Expectations of interest rate cuts and liquidity concerns coexist in the wash designation.
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President Trump officially nominated Kevin Warsh, a former Federal Reserve governor, to be the next Fed chairman on Friday, the White House said on Friday, adding that if confirmed by the Senate, he would replace Fed Chairman Jerome Powell, whose term ends in May.
Market analysts said Wash's nomination raised expectations that the Fed's rate-cutting trend could continue, while also suggesting that overall liquidity in the U.S. is likely to remain stable rather than expand significantly.
Thomas Perfumo, global economist at Kraken, told Cointelegraph that Warsh's nomination as Fed chair suggests a sustained rate cut, but does not imply a widespread liquidity expansion. He explained that Bitcoin and cryptocurrencies are assets that are more sensitive to the overall liquidity environment than just the Fed's rate decisions.
Purfumo added that expectations for aggressive liquidity-producing policies like quantitative easing may be limited, noting that Wash has been particularly skeptical about expanding the Fed's balance sheet.
This analysis comes on the heels of a weekend-long decline in the overall cryptocurrency market capitalization of approximately $250 billion (KRW 362.325 trillion). This decline occurred amidst a broader bearish trend in stock and precious metals markets.
Raoul Pal, founder and CEO of Global Macro Investor, recently pointed to the US liquidity drought, rather than any cryptocurrency-specific issues, as the key reason for the recent cryptocurrency and stock market crash.
Nick Puckrin, co-founder of Coin Bureau, also analyzed that concerns about liquidity following Warsh's nomination worsened investor sentiment, leading to a simultaneous decline in cryptocurrencies, stocks, and precious metals. He said, "If Warsh actually reinforces the Fed's balance sheet reduction, the market could be forced to endure a low-liquidity environment that is unfavorable to risk assets."
However, Purklin added that there remains uncertainty about the extent to which Washington will comply with President Trump's pressure to cut interest rates.
Interest rate expectations remain largely unchanged to date. According to CME Group's FedWatch tool, approximately 85% of market participants expect the federal funds rate to remain unchanged at the March 18th Federal Open Market Committee meeting.
Additionally, 49% expect a 25 basis point cut in interest rates at the June 17 meeting, which will be the first Federal Open Market Committee meeting since Chairman Jerome Powell's term ends.
Reporter Jeong Ha-yeon yomwork8824@blockstreet.co.kr
