The cryptocurrency market is experiencing a massive wave of selling. The ripple effects from the nomination of Kevin Warsh as the next Federal Reserve Chair continue to impact and reshape multiple asset classes. Following an epic plunge in gold and silver, cryptocurrencies like Bitcoin and Ethereum experienced a sharp downturn over the weekend. Over the past 24 hours, Bitcoin's price fell by over 7%, breaching the $80,000 level, while Ethereum dropped more than 11%. Data from Coinglass shows that over the last 24 hours, more than $2.5 billion in crypto derivatives positions were liquidated across the market, affecting a staggering 420,000 traders. Over 90% of these liquidations were long positions. Analysts point out that some investors and traders are concerned that Kevin Warsh might tighten the cash supply within the financial system, which would put pressure on the cryptocurrency market. 420,000 Liquidated! Cryptocurrencies Plunge The past 24 hours have seen a 'bloodbath' in the crypto space. Bitcoin sold off sharply, with its intraday decline exceeding 7% at one point, bottoming out near $76,000. Ethereum, the second-largest cryptocurrency, fell over 11%, touching a low of $2,256. Other smaller-cap cryptocurrencies also plummeted. This sell-off wiped over $110 billion from the total cryptocurrency market capitalization within 24 hours. At the time of writing, Bitcoin was down nearly 6% to around $79,000, Ethereum had fallen over 9% to $2,459, Solana dropped 10%, BNB declined over 8%, Cardano fell more than 7%, and XRP was down over 4%. Coinglass data indicates that within 24 hours, total crypto liquidations reached $2.561 billion, involving 423,500 traders. Long position liquidations accounted for $2.407 billion, while short positions saw $154 million liquidated. The largest single liquidation order occurred on Hyperliquid-ETH-USD, valued at $222 million. This cryptocurrency decline occurred against a backdrop of thin liquidity and limited buying interest. Concurrently, the US dollar strengthened following the nomination of former Fed Governor Kevin Warsh as the next Chair of the Federal Reserve. Some investors and traders fear he may tighten the cash supply in the financial system. This pullback intensifies weeks of macro disappointment among investors regarding Bitcoin. Previously, Bitcoin failed to react to a series of market dynamics that should have supported the asset. The US dollar weakened for most of January, yet this movement did not boost sentiment in the crypto market. Similarly, Bitcoin showed no substantial reaction even as gold prices surged to record highs. Following a significant retreat in gold and silver prices on Friday, Bitcoin still failed to attract inflows. The persistent weakness in Bitcoin demand raises questions about its role in a broader investment portfolio. Once seen as a tool for momentum trading and a hedge against currency devaluation, Bitcoin is now struggling to fulfill either function. Spot ETFs are seeing continuous outflows, geopolitical risks have not stimulated demand, and traditional safe-haven flows remain concentrated in precious metals and cash. Needham analyst John Todaro stated, "The current price level reflects extremely weak interest from retail investors," adding that trading volumes could remain subdued for the next "quarter or two." Brian Jacobsen, Chief Economist at Annex Wealth Management, said the Fed's "bloated balance sheet coupled with aggressive bank regulation" has trapped liquidity on Wall Street instead of flowing into the real economy, which previously fueled bubbles in assets like bonds, crypto, metals, and 'meme stocks.' Since last year's crash, cryptocurrencies have struggled to find direction, underperforming compared to the significant rallies in gold and equities. Jacobsen noted, "Sometimes these price adjustments become self-reinforcing. It's possible, even likely, to see more selling in the coming days." Kevin Warsh and Cryptocurrency On the evening of January 30th, US President Trump nominated Kevin Warsh as Federal Reserve Chair. The 55-year-old Warsh, a former investment banker, served on the Federal Reserve Board of Governors from 2006 to 2011, becoming the youngest governor in the institution's history. The Fed's policy decisions are crucial for the cryptocurrency market, as cryptos often exhibit characteristics of so-called 'risk-on' investments. When interest rates are high, safer yields from instruments like US Treasuries become more attractive, diverting funds that might otherwise flow into highly volatile assets like cryptocurrencies. Conversely, lower rates increase liquidity in the financial system and often push investors towards higher-risk areas. Historically, a stronger US dollar, which typically accompanies Fed tightening, also pressures Bitcoin's price. Shady El Damaty, CEO and Co-founder of Holonym, believes Warsh is perceived as more 'hawkish' than Powell, especially given his past criticism of quantitative easing and the expansion of the Fed's balance sheet. "This raises concerns about how aggressive he might be on interest rate policy if inflation resurges. For crypto, the real issue right now is uncertainty. Nobody knows if he will act on these views, especially in an election year where pressure to maintain liquidity will be immense," Damaty added. Damaty said, "If market nerves persist, it could slow risk-on flows into crypto in the short term. In the long run, a more hawkish Fed leadership might actually strengthen crypto's narrative, particularly Bitcoin's, as a hedge against monetary tightening and centralized currency control." According to foreign media reports, Kevin Warsh's views on cryptocurrency are complex. In a 2022 commentary, Warsh described many private cryptocurrency projects as 'fraudulent' and 'worthless,' writing, "Crypto is a misnomer because it is software, not currency." Warsh has said, "I doubt that the multitude of private cryptocurrencies are robust and reliable enough to serve as alternatives to the dollar. I also doubt that imposing bank-like regulation on private stablecoins would ensure their stability in times of stress without government bailouts." More recently, Warsh has appeared more moderate towards Bitcoin. In a May interview with the Hoover Institution, he stated that Bitcoin "doesn't make me nervous" and described it as an important asset that could provide a check on policymakers.
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