We are witnessing a textbook “global risk-off” event. It is not just one asset class failing; it is a synchronized withdrawal of liquidity from markets worldwide. The trigger was the dual realization that the AI boom is “irrational” (according to Google’s CEO) and that US interest rates will stay higher for longer. This has caused a chain reaction that started in Asia and rolled across the globe.
Japan’s Nikkei 225 led the way with a brutal 3.2% drop, fueled by tech sector fears. The contagion spread to Europe, where the Stoxx 600 and FTSE 100 posted significant losses. Finally, the wave hit the US, dragging down the Nasdaq and the S&P 500. In the background, the cryptocurrency market—the riskiest of all asset classes—imploded, losing $1 trillion in six weeks.
The mechanism driving this is the unwinding of leverage. When rates were low and hype was high, investors borrowed money to buy tech stocks and crypto. Now that rates are high and the hype is questioned by industry leaders like Sebastian Siemiatkowski, those loans are being called in. To pay them back, investors must sell assets, driving prices down further.
Even commodities are being liquidated. Gold fell to $4,033, not because it is a bad asset, but because it is a liquid one. In a margin call, you sell what you can, not what you want. This creates a temporary distortion where safe havens fall alongside risky bets.
UBS analysts believe this is temporary and that gold will recover. However, for the broader equity and crypto markets, the “unwinding” process has likely just begun. Until the leverage is flushed out of the system, volatility will remain the only certainty.