Global Markets Experience Liquidity Challenges | US Crypto News

Welcome to the Morning Briefing from US Crypto News – your vital summary of today’s important crypto developments.

Key Takeaways

Fractured Global System: Current economic pressures are creating a multi-speed market environment, with notable disparities in the strategies of the US, China, and Japan.
China's Economic Constraints: China’s ability to implement large-scale monetary interventions is limited by legal and structural constraints, fostering prolonged deflation.
US Federal Reserve Changes: The Fed has concluded a significant period of quantitative tightening but faces delayed impacts on the economy as corporate bankruptcies rise.
Japan's Bond Market Crisis: Japan is experiencing rising bond yields that could destabilize global markets and lead to significant capital outflows.
Three-Speed Financial Reset: The convergence of liquidity expansion in the US, fiscal restraint in China, and Japanese debt pressures marks the shift to a volatile financial landscape.

As global markets face unprecedented turbulence, the era of synchronized economic cycles is drawing to a close. In the US, liquidity is being carefully restored, while China grapples with deflation, and rising bond yields in Japan pose risks to global capital flows. This scenario presents a complex environment that will challenge both investors and policymakers.

Market Dynamics: The US, China, and Japan’s Diverging Paths

Global financial markets are facing structural strain as previous assumptions about synchronized economic cycles break down. Investors are now navigating a fragmented market shaped by competing economic forces:

China's Economic Dilemma: The Chinese government is constrained by its laws from implementing significant monetary intervention. With local government debt reaching ¥134 trillion ($18.9 trillion) spread across 4,000 financing vehicles, the economy is crippled by a property crisis that has cut off crucial revenue sources. Unlike Japan, which successfully utilized quantitative easing (QE), China cannot undertake monetization due to legal restrictions, resulting in persistent deflation and a regulated renminbi (RMB), currently growing at only 4%.

Researchers warn that this deflation could prolong global disinflationary trends, a condition described by analyst Shanaka Anslem as “the Long Grind.”

US Economic Challenges

On the other side of the Pacific, the US is grappling with its own economic issues. The Federal Reserve recently concluded a three-year quantitative tightening program, bringing its balance sheet down by $2.43 trillion to a total of $6.53 trillion, including reductions in treasury and mortgage-backed securities.

Analysts note that while the Fed’s balance sheet is being modified, the real concern lies in the delayed effects of these changes. Households are under financial strain, corporate bankruptcies have risen to levels not seen in 15 years, and small businesses lack robust financial support. With potential rate cuts and a new round of QE in the future, overcoming the stress embedded in the economy will not be instantaneous.

The Fed will soon embark on Reserve Management Purchases (RMP), expected to inject $20–$40 billion in Treasury bills monthly starting in January 2026. This could introduce around $480 billion in liquidity annually while keeping QE mechanics discreet. The dynamics of bank reserves are shifting towards a new equilibrium that will influence risk assets and inflation expectations.

Japan's Rising Yield Crisis

Japan is now facing its own fiscal challenges, reflected in a recent surge in bond yields. The 20-year bond yield has reached 2.947%, the highest level since 1998, which poses a significant risk to the global financial landscape. The Bank of Japan is currently carrying ¥28.6 trillion in unrealized losses, undermining its capital—and increased yields risk the $1.13 trillion US Treasuries held by Japanese investors, not to mention the associated carry trades that could lead to substantial capital outflows.

Analysts emphasize that for decades, Japanese bond yields kept global rates artificially low, but this trend has abruptly changed as interest rates rise.

Entering a Multi-Speed Financial Reset

The interplay between US liquidity expansion, Chinese fiscal discipline, and Japanese debt stress marks a distinct shift toward a multi-speed and volatile market environment. Analysts predict significant shifts in credit markets, currencies, and crypto assets. A sell-off in Japanese bonds could lead to a depeg of Tether, a decline in Bitcoin, and subsequent liquidations from corporate holders like MicroStrategy, causing further turmoil in the digital asset space.

As corporate bankruptcies surge, the economic reckoning is just beginning. Shadow banks and private credit are absorbing risks that traditional banks have avoided, revealing underlying vulnerabilities, while rising tariffs, interest rates, and fiscal tightening add additional pressure.

For investors, the coming months will be crucial as liquidity, market psychology, and geopolitical developments will play pivotal roles in shaping the performance of various asset classes.

Influential Forces Reshaping Global Finance

Key issues to monitor include:

The evolving pressures on risk, return, and liquidity have not been felt since the conclusion of the low-interest era post-global financial crisis (GFC).

Quick Insights

Here’s a brief look at more US crypto news to watch throughout the day:

Crypto Equities: Pre-Market Perspective

[Image descriptions and links remain intact as required.]