Crypto World
Aave Delegate Platform Proposes Pausing Three L2 Deployments Citing Weak Revenue
The proposal also includes requiring any new deployment to guarantee at least $2 million in annual revenue to Aave.
A governance delegation platform for Aave, the largest decentralized lending platform, with more than $29 billion in total value locked (TVL), has proposed pausing three underused Layer 2 deployments of Aave V3.
In a Jan. 29 governance proposal that moved to a snapshot vote on Feb. 3, the Aave Chan Initiative (ACI) proposed that Aave freeze its V3 deployments on Ethereum L2s zkSync Era, Metis, and Soneium to cut costs.
“Over time, it has become clear that a small subset of instances contributes very little user activity, TVL, and revenue, while still requiring a non-trivial amount of attention from service providers and governance participants,” ACI wrote in the prospal.
The proposed reduction in L2 deployments aims “to reduce operational overhead and governance burden by addressing instances that are clearly non viable today.”
Among the three networks, zkSync currently has the largest TVL at about $26 million, followed by Soneium with $21.6 million and Metis with $11.7 million, according to DefiLlama data.
Over the past 30 days, Aave generated just $714 in revenue on zkSync, $679 on Metis, and just $150 on Soneium, per DefiLlama. For comparison, within the same timeframe Aave made over $7.7 million on Ethereum and nearly $298,000 on Base.
Now, ACI is pushing for stricter terms on future expansions. The proposal calls for any new chain deployment to guarantee Aave a minimum of $2 million in annual revenue, arguing that the protocol’s liquidity is often underpriced given the “upfront and recurring costs.”
The snapshot vote on the proposal, which runs through Feb. 7, has so far drawn unanimous support, with 257,300 votes in favor and none against.
Voting kicked off the same day that Ethereum’s broader scaling strategy came under renewed scrutiny. As The Defiant reported earlier this week, Ethereum co-founder Vitalik Buterin published an X post arguing that the rollup-centric roadmap for the network “no longer makes sense,” and arguing that L2s should focus on other use cases.
The question now is whether a price dump below $1.00 is inevitable at this point.
The past 24 hours, just like several other such periods in the past few weeks, will go down in the history books as highly volatile and violent for the entire cryptocurrency market.
Although BTC and most altcoins are deep in the red, XRP has emerged as the worst-performing coin from the top 100 digital assets, which is somewhat strange and unexpected since it’s the third-largest altcoin.
The token has plunged by almost 22% in a day, a pattern more commonly seen in small caps. However, XRP’s demise is spectacular on different timeframes, not just daily.
For instance, it has plunged by 32% in the past week. Furthermore, it traded at $2.40 on January 6, meaning that its current dump to $1.20 came after a 50% monthly decline. On a more macro scale, the cross-border token has erased 67% of its value since its all-time high of $3.65 registered in mid-July 2025.
At the time of this writing, it’s not clear why XRP has crashed so much harder than most other larger-cap cryptocurrencies. After all, the company behind it continues to expand and make major announcements. However, ETH, BNB, and BTC are down by more modest 10-11%.
Nevertheless, some members of the XRP Army remain unfazed by the ongoing crash. ERGAG CRYPTO, who is among the most vocal supporters of Ripple’s token, admitted that the asset’s breakdown has been confirmed.
Still, they told their 92,000+ followers on X that they “pulled the trigger after 3 years” by buying XRP at $1.28 as a swing trade. On the plus side, they plan to hold that position until the price bounces to $2.20 if it reclaims $1.85. If the $1.28 suppor cracks decisively, they are comfortable holding the tokens as it’s a small allocation.
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#XRP – Sweep & Bounce or Breakdown (Update):
The breakdown is now confirmed.
I pulled the trigger after 3 years: I bought #XRP $1.28 as a swing trade.
My plan:
▫️ If price reclaims $1.85, I’ll hold for a move toward $2.20
▫️ A confirmed close above $2.50 → reassess the… pic.twitter.com/2O5inqQlSo— EGRAG CRYPTO (@egragcrypto) February 5, 2026
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Bitcoin plunged under $66,000 while most altcoins cratered.
Ethereum (ETH) traded under $2,000 on Thursday, Feb. 5, for the first time since May 2025, amid a broader sell-off across crypto markets.
ETH fell about 10% over the past 24 hours to trade near $1,925, extending its weekly losses to 30%. Paul Howard, senior director at Wincent, said Ethereum’s move lower was driven by a broader shift away from risk in global markets, rather than a crypto-specific event.
