While headlines focus on AI bubbles and tech valuation, the true driver of the market carnage is monetary policy. The US Federal Reserve’s refusal to cut interest rates has created a suffocating environment for risk assets. The fading expectation of a rate cut next month has tightened the noose around the cryptocurrency market, squeezing out $1 trillion in value in just six weeks.
Bitcoin, which thrives on cheap liquidity, has crashed to $91,212. The math is simple: when you can earn a high yield in a risk-free government bond, the incentive to hold volatile crypto or non-yielding gold ($4,033) disappears. The Fed’s “higher for longer” stance is draining the pool of liquidity that speculative assets need to survive.
This macro squeeze is also popping the AI bubble. High interest rates increase the cost of capital for data center construction and reduce the value of future tech earnings. This validates the “nervousness” expressed by Klarna’s CEO regarding infrastructure spending. Building the future is expensive, and with high rates, it just got harder to justify.
The global ripple effects are evident in the slide of the FTSE 100 and the Stoxx 600. Central banks in Europe and Asia are constrained by the Fed’s policy, forcing a global slowdown. The synchronized drop in markets is a direct result of this monetary tightening.
Until the Fed pivots, the pressure remains. UBS analysts are betting on that pivot to save gold, but for the crypto and tech sectors, the damage caused by the macro squeeze may take years to repair.