A major sell-off swept through crypto markets in the last few days, pushing Bitcoin (BTC) to its lowest price since November 2024. Binance Research said the move was triggered by news that Kevin Warsh had been nominated to chair the Federal Reserve, with markets interpreting his stance as a sign of aggressive liquidity tightening and deleveraging. However, Binance Research suggested the reaction may be overblown, as physical constraints in the financial system could prevent the severe balance sheet reduction feared by markets.
Per Binance analyst Michael JJ, last week’s turbulence displayed classic signs of a liquidity scramble. Following disappointing earnings from major tech firms such as Microsoft and rising geopolitical tensions, the nomination of Warsh, known for advocating a reduction of the Fed’s bond holdings, sparked a rush to exit risk. Traders facing margin calls sold their most liquid assets to raise cash, and precious metals saw trading volumes spike to over ten times normal levels as the U.S. dollar rebounded sharply. Data presented by the on-chain technician shows cryptocurrencies acted as “end-of-liquidity-chain” assets, meaning they were among the first sold when liquidity was needed elsewhere.
When gold fell, crypto fell with it, but when the metal rebounded, digital assets continued to drop alongside stocks. This confirmed its low priority in the liquidity hierarchy. Bitcoin broke below several critical technical supports, including the head-and-shoulders neckline and key moving averages, hitting an intraday low near $73,000 on February 4.
Are QT fears overstated? Binance Research argues markets may be overpricing the risk of tightening under a Warsh-led Fed, noting technical constraints could make aggressive contraction difficult. The report highlights the shrinking capacity of the Fed’s reverse repo facility and the need for buyers of U.S. Treasuries, suggesting that without regulatory changes the financial system’s plumbing cannot support rapid QT. They view such regulatory steps as a longer-term possibility rather than an immediate threat.
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