“The defining characteristic of the sell-off was a synchronised de-risking across asset classes, marked by forced unwinds and elevated volatility even in assets typically viewed as hedges, including precious metals,” he said.
Howard also explained that the shift’s catalyst was the markets “rapidly repricing the outlook for monetary policy” following the nomination of Kevin Warsh as Federal Reserve chair.
Meanwhile, data from Lookonchain showed that Ethereum co-founder Vitalik Buterin has sold 2,961.5 ETH (around $6.6 million) at an average price of $2,228 over the past three days.
Bitcoin and Altcoins
Bitcoin (BTC) dropped roughly 10% on the day to around $65,700, extending its seven-day losses to nearly 21%. Among other major tokens, BNB slid 9% to $646, while XRP plunged nearly 20% to about $1.24. Solana (SOL) fell 12% on the day to trade near $82.
“Bitcoin is now testing key technical support between $60,000 and $70,000, the base of the pre-election rally. A sustained break below this range would increase the risk of a more protracted move lower, while stabilization here would point to a corrective reset rather than a structural shift,” Diana Pires, VP at sFOX, told The Defiant.
Total cryptocurrency market capitalization declined to approximately $2.33 trillion, down about 10% over the past 24 hours. Trading activity during the same period totaled roughly $259.5 billion.
A small number of tokens traded higher despite the broader downturn. Rain (RAIN) rose about 7% over the past 24 hours, while MYX Finance (MYX) gained 5.4%. MemeCore (M) added 1.6%.
On the downside, XRP fell more than 16%, while Zcash (ZEC) dropped 15.4%. Monero (XMR) slid nearly 14%.
Liquidations and ETF flows
More than $1.44 billion in leveraged positions were liquidated over the past 24 hours, according to CoinGlass, with long positions accounting for roughly $1.23 billion of that total.
Bitcoin recorded the largest liquidations at about $738 million, followed by Ethereum at $338 million. Solana posted liquidations of around $77 million. In total, more than 304,000 traders were liquidated on the day.
Spot Bitcoin ETFs recorded $544.9 million in net outflows on Feb. 4, while Ethereum ETFs saw $79.5 million in net outflows. Spot Solana ETFs recorded $6.7 million in net outflows. By contrast, spot XRP ETFs posted $4.8 million in net inflows.
Tech Selloff Continues
Elsewhere, political developments are also weighing on digital assets, driven by uncertainty in Washington as lawmakers continue to negotiate key budget and immigration measures.
Weakness in U.S. tech stocks has also placed pressure on the situation, contributing to a broader pullback across global markets.
Meanwhile, gold prices have fallen 1.3% on the day, while silver dropped more than 9%, after hitting all-time highs recently.
The Trump family’s DeFi protocol was forced to sell $5 million of BTC today to cover an Aave loan.
World Liberty Financial (WLFI), the decentralized finance (DeFi) protocol affiliated with President Trump’s sons, was forced to sell some Bitcoin at roughly $67,000 today to avoid liquidation on Aave.
According to Arkham Intelligence, the WLFI wallet was forced to liquidate more than 170 BTC, worth roughly $11 million, to repay its loans on Aave.
Meanwhile, the WLFI token is down 14% today, slightly underperforming BTC and ETH, which are both down 13%.
WLFI has been in a consistent downtrend since its token launch in September. The token started trading on Sept. 1 at $0.23, or a $6.6 billion market capitalization, and now trades 65% lower at $0.115.
In addition to the protocol’s financial woes, Trump’s political opponents continue to call for probes and investigations into the DeFi protocol.
Today, U.S. Representative Ro Khanna announced that he has launched an investigation into a $500 million investment in WLFI from the United Arab Emirates. Back in November, Senators Elizabeth Warren and Jack Reed claimed that the protocol is tied to malicious actors from North Korea and Russia; however, it remains unclear if there has been any progress on this probe.
Warren, in particular, is no fan of cryptocurrency, broadly referring to DeFi users as “scammers” and labeling the GENIUS bill as a “grift.”
Bitcoin touched new lows under $64,000 as market selling reached a historic level, and analysts warn that the bottom is not in. Does data support analysts’ sub-$60,000 prediction?
Bitcoin (BTC) has fallen 13% over the past four days, sliding to $63,844 from $79,300. It is currently trading below $69,000, which is the 2021 bull market high, a level many see as a support level.
The drop was matched by a sharp decline in futures activity, with BTC’s open interest falling by more than $10 billion over the past seven days.
