The cryptocurrency market has once again entered a zone of turbulence. Following the hawkish rhetoric from U.S. Federal Reserve Chairman Kevin Warsh, the leading cryptocurrency plunged from a local peak of $81,455 to $76,877. At the time of writing this analysis, the asset is trading around $77,700, showing high volatility and nervousness among market participants.
Ether also failed to withstand the pressure, correcting by 2.1% to the $2,400 mark. Nearly the entire top-10 cryptocurrencies by market capitalization has turned into the "red zone," indicating the systemic nature of the sell-off rather than targeted moves in individual assets.
Hawkish Fed stance: inflation is not retreating
In his speech, Warsh reaffirmed the regulator's commitment to the 2% inflation target but made it clear that current data offers little cause for optimism. Weak summer figures for the Consumer Price Index (CPI) and the Personal Consumption Expenditures Price Index (PCE) do not point to a meaningful improvement in the underlying trend. Moreover, the annual PCE growth stands at 3.7%, and annualized over the last six months—a worrying 4.1%. The central bank chief directly warned: if inflation does not begin to confidently approach the target, the regulator will continue tightening policy.
Market shifts bets: probability of a hike rises
The market instantly reacted to these statements, revising expectations for the September Fed meeting. The probability of a rate hike jumped from 35.4% to 57% in just one day. This is a serious signal, especially given that the meeting is scheduled for September 15-16. Notably, Warsh himself avoided direct hints about future steps, calling the practice of regular monetary policy forecasts "outdated." In his view, excessive guidance creates a vicious cycle where markets wait for cues from the Fed, and the regulator itself begins to look at market prices.
Liquidations and the demand paradox
The wave of decline triggered massive liquidations: over the past 24 hours, the volume of forced position closures exceeded $384 million, with $310 million attributed to long positions. This is a classic scenario for such news shocks, when an overheated market with excessive leverage breaks under the pressure of the macroeconomic agenda.
However, there are also encouraging signals. Despite the correction, U.S. spot Bitcoin ETFs continue to attract capital: over eight consecutive trading sessions, inflows totaled $2.8 billion, of which $2.02 billion went to BlackRock's IBIT. This demand coincided with the U.S. Treasury's decision to at least double the volume of buyback operations for long-term Treasury securities—from $2 billion to $4 billion. This supported liquidity in the long-term segment of government debt, which in turn weakened the dollar and provided indirect support to risk assets.
In August, Bitcoin demonstrated an impressive rise from $62,000 to $80,000, but now the market is entering a phase of uncertainty.
My view on the situation: The key factor for further movement will not be the mere fact of breaking the $83,300 level, but the nature of that movement. QCP Capital rightly notes that a healthy scenario involves a gradual increase in open interest with moderate funding rates, rather than a synchronized rise in price and leverage. If we see spot demand without overheating in derivatives, the correction may turn out to be only a temporary pause before a new surge. Otherwise, we face a deeper drawdown.