The cryptocurrency market has once again come under pressure from macroeconomic factors. Following a speech by U.S. Federal Reserve Chairman Kevin Warsh, the leading cryptocurrency sharply lost value, pulling back from a local high of $81,455 to the $76,877 level. At the time of data recording, the asset is trading around $77,700, showing heightened volatility.
The second-largest cryptocurrency by market capitalization, Ethereum, also corrected by 2.1%, dropping to $2,400. Nearly the entire top-10 list of digital assets has fallen into the "red zone," indicating the systemic nature of the sell-off rather than isolated issues with individual coins.
Key Signal from the Fed: Rates Could Move Higher
In his speech, Warsh reaffirmed the regulator's commitment to the 2% inflation target. However, his assessment of current data turned out to be less optimistic than markets had expected. He described weak summer figures for the Consumer Price Index (CPI) and the Personal Consumption Expenditures Price Index (PCE) as insufficient to conclude that there has been meaningful improvement in the underlying trend.
The Fed's statistics indeed look concerning: the annual PCE growth stands at 3.7%, and over the last six months on an annualized basis, it is 4.1%. The central bank head gave a clear signal: if inflation does not begin to confidently and quickly approach the target, the regulator will be forced to continue tightening policy.
Market Repricing: Probability of a Rate Hike Rises
The immediate reaction of traders to the verbal interventions did not take long. The probability of a rate hike at the September Fed meeting, scheduled for September 15-16, jumped from 35.4% to 57%. This is a dramatic shift in expectations, which triggered the flight from risk assets.
Notably, Warsh deliberately refused to provide clear guidance on future steps, calling the practice of regular forecasts "outdated." According to his logic, excessive hints from the regulator create a vicious cycle where markets wait for signals from the central bank, while the central bank looks to market prices.
Liquidations and Demand: Two Sides of the Same Coin
The decline in prices led to a massive wave of liquidations. Over the past 24 hours, the volume of forced position closures exceeded $384 million, with the bulk—$310 million—coming from long positions. This is a classic scenario for a market overloaded with leverage.
However, despite the correction, fundamental demand for digital assets remains. U.S. spot bitcoin ETFs recorded an inflow of $2.8 billion over eight consecutive trading sessions as of August 26. Of that, $2.02 billion came from BlackRock's IBIT product. This inflow coincided with the U.S. Treasury's decision to increase the volume of buyback operations for long-term Treasury bonds, which temporarily weakened the dollar and supported alternative assets.
The key question now is the nature of the next move. As analysts rightly note, what matters is not the mere fact of breaking the $83,300 level, but what drives it: spot demand or an increase in leverage. A gradual rise in open interest with moderate funding rates looks like a much healthier scenario than a synchronized surge in both price and leverage.
My comment: The market is entering a phase of high uncertainty, where verbal interventions from the Fed will be the main driver of volatility. The current correction is not panic but a reassessment of risks. Investors should closely monitor inflation data in the coming weeks, as it will determine the rate trajectory and, consequently, the fate of risk assets. For now, we are seeing a classic battle between institutional demand via ETFs and macroeconomic pressure.