Binance Research: QT Fears Behind Crypto Sell-Off Are Overblown

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<a href="https://jpyxx.com/bnb-usd/">Binance</a> Research: QT Fears Behind Crypto Sell-Off Are Overblown

As an analyst, I’ve been tracking a significant downturn in the crypto market recently. We’ve seen a major sell-off, and as a result, Bitcoin (BTC) has fallen to its lowest price point since November of last year.

Binance Research found that the market shift began after Kevin Warsh was nominated to lead the Federal Reserve. Investors believed his past views suggested he would reduce the money supply, which led to many traders selling off their leveraged positions.

From my perspective, the market’s reaction seems a bit strong. While concerns about shrinking balance sheets are valid, I think practical limitations within the financial system might prevent things from getting as bad as some fear, as Binance Research also pointed out.

Liquidity Crisis Hits the End of the Chain

According to Binance analyst Michael JJ, the market volatility last week was typical of a situation where traders were quickly trying to secure cash. After major tech companies like Microsoft reported weaker-than-expected earnings and with increasing global political concerns, the potential appointment of Warsh – who has previously supported reducing the Federal Reserve’s investments – caused investors to sell off riskier assets.

When traders received demands for more funds (margin calls), they quickly sold their most easily accessible investments to get cash. This led to a huge increase – over ten times the usual amount – in trading of precious metals, as the U.S. dollar strengthened. According to analysts, cryptocurrencies were among the first assets sold in this situation, as traders turned to them to quickly raise cash when other funds were needed.

As a researcher, I’ve been closely watching how different asset classes react to market shifts. Recently, I observed that when gold prices decreased, cryptocurrencies followed suit. However, when gold recovered, crypto didn’t – it continued to fall along with stocks. This clearly showed me that, in times of liquidity pressures, crypto is being treated as a lower-priority asset. We even saw Bitcoin break through several important technical support levels – including a key pattern called the head-and-shoulders neckline and various moving averages – ultimately hitting a low of around $73,000 on February 4th.

Are QT Fears Overstated?

Binance Research believes the market is overreacting to the possibility of a more restrictive monetary policy led by a potential Fed Chair Warsh. While Warsh has suggested reducing the Federal Reserve’s assets, the report points out practical limitations that could prevent a rapid or drastic reduction.

The Federal Reserve’s reverse repurchase agreement facility, which acts as an important safety net, is nearly full. If the Fed continues reducing its balance sheet (quantitative tightening, or QT) at the current pace, it could directly reduce the amount of reserves banks hold, potentially dropping them below required levels. This could trigger a crisis in the short-term lending market, similar to what happened in 2019.

The U.S. government needs to borrow around $2 trillion each year, and someone has to buy that debt. If the Federal Reserve reduces its purchases (through a process called quantitative tightening), the private sector will have to step in and buy more, which could put pressure on financial markets.

According to the analysis, the financial system isn’t equipped to handle the reduction in assets that Warsh has previously favored unless banking rules are altered – specifically, if Treasuries were excluded from certain capital requirements.

Therefore, these potential rule changes are considered something for the future, rather than a pressing concern right now.

The report highlighted that the end of the recent U.S. government shutdown on February 3rd was a positive sign, potentially overshadowed by recent market activity. This resolution provided funding for federal agencies until September 2026, reducing immediate concerns about government policy.

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2026-02-06 00:32