Analysts are now focusing on the long-term technical zones and onchain indicators that may signal a major turning point for BTC.
Key takeaways:
-
Bitcoin has dropped 13% in four days, slipping below the 2021 cycle high near $69,000 after a sharp leverage reset.
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A key Bitcoin demand zone from $58,000 to $69,000 is supported by heavy transaction volume and the 200-week moving average.
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Oversold technical and sentiment indicators suggest downside pressure may be peaking for BTC, even if a relief rally fails to manifest.
Why the $69,000 level matters for Bitcoin
The $69,000 level represents the peak of the 2021 bull market. Prior cycle tops have historically acted as support during bear markets. In the last cycle, Bitcoin bottomed near the 2017 high of $19,600 before briefly dipping lower to about $16,000 in November 2022.
The current drop below $69,000 may follow this pattern. However, past cycles also show that prices can fall below prior highs before forming a final bottom. This keeps downside risk open for BTC.
Bitwise European Head of Research André Dragosch noted that a large share of recent transactions occurred between $58,000 and $69,000. This range also aligns with the 200-weekly moving average near $58,000, reinforcing it as a key demand zone.
Meanwhile, crypto analyst exitpump highlighted that large BTC bids are visible on order books between $68,000 and $65,000, suggesting buyer interest on dips.
Related: Bitcoin price may drop below $64K as veteran raises ‘campaign selling’ alarm
BTC flashes record oversold signals
Market analyst Subu Trade said that Bitcoin’s weekly relative strength index (RSI) has fallen below 30. Bitcoin has reached this level only four times, and in each case, the price rallied by an average of 16% over the next four days.
Crypto analyst MorenoDV also noted that the adjusted net unrealized profit/loss (aNUPL) has also turned negative for the first time since 2023. This means the average holder is now at a loss. Similar conditions in 2018–2019, 2020 and 2022–2023 all led to price recoveries for BTC.
While a relief rally might not take shape immediately, Moreno pointed out that the current “speed of sentiment deterioration” is much faster than the previous cycles. The analyst added,
“This rapid transition suggests an acute sentiment reset rather than a gradual decline, potentially shortening the capitulation phase.”
Related: Three signs that Bitcoin price could be near ‘full capitulation’
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. While we strive to provide accurate and timely information, Cointelegraph does not guarantee the accuracy, completeness, or reliability of any information in this article. This article may contain forward-looking statements that are subject to risks and uncertainties. Cointelegraph will not be liable for any loss or damage arising from your reliance on this information.
ETHZilla plans to tokenize the loan portfolio into a cash-flow-generating manufactured home loan token.
ETHZilla has announced its acquisition of a portfolio comprising 95 manufactured and modular home loans valued at approximately $4.7 million, with plans to tokenize these assets on Ethereum Layer 2. This strategic move is aimed at enhancing transparency and accessibility in real estate finance.
The tokenization initiative will be executed through the Liquidity.io ecosystem, with the launch expected in late February or early March.
“Manufactured housing loans offer predictable cash flows and strong underlying collateral, which we believe makes them well suited for tokenization within a regulated, transparent structure,” said McAndrew Rudisill, CEO of ETHZilla.
ETHZilla’s strategy is designed to meet institutional compliance and reporting standards, crucial for the integration of real-world assets into blockchain systems.
The manufactured housing market is projected to grow significantly, from $45.82 billion in 2024 to $75.1 billion by 2035, driven by affordability and sustainability.
This article was generated with the assistance of AI workflows.
Crypto exchange Gemini announced its exit from the United Kingdom, European Union and Australia markets on Thursday, as the company slashed its workforce by 25%.
Gemini cited artificial intelligence automating labor and making engineers “100x” more efficient, and a more challenging business environment in the UK, EU and Australia, as reasons for the exit, according to Thursday’s announcement:
“These foreign markets have proven hard to win in for various reasons, and we find ourselves stretched thin with a level of organizational and operational complexity that drives our cost structure up and slows us down.
“We don’t have the demand in these regions to justify them. The reality is that America has the world’s greatest capital markets,” the announcement said.
The company will instead focus its resources on developing its prediction market platform, Gemini Predictions, which launched in December 2025, and building its business in the US.
The news comes at a challenging time for the crypto industry, as digital asset prices continue to bleed amid a broad market downturn that began with a flash crash in October and the stalling of the CLARITY Act, a widely anticipated US crypto market structure bill.
