President Trump’s unexpected nomination of Kevin Warsh as his preferred Federal Reserve chair, combined with renewed geopolitical risk in the Middle East, set off a violent, cross‑asset sell‑off at the end of January. Markets that had been bid up on inflation fears and liquidity hopes—bitcoin, ethereum, gold and silver—suffered sharp reversals in a single session that an Italian markets reporter estimated erased roughly $6.5 trillion of market value worldwide.
Bitcoin plunged roughly 7% intra‑day to about $76,000 and ethereum fell more than 11% to near $2,256, while coinglass data show more than $2.5 billion of crypto futures liquidations over 24 hours and some 420,000 positions closed out. Precious metals fared no better: gold futures posted their largest single‑day dollar fall on record and silver collapsed about 31%, the steepest daily percentage drop since 1980.
The market reaction was driven as much by expectations about Fed policy as by geopolitics. Warsh is widely viewed as more hawkish than Jerome Powell: he has been a persistent critic of prolonged quantitative easing and expanded central‑bank balance sheets. Traders priced a higher probability that a Warsh‑led Fed would tighten liquidity or resist near‑term rate cuts, lifting the dollar and making low‑yielding, volatile assets less attractive.
Cryptocurrency traders said the sell‑off reflected structural fragility as much as sentiment. Analysts noted that bitcoin did not behave as a haven: it failed to attract inflows amid geopolitical stress and instead succumbed to weak demand, thin liquidity and crowded long positioning. Market participants saw the episode not as a panic driven by a single shock but as a squeeze created by a lack of buyers and deteriorating confidence.
The pullback in gold and silver likewise exposed the limits of the prior rally. Metals had surged as investors worried about persistent inflation and a possible loss of faith in fiat currency; industrial demand and speculative flows amplified that move. When the dollar strengthened on the Warsh nomination and momentum traders realized gains at month‑end, the metals market experienced a rapid unwind exacerbated by concentrated positioning and limited liquidity.
The episode underlines a broader theme for global markets: in a fragile liquidity environment, policy signalling can provoke outsized cross‑asset moves. If the market’s reading of the Fed shifts toward a more hawkish stance, expect further pressure on speculative, rate‑sensitive assets and renewed competition for capital from safer, higher‑yielding instruments. Conversely, a clear dovish pivot or signs of stabilizing liquidity would likely arrest the rout and could restore risk appetite, but only after positions are rebalanced and buyer depth returns.