On Tuesday, Kevin Warsh, Donald Trump’s choice to replace Federal Reserve Chair Jerome Powell, testified before the Senate Banking Committee.

He promised to be independent from the White House but did not promise to cut rates right away, leaving market watchers to try and figure out what a Warsh-led Fed would mean for liquidity and risk assets like Bitcoin (BTC).

A Fed Shift From Rates to Balance Sheet

The hearing had plenty of headline moments. Warsh told senators the Fed has “lost its way” and needs fundamental reform.

He said under sworn testimony that Trump never asked him to commit to rate cuts at any specific meeting, a claim that clashed directly with Trump’s own statement to CNBC the same morning, where the president said he’d be “disappointed” if Warsh doesn’t cut immediately after taking office.

Sen. Ruben Gallego did not let that slide:

“Someone here is lying then; it’s either you or President Trump.”

When Sen. John Kennedy asked if he’d be anyone’s “human sock puppet,” Warsh was blunt:

“Absolutely not. I’ll be an independent actor if confirmed as chairman of the Federal Reserve.”

On crypto, he was straightforward: “Crypto is now part of the US financial system,” and he ruled out a central bank digital currency on his watch.

But the signal that actually matters for Bitcoin wasn’t about rates. Analysis published Tuesday by XWIN Research Japan argued that Warsh’s testimony pointed toward something more structural: balance sheet reduction. That’s quantitative tightening, which works by shrinking the Fed’s bond holdings and pulling liquidity out of the system.

As XWIN put it, this targets not just the “price” of money via rates, but the “quantity” of liquidity itself. The uncomfortable scenario they describe is one where short-term rates fall while long-term yields rise, a combination that has historically been rough for risk assets.

Warsh fed that interpretation directly. He told senators the Fed’s balance sheet is too large, should shrink, and that the central bank has no business holding long-term Treasuries.

He also said he’d end the practice of Fed officials as publicly telegraphing rate moves in advance, arguing it locks policymakers into forecasts long after the data has changed.

On-Chain Data Points the Other Way

Bitcoin’s reaction during the hearing was quick. It dropped below $75,000 before recovering, and was trading around $78,000 at the time of writing, up about 2.7% over 24 hours and 5.4% on the week.

What XWIN Research finds interesting, though, is what’s happening on-chain underneath all that noise. The Long-Term Holder SOPR, which tracks whether Bitcoin holders are selling at a profit or loss, is sitting around 1.0. That means they’re not aggressively cashing out.

Historically, XWIN noted, it reflects reduced sell pressure and constrained supply. Put simply, despite the macro tightening, the available Bitcoin supply isn’t growing.

Their read on the situation: macro liquidity is weakening while Bitcoin’s internal structure is holding up. That divergence, they argue, points to an accumulation phase rather than a clean breakdown, with the potential for a sharp move higher if ETF demand returns once liquidity conditions shift.