Liquidity crisis in global markets and the decline of Bitcoin. An analytical review by Binance Research

Last week, markets went through a liquidity sell-off triggered by Kevin Warsh's nomination for the Fed chairmanship and his stance on aggressive balance sheet reduction. This initiated a large-scale deleveraging in risky assets. Crypto assets, as assets "at the end of the liquidity chain," were among the first to be sold to cover margin requirements in traditional portfolios.Bitcoin has broken through critical technical levels near $73,000, while aggregate leverage indicators remain above historical averages — the deleveraging process is ongoing but not yet complete.At the same time, QT risks may be overestimated: infrastructure limitations of the financial system, an almost exhausted reverse repo buffer, and the US Treasury's need to raise about $2 trillion in debt each year physically complicate an aggressive balance sheet reduction. An additional positive factor was the end of the partial US government shutdown. This is stated in the weekly review from Binance Research, which is exclusively published by LIGA.netGlobal Markets: Signs of a Classic Liquidity CrisisThe market showed classic signs of a "liquidity crisis." After Microsoft's weak results, the escalating situation in the Middle East, and expectations of a tougher Fed policy, traders found themselves under strong margin pressure and were forced to "sell the winners" to cover their losses.The earnings season showed a sharp polarization:META and Apple — Strong ResultsSemiconductors are the beneficiaries of the AI supercycle.Microsoft -10% due to weak Azure performanceSoftware companies are under pressure due to fears that AI is eroding SaaS models.Unusual behavior was observed in the precious metals market.The volume of gold and silver ETFs exceeded $40 billion for two consecutive days, more than 10 times above the norm. Turnover reached historic highs, indicating a massive exit from overcrowded long positions.On the foreign exchange and debt markets:DXY recovered from 95.5 to ~97.5The US Treasury yield curve has steepened.Read also"Not a panic, but a sanitary cleansing." What is pushing crypto prices down and how to save moneyCrypto market: "the end of the liquidity chain"Last week's dynamics confirmed that crypto is increasingly behaving like an asset "at the end of the liquidity chain." When volatility increases and margin calls appear in other asset classes, market participants sell the most liquid positions to quickly free up cash — and crypto falls into the first wave of such sales. It is noteworthy that after the rebound of precious metals, the pressure on crypto did not disappear, but shifted to a correlation with the software stock segment; XSW (SPDR S&amp;P Software &amp; Services ETF) is used as a proxy to illustrate this effect.On February 4, Bitcoin dropped to an intraday low of $72,950 — its lowest level since November 2024. The price broke through the "neckline" of the head-and-shoulders pattern, fell below the 100-day and 200-day moving averages, and also broke through the April low of last year. The next important support level is located near $70,000.Read alsoTowards a financial crypto-apocalypse: why "digital gold" is rustingLeverage and microstructure: vulnerability persistsDespite the reduction in positions, the overall leverage level in Bitcoin remains elevated: the five-year average is around 4.88 versus the current level of around 5.8.Previously, open interest in derivatives decreased from approximately $76 billion to $52 billion due to large annual expirations, which created the preconditions for a recovery in early 2026. The latest sell-off halted this process. The spot price being higher than the perpetual (discount in futures) indicates bearish expectations. A decrease in spot CVD indicates net selling in the spot flow.Reaction after liquidationsIn the short term (1–2 weeks), the market typically enters a phase of recovery and consolidation without a clear direction. Over a 30–60 day horizon, further weakening is more commonly observed, with a median decline of approximately −10.26%. Historically, the average returns after such events are positive, but the median returns are negative. This means that most scenarios remain weak; however, in the event of a rebound, the upside potential can be significant (a "fat right tail").According to a Deutsche Bank survey, crypto adoption in the US has decreased: in the 18–34 age group, from 24% to 18%, and in the middle age group, from 22% to 15%.Read also"I see growth areas where everything seems stable," an interview with the CEO of the WhiteBIT crypto exchangeMacro: Why QT fears may be overblownEven before the news of Warsh's nomination, the S&amp;P 500 index and margin balances were rising in sync to historical highs. The ratio of margin lending to M2 approached extreme values, making the market particularly sensitive to any signals of liquidity reduction.During QT, the Fed stops reinvesting maturing treasuries, reducing assets and, consequently, liabilities. In 2023–2024, the ON RRP served as a buffer. In 2026, this buffer will be almost exhausted, so any QT will directly reduce bank reserves. If they fall below the regulatory "red line" (LCLoR), this could cause a spike in repo market rates—a scenario similar to the events of 2019.Political contextThe partial shutdown of the US government, which lasted from January 31 to February 3, has ended. Federal agencies are funded until the end of the fiscal year, which removes some of the political uncertainty.In parallel, slow progress is being made in legislation regarding the market structure of the crypto market. The White House meeting on February 2 was described as constructive. Markets estimate the probability of the Clarity Act being passed within the year at around 62%.