Related: SEC dismisses civil action against Gemini with prejudice
Gemini shifts focus to prediction markets as the sector grows
Gemini’s announcement highlighted the growing role of prediction markets in its strategy, which it says will be “more front-and-center” on its platform.
“Our thesis is that prediction markets will be as big or bigger than today’s capital markets,” the announcement said.
The company said it has recorded over 10,000 users on Gemini Predictions and $24 millon in trading volume since launch.
Prediction market trading volume surged in the third quarter of 2024 during the US presidential election, with a 565.4% quarter-on-quarter increase in total trading volume, reaching about $3.1 billion.
In January 2026, daily prediction market trading volume ranged from about $277 million to about $550 million, according to data from Dune.
The market remains dominated by Polymarket and Kalshi, with Polymarket accounting for over 37% of total prediction market 24-hour trading volume and Kalshi commanding over 26%, according to Dune.
Magazine: One metric shows crypto is now in a bear market: Carl ‘The Moon’
HBAR price remains under heavy pressure as the broader crypto market stays weak. The token is down nearly 47% over the past three months and has slipped another 6% in the past 24 hours, tracking Bitcoin’s latest decline. More importantly, this is not just a short-term sell-off. Hedera’s price has been falling steadily since September, losing almost 67% from its highs.
Behind this move is a deeper problem: shrinking network liquidity, weak institutional demand, and fading retail participation. As TVL continues to fall and ETF inflows remain absent, charts now suggest that HBAR could face another major downside leg. Here is what the data is showing.
Hedera’s TVL Collapse Shows Liquidity Has Been Leaving for Months
HBAR’s downtrend began in mid-September, when the price started trading against a falling trendline. Soon, the weakening prices entered a falling channel as lower highs met lower lows. Since then, every rally has been weaker, and each breakdown has pushed the token lower.
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This HBAR price action mirrors what happened to Hedera’s on-chain liquidity.
Total value locked was near $122.5 million in September. It has now dropped to around $56 million, a decline of more than 50%. TVL measures how much capital is locked inside DeFi protocols. When TVL falls, it usually means users are withdrawing funds and activity is slowing.
In simple terms, money started leaving the network months ago. The price just followed this fundamental weakness. This explains why HBAR’s decline looks gradual rather than sudden. Liquidity has been drying up steadily. Without fresh capital, rallies fail quickly.
As long as TVL stays weak, HBAR’s upside remains structurally limited.
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CMF Shows Selective Buying, But ETF and Retail Demand Remain Weak
Not all signals are bearish.
The Chaikin Money Flow has been rising since mid-December, even as the price moved lower. This creates a bullish divergence, showing that some larger investors are accumulating. However, CMF is still below zero. Outflows still dominate. Inflows are improving, but not strongly enough.
At the same time, spot HBAR ETFs have shown no recent inflows over the past two weeks. ETFs bring institutional capital and could help CMF move above the zero line. Their absence limits upside momentum.
The bigger warning comes from On-Balance Volume. OBV has been trending lower since October. This showed that participation and conviction were steadily weakening even during short-term bounces. Recently, OBV broke below this descending support line.
When OBV loses long-term support, it signals that selling pressure is accelerating and that market participation is deteriorating. It suggests that fewer buyers are stepping in, even at lower prices.
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So the current setup looks like this:
- Some large buyers are accumulating slowly (CMF divergence)
- Institutional flows remain weak (ETF inactivity)
- Broader participation is shrinking (OBV breakdown)
Without strong volume support, rallies lack follow-through. This explains why HBAR continues to fail at resistance despite occasional inflow signals.
Until OBV stabilizes and ETF demand improves, upside moves are likely to remain fragile.
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Falling Channel and OBV Breakdown Point to a 30% Risk Zone
The Hedera Price structure confirms this fragile setup.
HBAR remains trapped inside a falling channel that has guided price lower since September, with a breakdown projection of around 30% if the lower trendline breaks.
The first major support sits near $0.080-$0.076. This zone has been in place since the October 10 crash. A daily close below it would weaken the structure. Below that, the next support lies near $0.062, based on Fibonacci extensions to the downside.
If this level breaks, the channel projection points toward $0.043, opening the 30% breakdown path. On the upside, recovery remains difficult.
HBAR must first reclaim $0.107. A move above $0.134 is needed to break the bearish channel. But that likely requires:
- A sustained TVL rebound
- Consistent ETF inflows
Without both, any HBAR price bounce attempt may fade quickly.
TLDR
- Aster’s layer-1 blockchain testnet is now live for all users, marking a key milestone for the platform.
