Judging from various economic data released by the U.S. government, the U.S. economy is currently in excellent shape—exceptionally good by all standard measures.

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

What exactly happened? Has the Middle East conflict finally spilled over into financial markets? Did Donald Trump make another outrageous statement? Or is this the arrival of a long-brewing perfect storm?

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

Whenever the market drops, the first scapegoat people think of is geopolitics. The recent tensions in the Middle East are undoubtedly a significant factor affecting market sentiment. After all, war means uncertainty, and uncertainty is the nemesis of capital. Gold and silver, as traditional safe-haven assets, hit new highs just before the crash, reflecting the market's risk-off mood.

Another immediate suspect is Trump. The former president recently resumed his commentary on the U.S. dollar, openly stating he 'wouldn’t mind a weaker dollar.' The dollar index promptly fell to a two-year low. For a global financial system accustomed to a 'strong dollar,' this was a heavy blow.

But the question is: Is this the whole truth? If it were just geopolitical conflict, why would safe-haven assets like gold also crash? If it were just a Trump remark, wouldn’t the market reaction be overly dramatic?

Like in a mystery movie, the culprit is often not the first suspect who looks the most guilty. The real 'mastermind' is hidden deeper.

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

This might seem like a minor detail, but it signals a broader shift—the market is starting to vote no confidence in these tech giants' massive capital expenditures. During the latest earnings season, the market became unusually 'picky.' Beating expectations now equals merely meeting them before, and significantly beating expectations is the new 'beat.' Any slight disappointment in earnings reports triggers sharp stock declines.

This has left the MAG7 and the Nasdaq in a prolonged consolidation after months of highs. Some say this marks the fading of the epic rally that began in May 2023, led by the MAG7. The market’s focus has temporarily shifted from the MAG7 to 'storage, semiconductor equipment, commodities like gold/silver/copper, and energy.'

The Paradox of Bank Liquidity and Quantitative Tightening

@sun_xinjin also highlighted another deeper issue: bank reserves remain low, and SOFR (Secured Overnight Financing Rate) and IORB (Interest on Reserve Balances) show no signs of easing.

SOFR reflects overnight funding rates, while IORB is the interest rate on bank reserves. The spread between these two indicators reflects the liquidity conditions of the banking system. A widening spread signals tightening liquidity.

Currently, this spread isn’t easing, which reduces the likelihood of the Fed’s new vice chair, Kevin Warsh, advancing quantitative tightening (QT). With bank reserves already low, further QT would be like draining water from an already depleted pool, exacerbating liquidity strains.

But here’s the problem: The mere expectation of QT is driving up long-term bond yields, which in turn pushes mortgage rates higher, freezing the housing market.

This explains why global capital, facing a liquidity crisis, is indiscriminately dumping all risk assets. This isn’t just an unwinding of 'dollar carry trades'—it’s a broader liquidity crisis.

The issue isn’t a lack of money; it’s that all money is fleeing risk assets for the safety of the U.S. dollar and cash. Investors are selling everything just to hold dollar liquidity. This is the true core of the global asset crash—a shift in risk appetite and deleveraging triggered by narratives of fiscal unsustainability.

Will 312/519 Repeat?

Is this a new '312' or '519'?

Let’s revisit history:

312 (2020): The global outbreak of COVID-19 triggered an unprecedented liquidity crisis. Investors sold everything for dollars, and Bitcoin plummeted over 50% in 24 hours. The underlying logic closely resembles what we’re experiencing now—a desperate scramble for dollar liquidity due to external macro shocks.

519 (2021): Primarily driven by Chinese regulatory crackdowns. This was a typical crash caused by a single, forceful regulatory action, with impacts largely confined to the crypto industry.

Comparatively, the current situation is more like 312. Macro liquidity is tightening. Global capital is withdrawing from risk assets to plug liquidity gaps. In this environment, cryptocurrencies, as the 'peripheral nerves' of risk assets, naturally bear the brunt.

But this crypto bull run owes much to Trump’s pro-crypto policies. Yet, no one can predict what Trump might say tomorrow. In an already fragile market structure, even a mildly unfriendly remark could unleash 519-level destruction.

The AI Bubble Effect

Returning to the original question: What’s the real reason for the global asset crash?

Not geopolitics, not Trump’s remarks, nor 'dollar carry trades,' but a paradigm shift in the market.

The epic rally that began in May 2023 was built on narratives of 'AI revolution' and 'invincible tech stocks.' Now, those narratives are being questioned. The market is asking: Can these massive capital expenditures truly generate proportional returns?

Meanwhile, the long-bond market is signaling that fiscal unsustainability is no longer a theoretical issue but a real one. The market doesn’t believe rate cuts can solve this, because the root problem lies in fiscal policy, not interest rates. The market is preparing for a 'post-optimism era,' realizing that today’s stellar economic data may already mark the peak of this cycle.

Against this backdrop, cryptocurrencies, as a proxy for risk assets, are the first to be sold off—but this is just the beginning.

In the end, this could be an opportunity to reassess asset allocation. When everyone panic-sells, true value emerges. But the catch is: You need enough ammunition to survive until then.