was a typical crash driven by a single, powerful regulatory action, with its impact relatively concentrated within the crypto industry.

Comparing the two, the situation we are facing now is more like 312. Macro liquidity is tightening. Global capital is withdrawing from risk assets to fill the liquidity gap. In this context, cryptocurrency, as the "peripheral nerve" of risk assets, naturally suffers the most severe impact.

However, the friendly policies following Trump's taking office contributed significantly to this round of the cryptocurrency bull market. Yet, none of us can predict what Trump will say tomorrow. In an already fragile market structure, even a relatively unfriendly remark could unleash the destructive force of a 519.

Therefore, we cannot let our guard down.

The Impact of the AI Bubble

Returning to the initial question. What is the real reason for the global asset crash?

It's not geopolitical conflict, not Trump's remarks, nor is it "dollar carry trades." It's a paradigm shift in the market.

The epic rally that began in May 2023 was built on the narratives of the "AI revolution" and "invincible tech stocks." But now, this narrative is being questioned. The market is starting to ask: Can these massive capital expenditures truly generate corresponding returns?

At the same time, the long-term bond market is sending us a signal: Fiscal unsustainability is no longer a theoretical issue but a practical one. The market does not believe that interest rate cuts can solve this problem because the root cause is not interest rates but fiscal policy. The market has already begun preparing for the "post-optimism era," and it has also realized that the current economic environment with its impressive data might already be the peak of this cycle.

Against this backdrop, cryptocurrency, as a representative of risk assets, is the first to be sold off, but this is only the beginning.

Finally, this might be an opportunity to re-examine asset allocation. When everyone is panic-selling, true value opportunities emerge. But the prerequisite is that you have enough ammunition to survive until then.