Author: jk, Odaily Planet Daily
Open any crypto data platform, and you'll see a sea of red.
As of this writing, Bitcoin (BTC) is currently priced 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 30th, US President Donald Trump announced on the social platform Truth Social his nomination of former Federal Reserve Governor Kevin Warsh as the next Chair of the Federal Reserve, replacing 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 the direction of monetary policy, or an emotionally driven overreaction?
Who is this Kevin Warsh in the Warsh Effect?
Before understanding the market reaction, it's necessary to first know this person, the new Fed Chair nominee.
Kevin Warsh, 55, a Stanford graduate, Harvard Law School alumnus, 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 in this role during the core period of the 2008 global financial crisis, acting as the liaison between the Fed and financial markets, experiencing one of the most difficult moments in policy decision-making 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 breakdown
1. Liquidity Tightening
The crypto market bull run has long been built on a core logic: the liquidity injected by loose monetary policy is the cornerstone driving the price increase of risk assets. When the Fed maintains low interest rates and continuously expands its balance sheet, massive amounts of money flow into assets beyond traditional financial products with low fixed-income returns: stocks, real estate, cryptocurrencies.
Warsh's hawkish reputation implies the exact opposite direction. He tends to favor tightening monetary policy, shrinking the Fed's balance sheet, and maintaining higher real interest rates. In such a macro environment, capital would flow back to safe assets, risk appetite would decline, and cryptocurrencies would be the first to be hit.
Markus Thielen, founder of 10x Research, summarized it precisely: The market generally believes that Warsh's emphasis on monetary discipline and preference for higher real rates reclassifies cryptocurrencies from "a hedge against dollar devaluation" to "a speculative bubble that recedes when liquidity dries up."
2. ETF Inflow Reversal
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 triggered price declines, which in turn hit the stop-loss levels of a large number of leveraged positions in the market. This is a classic vicious cycle mechanism: forced liquidations generate selling pressure, which further drives down prices, triggering more liquidations, forming a self-reinforcing loop. After the key support around $85,000 (near the 100-week simple moving average) for Bitcoin was broken, this cascading effect accelerated sharply, pushing the price down to around $81,000, and now further down to $78,214.
This liquidation did not affect all assets uniformly. As the situation evolved, Layer 1 (L1) tokens other than Bitcoin generally fell more than BTC. Ethereum's 7-day drop was 18.2%, Solana's reached 18.4%, and XRP's was also as high as 15.5%, all significantly exceeding Bitcoin's 12.4%. 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; whereas ETH, SOL, and other L1 tokens trade more relying on leveraged positions 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 been a net outflow of approximately $32 million so far, forming a stark contrast to 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. The yields offered by traditional assets increase, prompting capital to withdraw from crypto assets like Bitcoin and shift towards bonds and other safer allocations.
Warsh's consistent stance favoring "higher real interest rates" directly threatens this market's pricing foundation. A large number of leveraged positions in the cryptocurrency market rely on low-cost borrowing to maintain; rising real rates mean soaring leverage costs, putting pressure on these positions.
But his attitude towards Bitcoin is far more complex than the market judges
The crypto market crash is primarily driven by concerns about the direction of macro monetary policy—this is an undeniable fact. However, if Warsh's attitude towards the crypto space is portrayed solely based on "hawkish monetary policy," an important dimension is missed: 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 in the Fed's 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 leadership in this field. He has 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 eventually takes office, he cannot single-handedly control monetary policy. Fed interest rate decisions are voted on by the entire FOMC (Federal Open Market Committee); 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 conclusive evidence that inflation is steadily returning to the 2% target. The December dot plot indicated only one rate cut expected in 2026, and another in 2027.
This means that regardless of Warsh's personal inclinations, 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 reaction of the crypto market to Warsh's nomination contains two截然不同的 narratives:
Bearish Narrative (Mainstream Market Reaction): The "Warsh Effect" means 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 approximately 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 tangible 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 rate direction alone.
The node truly worth watching will be the Senate confirmation hearing:届时 Warsh will be questioned on his specific stances 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 implication of the "Warsh Effect" right now 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 its way.
