Deutsche Bank Warns of US Capital War Risk

Deutsche Bank’s warning suggests a shift in the US financial landscape could impact global markets and investor confidence. The new tax law might influence asset flows, particularly in cryptocurrencies, amid heightened geopolitical tensions.

George Saravelos, Head of FX Research at Deutsche Bank, voiced concerns over President Trump’s fiscal package. Section 899, also termed as the “revenge tax”, could drastically reshape international capital engagement. Recent US Court rulings limited Trump’s tariff powers. Section 899 now raises taxes on foreign entities, affecting passive income and US Treasury yields. This legislative shift aligns with the US administration’s broader strategies, potentially escalating financial conflicts.

“We see this legislation as creating the scope for the US administration to transform a trade war into a capital war if it so wishes, a development that is highly relevant in the context of today’s court decision constraining President Trump on trade policy.” — George Saravelos, Head of FX Research, Deutsche Bank

The legislation may reduce attractiveness of US markets, including US Treasuries and equities. Foreign investment might decline, causing strategic reallocations toward non-US or decentralized options like Bitcoin. Cryptocurrencies and stablecoins could become preferred alternatives amid regulatory uncertainties. Historical trends show similar legislative actions have led to asset volatility, especially in cryptocurrencies. Investors may seek refuge in assets like BTC and ETH as policy risks escalate.

Deutsche Bank stresses that the financial shock could destabilize market confidence, triggering shifts in global finance paradigms. Given past events such as trade wars, significant market reactions could unfold, influencing cryptocurrency markets, including stablecoins. Changes in US financial policy might alter traditional and decentralized investment patterns, reshaping market dynamics and liquidity. The potential capital war, if materialized, underscores growing complexity in regulatory and financial systems. The interconnections between various asset classes, encompassing tech and finance, might experience notable changes in response to policy shifts.