Bitcoin ends disastrous week and ends negative January with another drop

After a rather severe correction for silver (the precious metal fell by around 30% in two days, and futures suggest more pain is to come on Monday) and the appointment of Kevin Warsh as the new Fed chairman, Bitcoin fell further on Saturday, closing January in the red.

In the past week alone, Bitcoin fell by around 11%.

New Fed chair

Earlier this week, US President Donald Trump nominated a new Federal Reserve chairman (his nomination still needs to be confirmed, but Trump’s Republicans hold a majority in both the Senate and Congress). His choice fell on Kevin Warsh, a 55-year-old economist who has historically been both positive and negative about Bitcoin. What does his nomination mean for the stock markets, and for Bitcoin in particular?

The nomination comes after a rather turbulent January that saw precious metals rise (and then correct) and Bitcoin fall. Stock markets generally rose, but investors have taken profits in recent days.

Bitcoin fell sharply last week, from a recent high of nearly $90,400 to around $78,000. Investors are clearly pulling back from riskier assets, partly due to changing expectations about the pace of future interest rate easing by the Federal Reserve.

As cryptocurrencies generally behave like risky investments (e.g., tech stocks), the Fed’s decisions are important for the crypto markets.

When interest rates are high, safer returns like U.S. Treasuries become more attractive, diverting capital from volatile assets like cryptocurrencies and tech stocks (read: AI investments and microchips). Lower interest rates, on the other hand, tend to increase liquidity in the financial system and thus encourage investors to select riskier assets.

A stronger dollar, typically associated with tighter Fed policy, has historically also negatively impacted Bitcoin’s price. Currently, the dollar is very weak, making Bitcoin’s decline all the more remarkable.