Original | Odaily Planet Daily (@OdailyChina)
Author | jk
Open any crypto data platform, and you'll see a sea of red.
As of press time, Bitcoin (BTC) is currently at $78,214, down 6.9% in 24 hours and 12.4% over 7 days. Ethereum (ETH) is even worse, currently at $2,415, down 10.5% in 24 hours and 18.2% over 7 days. Solana (SOL) did not escape either: $103.51, down 11.6% in 24 hours and 18.4% over 7 days. Looking at BNB and XRP, the declines are also in double digits.
The question is, what triggered this collective retreat?
The answer points to the same name: Kevin Warsh.
On January 30, US President Donald Trump announced on the social platform Truth Social his nomination of former Federal Reserve Governor Kevin Warsh as the next Chairman of the Federal Reserve, to succeed Jerome Powell, whose term expires in May.
This news triggered a chain reaction in the financial markets. Gold and silver both plummeted yesterday, with silver falling over 30%; and the cryptocurrency market began to feel the pressure last night. Bitcoin dropped from around $90,400 around the time of the nomination to near $81,000, then continued to fall to the current $78,214. Daily ETF outflows approached $10 billion, triggering a chain reaction of liquidations.
On the surface, this is just a personnel appointment. But the underlying logic is far more complex. This article attempts to unravel: which market nerves did this so-called "Warsh Effect" touch? Is the crypto crash a rational pre-judgment of monetary policy direction, or an emotionally driven overreaction?
Who is Kevin Warsh in the Warsh Effect?
Before understanding the market reaction, it's necessary to first know this person, the new Fed Chair nominee.
To learn more about him, you can read this article: "Estée Lauder Son-in-Law' Kevin Warsh Takes Helm at the Fed, Hawkish Bigwig Turns Out to Be a Crypto Ally?"
Kevin Warsh, 55, a Stanford graduate with a degree from Harvard Law School, previously worked in mergers and acquisitions at Morgan Stanley. In 2006, at the age of 35, he was appointed as a Federal Reserve Governor, making him the youngest governor in Fed history at that time. He served during the core period of the 2008 global financial crisis, acting as the liaison between the Fed and financial markets, experiencing some of the most difficult monetary policy decision-making moments in history.
After leaving the Fed, Warsh moved into academia and think tanks, currently serving as a distinguished fellow at the Hoover Institution, a lecturer at Stanford Graduate School of Business, and also working at the Duquesne Family Office founded by renowned investor Stanley Druckenmiller.
His political底色 is that of a monetary policy hawk. During the financial crisis, when the global economy was precarious and deflation risks were even greater than inflation risks, he repeatedly emphasized vigilance against inflation, even dissenting against the Fed's second round of quantitative easing (QE2). He has long criticized the Fed's post-crisis over-stimulation of the economy, believing that "large-scale asset purchases and zero-interest-rate policies risk distorting markets and damaging long-term price stability."
This was the first alarm bell triggered in the market upon hearing his nomination.
Why Did the Crypto Market Crash? Core Logic Explained
1. Liquidity Tightening
The crypto market bull run has long been built on a core logic: liquidity injected by loose monetary policy is the cornerstone driving the price rise of risk assets. When the Fed maintains low interest rates and continuously expands its balance sheet, massive amounts of capital flow into areas beyond traditional financial products with low fixed-income returns: stocks, real estate, cryptocurrencies.
Warsh's hawkish reputation implies the exact opposite direction. He倾向于 tighter monetary policy, reducing the Fed's balance sheet, and maintaining higher real interest rates. In such a macro environment, capital flows back to safe assets, risk appetite declines, and cryptocurrencies will be the first to be affected.
<3>Markus Thielen, founder of 10x Research, summarized this precisely: The market普遍 believes that Warsh's emphasis on monetary discipline and preference for higher real rates will reclassify crypto from a "hedge against dollar devaluation" back to a "speculative bubble that fades when liquidity dries up."2. ETF Inflows Reverse
The transmission mechanism of this crash at the technical level is particularly noteworthy. After the Warsh nomination news landed, US-listed spot Bitcoin and Ethereum ETFs experienced nearly $10 billion in net outflows in a single trading day. This figure alone is enough to cause an impact, but its ripple effects are even more significant.
ETF outflows trigger price declines, which in turn hit the liquidation lines (stop-loss) of the market's大量杠杆仓位. This is a classic vicious cycle mechanism: the selling pressure from forced liquidations further drives down prices, which then triggers more liquidations, forming a self-reinforcing cycle. After the key support around $85,000 (near the 100-week simple moving average) for Bitcoin was broken, this cascading effect accelerated sharply, with prices sliding to around $81,000, and have since fallen further to $78,214.
