What does it mean for Bitcoin

The main signal for Bitcoin was not interest rate cuts, but Warsh’s stated intention to shrink the Fed’s balance sheet and withdraw liquidity from the system.

On Tuesday, Kevin Warsh, Donald Trump’s pick to replace Federal Reserve Chairman Jerome Powell, testified before the Senate Banking Committee.

He promised to be independent of the White House but did not promise to cut interest rates immediately, leaving market watchers to try to figure out what a Warsh-led Fed would mean for liquidity and risky assets like Bitcoin (BTC).

The Fed shifted from interest rates to the balance sheet

The hearing had many key moments. Warsh told senators that the Fed has “lost its way” and needs fundamental reform.

he He said Under sworn testimony that Trump never asked him to commit to interest rate cuts at any specific meeting, a claim that directly contradicts Trump’s statement to CNBC that same morning, in which the president said he would be “disappointed” if Warsh did not cut interest rates immediately after taking office.

Senator Ruben Gallego did not allow this slice:

He added: “Someone here is lying, either you or President Trump.”

When Senator John Kennedy asked if he could be anyone’s “human puppet,” Warsh was blunt:

“Absolutely not. I will be an independent representative if confirmed as Fed Chairman.”

On cryptocurrencies, he was clear: “Cryptocurrencies are now part of the US financial system,” and ruled out the existence of a central bank digital currency on his watch.

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But the signal that actually mattered for Bitcoin wasn’t about prices. Analysis published on Tuesday by XWIN Research Japan Argue Warsh’s testimony pointed to something more structural: a reduction in the balance sheet. This is quantitative tightening, which works by reducing the Fed’s holdings of bonds and withdrawing liquidity from the system.

As XWIN said, this targets not only the “price” of money through rates, but the “quantity” of liquidity itself. The uncomfortable scenario they describe is one in which short-term interest rates fall while long-term yields rise, a combination that has historically been harsh for risky assets.

Warsh fed directly into this interpretation. he He said Senators say the Fed’s balance sheet is too large, should shrink, and that the central bank has no right to hold long-term Treasuries.

He also said he would end Fed officials’ practice of publicly reporting interest rate moves in advance, arguing that it holds policymakers to expectations long after the data changes.

The data on the chain points the other way

Bitcoin’s reaction during the hearing was swift. It fell below $75,000 before recovering, and it was commerce About $78,000 at the time of writing, up about 2.7% over 24 hours and 5.4% over the week.

However, what XWIN’s research finds interesting is what’s happening on-chain beneath all the noise. The long-term holder SOPR indicator, which tracks whether bitcoin holders are selling at a profit or a loss, is near 1.0. This means that they do not drain aggressively.

Historically, XWIN notes that this reflects low selling pressure and limited supply. Simply put, despite the overall tightening, the supply of available Bitcoin is not growing.

Their reading of the situation: overall liquidity is weakening while Bitcoin’s internal structure is holding up. They argue that this divergence indicates a phase of accumulation rather than a clean collapse, with a sharp move higher likely if demand for ETFs returns once liquidity conditions turn.