Deficit concerns triggered a sharp drop in US stocks, and Bitcoin broke through 110K to a new high

Here's the English translation: Concerns over the continuously expanding U.S. deficit, coupled with a poor 20-year U.S. bond auction, have led to weakness in U.S. stocks, U.S. bonds, and the U.S. dollar. Bit defied the decline in risk assets and surged independently, with progress on U.S. stablecoin legislation sparking hopes for regulatory clarity. Bit reached a historic high of 110,797 this morning. Investors Worry About U.S. Deficit, Low Bond Demand A $16 billion 20-year bond auction with low demand has reignited concerns about U.S. government borrowing and budget deficit, putting pressure on the U.S. dollar. This measure weakened market sentiment after a significant rebound in risk assets over the past month and exposed structural concerns in the bond market. Traders are betting on long-term bond yields soaring due to concerns about the U.S.'s continuously expanding debt and deficit, with Moody's downgrading the U.S. credit rating below AAA last Friday. Former U.S. Treasury Secretary Steven Mnuchin stated that he is more concerned about the expanding budget deficit than trade imbalances and urged Washington to prioritize fiscal restoration. He said in a panel discussion at the Qatar Economic Forum on Wednesday: The budget deficit worries me more than the trade deficit. I hope we can indeed further reduce spending. Bit Breaks Through 110K, Reaches New High Bit surged independently despite the decline in risk assets, with progress on U.S. stablecoin legislation sparking hopes for regulatory clarity, creating a historic new high. Bit reached a historic high of 110,797 this morning, with some market participants calling it a safe haven during financial market turbulence caused by Trump's trade tariffs. This narrative has gained more attention recently due to the focus on deficit and spending from unsuccessful U.S. budget negotiations. Galaxy Digital founder and CEO Michael Novogratz told Bloomberg: When this country is carrying such debt, we are in a really difficult situation. You'll see long-term government bonds being sold off, the dollar under pressure, which is also good for Bit and crypto assets. Bit futures open interest hosted by CME Group Inc. has rebounded 23% from its year-to-date low in April, and investors have injected approximately $3.6 billion into U.S. Bit ETFs so far in May. Year-to-date, Bit has risen about 14%, outperforming other risk assets like U.S. stocks. Risk Warning Cryptocurrency investments carry high risk, with potentially volatile prices. You may lose your entire principal. Please carefully assess the risks. Are global financial markets facing an "institutional change" that could overturn the current landscape? The European Central Bank (ECB) noted in its latest Financial Stability Review that investors seem to be reconsidering the risk levels of U.S. assets due to U.S. trade policies and tariffs, which could have profound implications for global capital flows and financial stability.

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Tariffs Trigger Market Volatility, Investors Show Signs of Capital Transfer

The European Central Bank (ECB) points out that after the United States implemented a series of tariff policies, market volatility has significantly increased. The stock market sharply declined after President Trump announced broad tariffs, and then rebounded after he announced a 90-day postponement of some tariffs.

The report mentioned: "During this turbulent period, the trading function of the Eurozone financial markets remained stable, although there were some unusual capital flows, including capital moving out of traditional safe-haven assets such as US Treasury bonds and the US dollar." The ECB stated that this capital adjustment might not just be a short-term technical factor, but could also represent investors' awareness of a "systemic shift" in the overall market landscape.

Are US Assets No Longer Safe? Global Capital Flow Might Reshuffle

The central bank indicated that this change might show that investors are "re-evaluating the risk of US assets", and if the trend continues, it could lead to a structural adjustment in global capital flows, further affecting the stability of the global financial system.

ECB Vice President Luis de Guindos also warned in a CNBC interview that the market is currently underestimating risks and still has a risk of "correction". He stated: "The market is currently very optimistic, believing that economic growth will slow but not recession, inflation will decrease, and monetary policy will ease. But these expectations might be too ideal."

Overvaluation and Policy Uncertainty Intensify Market Volatility

The ECB Vice President pointed out that the two main sources of current market volatility are "high valuation" and "policy uncertainty". The ECB had previously warned that the market has "high valuations not supported by fundamentals", and now these risks have partially materialized. He directly said: "Trump's tariff policies are the trigger for this turbulence."

"Uncertainty" Becomes New Norm in Financial Markets

From a more macro perspective, de Guindos emphasized that the uncertainty of US trade, fiscal, and regulatory policies has become a key factor affecting global financial markets. He stated that such an environment not only makes investors more cautious but could also pose a threat to European financial stability.

Tariffs May Push Up Prices Short-Term, Potentially Causing Inflation Long-Term

When discussing inflation and economic growth, de Guindos warned that while trade tariffs might push up import prices in the short term, they also suppress consumer demand, so the price increase effect might be offset. However, in the long term, if tariffs and trade frictions lead to global supply chain disruption, corporate costs will rise, potentially triggering more persistent inflationary pressures.

EU Downgrades Economic Forecast, Reflecting Weak Growth

Meanwhile, the EU's updated economic forecast this week is not optimistic. The 2025 EU GDP estimated value was revised down from 1.5% to 1.1%, and the Eurozone from 1.3% to 0.9%. Inflation is expected to fall below the ECB's 2% target in 2026, indicating a simultaneous slowdown in growth momentum and price pressures.