- The Aster team plans to launch the mainnet in the first quarter of 2026.
- New features, including fiat currency on-ramps, will be introduced in Q1 2026.
- Aster will release its code for developers, fostering ecosystem growth and innovation.
- The platform’s shift to a perpetual futures DEX positions it as a competitor to Hyperliquid.
Aster, a decentralized crypto exchange (DEX) and perpetual futures platform, has announced the launch of its layer-1 blockchain testnet. The testnet is now available to all users, with the mainnet rollout scheduled for the first quarter of 2026. This major milestone is part of the company’s ambitious plans to enhance its platform and expand its offerings.
Aster’s Upcoming Features and Q1 2026 Launch Plans
Aster’s roadmap for 2026 includes several key developments that will significantly enhance its services. The introduction of fiat currency on-ramps will allow users to seamlessly convert their traditional currency into digital assets. Along with this, Aster will release its code for developers, enabling third-party builders to contribute to the platform’s growth.
The upcoming Aster layer-1 mainnet is designed to improve the platform’s efficiency and scalability. It will also serve as the backbone for future features and expansions. These developments are expected to increase Aster’s appeal to both traders and developers, fostering a more vibrant ecosystem.
In March 2025, Aster rebranded as a perpetual futures DEX. This move positioned the platform as a competitor to Hyperliquid, another prominent perpetual futures DEX. Hyperliquid operates on its own application-specific blockchain network, highlighting the trend of Web3 projects developing custom layer-1 blockchains for high-throughput transactions.
Aster’s decision to launch its own layer-1 blockchain aligns with this growing trend. It reflects the increasing demand for specialized blockchains that can handle high transaction volumes. By moving away from general-purpose chains like Ethereum and Solana, Aster aims to provide a more tailored and efficient solution for its users.
Surge in Perpetual Futures Trading Volume and Market Growth
The perpetual futures market saw a sharp rise in trading volume during 2025. According to DefiLlama, the cumulative trading volume nearly tripled, growing from approximately $4 trillion to over $12 trillion by the year’s end. About $7.9 trillion of this volume was generated in 2025, signaling increasing interest in crypto derivatives.
Monthly trading volumes hit the $1 trillion mark in October, November, and December. This surge highlights the growing demand for perpetual futures contracts, which allow traders to keep positions open without expiration dates.
Zcash price remains under heavy pressure as bearish momentum continues to build across the market. After losing nearly 35% since late January, Zcash (ZEC) is now slipping deeper inside a falling channel that has guided prices lower for months.
Weak volume, fading whale interest, and shrinking derivatives activity are all reinforcing the downside trend. With multiple indicators flashing warning signs, charts now suggest that Zcash may be entering another breakdown phase.
Falling Channel and OBV Breakdown Show Sustained Selling Pressure
Zcash has been trading inside a clear falling channel since November, marked by consistent lower highs and lower lows.
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After peaking above $740, ZEC entered this declining range and has already experienced one major collapse of more than 56% inside the channel, also the breakdown target. Each rebound has become weaker, showing that buyers are unable to shift momentum.
The weakening structure is confirmed by On-Balance Volume (OBV) tracks buying and selling pressure by adding volume on up days and subtracting it on down days. Rising OBV suggests accumulation, while falling OBV signals distribution.
From early November through late January, Zcash’s OBV was forming an ascending trendline. This showed that some Zcash buyers were still trying to accumulate, even as the price traded inside a falling channel.
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That support finally failed on January 29. Since this breakdown, Zcash has already fallen nearly 36%. This validates the OBV signal and shows that the loss of volume support directly translated into lower prices.
On-chain behavior reinforces this trend. Over the past seven days, whale holdings have declined by around 36%, with large wallet counts falling toward the 8,000 range. This suggests that major holders are trimming exposure rather than accumulating.
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At the same time, exchange balances have surged by nearly 160%. Rising exchange supply usually means more tokens are being prepared for sale, increasing immediate selling pressure.
Together, the falling channel, OBV breakdown, whale reduction, and exchange inflows point to sustained distribution. Retail participation is weakening, long-term holders are reducing exposure, and supply is moving toward selling venues. This combination explains why ZEC continues to struggle to hold support.
Derivatives Activity Weakens as Remaining Long Positions Add Risk
With spot participation fading, the next question is whether derivatives can push prices up, as they have during past short squeezes.
So far, the data suggests limited support.