This liquidation did not affect all assets uniformly. As the situation evolved, L1 tokens other than Bitcoin generally fell more than BTC. Ethereum fell 18.2% over 7 days, Solana reached 18.4%, and XRP also fell as much as 15.5%, all significantly exceeding Bitcoin's 12.4% drop. This structural differentiation has a clear logical explanation: Bitcoin, due to the widespread adoption of ETF products, has relatively deeper institutional liquidity and a more robust price support mechanism; while ETH, SOL, and other L1 tokens trade more relying on杠杆仓位 on crypto-native platforms, making them more susceptible to being crushed by liquidation cascades when liquidity dries up. For projects on the Solana ecosystem, SOL's own 18.4% drop means direct impacts on on-chain activity and transaction volume.
Furthermore, looking at the overall ETF inflow trend for 2026, there has already been a net outflow of approximately $32 million, forming a sharp contrast with the combined inflows of over $35 billion in 2024 and 2025.
3. Squeeze on Risk Assets from Rising Real Rates
When real interest rates (the "real" cost of borrowing after subtracting the inflation rate from the nominal rate) rise, the cost of holding high-risk assets becomes apparent. Traditional assets offer higher yields, prompting capital to withdraw from crypto assets like Bitcoin and转向 bonds and other safer allocations.
Warsh's consistent stance on "higher real interest rates" directly threatens this market's pricing foundation. A large number of杠杆仓位 in the crypto market rely on low-cost borrowing to maintain; rising real rates mean soaring leverage costs and increased pressure on these positions.
But His Attitude Towards Bitcoin is Far More Complex Than the Market Judged
The crypto market crash is primarily driven by concerns about the direction of macro monetary policy—this is an undeniable fact. However, if we only use "hawkish monetary policy" to completely characterize Warsh's attitude towards the crypto space, we would miss a very important dimension: he actually holds an unusually constructive view of Bitcoin itself.
In a 2025 Hoover Institution interview, Warsh clearly stated: “Bitcoin doesn't make me nervous... I see it as an important asset that can help policymakers judge whether they are doing the right thing or the wrong thing.” He characterized Bitcoin as the "good cop" of policy making—its price fluctuations can signal mistakes made by the Fed in inflation management and monetary policy execution.
Going further, Warsh framed the cryptocurrency industry as a matter of national economic competitiveness. He emphasized that the main hubs for Bitcoin and cryptocurrency software development are in the US, implying that the US has a strategic interest in maintaining its leading position in this field. He has also personally invested in crypto startups.
Confirmation Hearing and Future Policy Direction
For now, Warsh has not officially taken office. His appointment still needs to go through the US Senate confirmation process. Senator Thom Tillis has already publicly stated he will block the confirmation of any Fed Chair nominee until an investigation into the Fed's building renovation issues is completed. This means the entire confirmation process could be fraught with uncertainty.
More crucially, even if Warsh最终 takes office, he cannot single-handedly control monetary policy. Fed interest rate decisions are made by the entire FOMC (Federal Open Market Committee) vote; Warsh would be just one of twelve votes. Currently, a majority of FOMC members have clearly stated that they are unwilling to continue cutting rates without more substantial evidence that inflation is steadily returning to the 2% target. The December dot plot showed only one rate cut anticipated in 2026 and another in 2027.
This means that regardless of Warsh's personal leanings, actual monetary policy actions will depend on the consensus of the entire committee—and that consensus currently remains cautious.
Outlook for the Crypto Market
Overall, the current market reaction to Warsh's nomination contains two截然不同的 narratives:
Bearish Narrative (Mainstream Market Reaction): The "Warsh Effect"意味着 tighter monetary policy, higher real interest rates, and a smaller Fed balance sheet. This directly compresses the liquidity environment that cryptocurrencies rely on for survival. Current market data already reflects this impact—BTC's current price of $78,214 is down about 13.5% from the pre-nomination level of $90,400; and Solana, with an 18.4% 7-day drop, leads the decline list. For Solana ecosystem projects, DeFi protocols, and token issuance activities that rely on low-cost leverage, this is a real structural risk signal.
Bullish Narrative (Some Community Voices): The "Warsh Effect" holds a positive attitude towards Bitcoin itself, the Trump administration overall still tends to support the crypto industry, and Warsh has recently hinted that he is willing to greenlight rate cuts under conditions of productivity improvement. Not to mention, he cannot decide interest rates alone.
The真正值得关注的 node will be the Senate confirmation hearing:届时 Warsh will be questioned on his specific positions regarding monetary policy, crypto regulation, and CBDCs. The direction of this hearing may determine the fate of the crypto industry for the coming months more than any market speculation today.
For projects currently driving community growth and token ecosystem development, the most significant practical meaning of the "Warsh Effect" at present is: the macro liquidity environment is entering a period of uncertainty. Short-term sentiment fluctuations have already occurred, but the real policy impact is still on the way.
