Bitcoin, the world’s largest cryptocurrency by market value, fell about 12% past week (as of Feb. 1, 2026). At the time of writing, the currency slid below $80, 000, its weakest level since November. Bitcoin has now lost about one-third of its value since hitting record highs in October last year.
Fed Chair Pick Hits Crypto Hard
The sell-off hit the market amid the strengthening of the U.S. dollar following President Donald Trump’s selection of former Federal Reserve Governor Kevin Warsh as the next Fed chair. From his past record, Warsh is viewed as hawkish. Investors think that he could tighten financial conditions in order to contain inflation by reducing liquidity in the system.
Warsh previously called for regime change at the central bank and advocated a significantly smaller Federal Reserve balance sheet, per Reuters, as quoted on Yahoo Finance.Invesco DB US Dollar Index Bullish Fund UUP gained about 1% on Jan. 30, 2026, on the Warsh news.
Liquidity Concerns Weigh on Speculative Assets
Bitcoin and other cryptocurrencies have long benefited from an expansionary Fed policy, when ample liquidity flowed into financial markets. But the apprehension of the opposite scenario hit the space hard. The Fed stayed put at the January meeting, pausing on its recent rate-cutting cycle.
J.P. Morgan strategists expect only one rate cut in 2026. A cease in the easy money inflows in the market went against the crypto space. Ethereum also fell sharply, dropping about 21% past week (as of Feb. 1, 2026).
How to Play the Trend With ETFs?
While a fully hawkish regime is unlikely in the Trump era (as the President favors a low-rate environment), markets may remain edgy until they get a more unambiguous indication of future central bank policy post May. Hence, cryptocurrency ETFs are unlikely to gain traction for now.
Investors may play this scenario with inverse crypto ETFs such as the ProShares Short Bitcoin ETF BITI and the ProShares Short Ether ETF SETH. Other inverse ETFs include ProShares UltraShort Bitcoin ETF SBIT and ProShares UltraShort Ether ETF ETHD.
Can Palantir Earnings Revive Risk-on Sentiments?
While AI stocks have been beaten down in recent sessions due to overvaluation concerns and bets over higher rates in the near term, Palantir’s upbeat earnings release and solid guidance may revive the sentiment in the AI space.
At the same time, Oracle (ORCL) announced a $25 billion investment-grade bond sale to fund AI infrastructure, further strengthening confidence in sustained capex across the sector, as quoted on FX Empire.
Some analysts expect continued AI strength to boost the risk-on crypto space ahead, as quoted on FX Empire. While we do not rule out that possibility, a monster rally in cryptos, such as the one noticed since late 2024 on the Trump bump, is less likely to materialize until market watchers gain clearer visibility on the central bank policy.
Can Chip Shortage Hurt Crypto Prices?
Crypto depends on semiconductors or chips heavily. A semiconductor or GPU/ASIC chip shortage makes crypto mining equipment expensive. Due to higher hardware prices and longer wait times, network growth may suffer. Smaller miners may leave, reducing network activity.
Agreed, easing regulatory supervision and the GENIUS Act passed in June 2025, which establishes a regulatory framework for the industry, such as full reserve backing and monthly audits, are positives for the crypto space. However, potential disruptions in mining could dampen sentiment for risky assets like cryptocurrencies.
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Invesco DB US Dollar Index Bullish ETF (UUP): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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