Zcash open interest peaked near $1.13 billion in December. It has now dropped to around $395 million, a decline of nearly 65%. This shows that speculative interest has cooled sharply, with many traders closing positions and moving to the sidelines.
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When open interest falls this much, it signals reduced conviction. There is less leverage in the system to drive strong rebounds, and fewer traders willing to defend key levels.
At the same time, funding rates have cooled since October but remain slightly positive. Positive funding means that long positions still dominate, even though overall participation is shrinking. In simple terms, fewer traders are active, but many of those who remain are still betting on higher prices.
This creates a fragile setup. If prices fall further, these remaining longs become vulnerable to liquidation. When liquidations occur in low-liquidity conditions, they can trigger rapid downside moves.
So even though derivatives no longer have enough “fuel” to drive a major rally, the presence of exposed long positions still amplifies breakdown risk. Instead of supporting price, leverage now increases the chance of accelerated selling.
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Key Zcash Price Levels Show Why the $100 Zone Remains in Focus
The Zcash price remains trapped inside its falling channel, with the lower trendline continuing to guide the price lower. The first major support zone sits at $230.
A sustained daily close below $230 would expose the next support near $212, but not without triggering a trendline breakdown.
If $212 fails, the channel projection and Fibonacci extensions both point toward the $103 region. This zone represents the full downside move implied by the current structure.
On the upside, recovery remains difficult. ZEC must first reclaim $286 to regain short-term stability. A move above $389 is needed to improve the medium-term structure. A rally toward $557 would require a major revival in volume, whale accumulation, and derivatives participation, making it unlikely under current conditions.
As long as Zcash remains below $230 and fails to hold $212, downside risks dominate. Without renewed participation and capital inflows, the charts continue to favor a move toward the $100 zone.
Markets sold Bitcoin after Warsh nomination, but Binance Research argues liquidity and structural limits make severe QT unlikely.
A major sell-off swept through crypto markets in the last few days, pushing Bitcoin (BTC) to its lowest price since November 2024.
According to analysis from Binance Research, the move was triggered by news that Kevin Warsh had been nominated to chair the Federal Reserve, with markets interpreting his historical stance as a sign of aggressive liquidity tightening, forcing widespread deleveraging.
However, Binance Research suggested the reaction may be overblown, as physical constraints in the financial system could prevent the severe balance sheet reduction the market fears.
Liquidity Crisis Hits the End of the Chain
Per Binance analyst Michael JJ, last week’s turbulence displayed classic signs of a liquidity scramble. Following disappointing earnings from major tech firms such as Microsoft and rising geopolitical tensions, the nomination of Warsh, known for advocating a reduction of the Fed’s bond holdings, sparked a rush to exit risk.
Traders facing margin calls sold their most liquid assets to raise cash, and precious metals saw trading volumes spike to over ten times normal levels as the U.S. dollar rebounded sharply. Data presented by the on-chain technician shows cryptocurrencies acted as “end-of-liquidity-chain” assets, meaning they were among the first sold when liquidity was needed elsewhere.
When gold fell, crypto fell with it, but when the metal rebounded, digital assets continued to drop alongside stocks. This confirmed its low priority in the liquidity hierarchy. In that period, Bitcoin broke below several critical technical supports, including the head-and-shoulders neckline and key moving averages, hitting an intraday low near $73,000 on February 4.
Are QT Fears Overstated?
The core of the Binance Research argument is that markets are overpricing the risk of Quantitative Tightening (QT) under a potential Warsh chairmanship. While his proposals call for shrinking the Fed’s balance sheet, the report outlined technical constraints that may make aggressive contraction physically difficult.
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For instance, the Fed’s reverse repo facility, a crucial buffer, is approaching its depletion point. This means future QT would directly drain bank reserves, potentially pushing them below regulatory minimums and risking a repo market crisis like the one seen in 2019.
Furthermore, the U.S. Treasury’s need to issue about $2 trillion in new debt annually requires a buyer. If the Fed steps back as a net purchaser through QT, the private sector must absorb the supply, which could strain markets.
The analysis suggests that without changes to banking regulations, such as exempting Treasuries from certain capital ratios, the financial system’s “plumbing” cannot support the balance sheet shrinkage Warsh has historically supported.
As a result, such regulatory changes are seen as a longer-term possibility, not an immediate threat.
The report also pointed to the resolution of the latest U.S. government shutdown on February 3 as a positive development that may have been overlooked in the recent market frenzy. The development removed a source of near-term policy uncertainty, allowing federal agencies to be funded through September 2026.
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