Bitcoin liquidations spike as Warsh Fed pick rattles markets

Bitcoin slid below $80k after Warsh’s Fed nod, triggering $2.5B liquidations before stabilizing near a key mid-cycle support zone analysts see as potential cycle floor.

Bitcoin fell below $80,000 over the weekend following confirmation that Kevin Warsh will become the next chair of the Federal Reserve, triggering widespread deleveraging across cryptocurrency markets, according to analysts at QCP Asia.

In a Monday market note, QCP Asia reported that bitcoin briefly declined to a mid-cycle support area after breaking key technical support levels, while ether dropped to lower thresholds. The sell-off resulted in approximately $2.5 billion in liquidations of leveraged long positions, intensifying downward pressure amid persistent outflows from U.S. spot Bitcoin exchange-traded funds.

Bitcoin washout

Risk aversion following the Warsh announcement extended beyond cryptocurrency markets. Equities weakened and traditional safe-haven assets such as gold and silver pulled back from recent highs, as traders reassessed the probable policy direction under a Warsh-led Federal Reserve. Markets have begun pricing in a higher probability of earlier policy normalization or tighter monetary conditions, which has pressured non-yielding assets, according to QCP Asia. Higher margin requirements in futures markets also accelerated the unwinding of leveraged positions, the firm stated.

Bitcoin has since stabilized above a level that corresponds with cycle lows observed earlier in the year. Options markets continue to reflect caution, with positioning skewed toward put protection, though demand for downside hedges has moderated compared with previous periods of market stress, QCP Asia noted.

The firm observed that during the November decline from peak levels, hedging activity was more aggressive than current levels near the mid-cycle area, suggesting some exposure has already been eliminated.

Analysts at QCP Asia warned that price action remains vulnerable. Momentum indicators continue to point lower and upside appears limited near recent resistance levels, leaving the market exposed to further liquidation-driven moves if support fails. A sustained break below current support could lead to a deeper retracement toward earlier levels, while a decisive recovery above prior resistance may help reduce volatility and stabilize sentiment, the firm stated.

“In the current environment, attention is likely to focus on whether institutional accumulation re-emerges, particularly given Strategy’s average cost basis, alongside any de-escalation in geopolitical risks, notably around Iran,” QCP Asia stated. “Fed communication will also be closely watched, with any remarks from Chair-designate Warsh that temper expectations of tightening potentially serving as an additional stabilizing influence.”

Analyst PlanC stated that bitcoin’s weekend drop to mid-cycle levels may represent a cycle floor, characterizing the move as a capitulation-style low rather than the beginning of a prolonged downturn. Bitcoin briefly reached that area before stabilizing and rebounding, though it remains significantly lower on the month and below its October peak.

PlanC compared the recent sell-off to past drawdowns that preceded major recoveries, including the 2018 bear market low, the March 2020 decline and the sharp drops following the FTX and Terra-Luna collapses. The analyst estimated the current cycle bottom likely falls within the mid-range of recent lows, stating the move could represent a final shakeout within an ongoing bull cycle.