Analyzing the "Disastrous Weekend" for ETH, BTC, and Gold

Author: David Christopher Source: Bankless

Ironically, on the very day Binance released its long-awaited recap of the massive liquidation event on October 10th, cryptocurrency investors suffered another devastating flash crash.

Last Friday, Bitcoin prices fell below the $70,000 range, dropping below the $76,000 cost basis for micro-strategies; Ethereum fell below the $2,000 mark, with a single-day drop of over 13%, forcibly liquidating over $2.5 billion in leveraged positions.

If you've been following social media over the weekend, you'll know that cryptocurrencies are by no means the only asset class to suffer a major blow. Gold and silver experienced historic volatility, with silver's single-day drop marking one of the largest in 275 years.

When multiple asset classes experience simultaneous sell-offs, there are often broader underlying causes. The root cause of this sell-off is clearly the comprehensive withdrawal of institutions from risky assets, especially reducing their holdings in markets that have been over-leveraged and highly risky in recent months. As usual, cryptocurrencies led the market decline. The following is an analysis of the core reasons for this market crash. The Federal Reserve welcomes a new leader. Last Thursday evening, the prediction market Polymarket revealed that Kevin Warsh would become the next Federal Reserve Chairman. The following morning, Trump officially confirmed the appointment, and the market immediately reacted sharply and negatively. During his tenure at the Federal Reserve in the early 21st century, Warsh established a distinctive reputation for advocating hard currency policies—after the financial crisis, he called for the Fed to shrink its balance sheet and tighten monetary policy. This hawkish past triggered investor panic, with the market beginning to price in the possibility of interest rate hikes and monetary tightening after he takes office. However, looking beyond the surface, the market's reaction this time is actually an overreaction. Warsh's previous hawkish stances were all made when he was not a policymaker at the Federal Reserve. Now, as Chairman of the Federal Reserve, he finds himself in a context of Trump's continued intervention in monetary policy. Early reports suggested that Warsh had long sought the top position at the Federal Reserve, and his key reason for winning the president's favor was his public criticism of Powell's hesitation on interest rate cuts.

Wash also published a column in the Wall Street Journal explaining how artificial intelligence will improve productivity and reduce inflation.

Powell's delay in initiating interest rate cuts has clearly provoked dissatisfaction in the White House. Trump and his administration have made it clear that they will shift to a faster interest rate cut policy to drive explosive growth in the artificial intelligence industry. Two weeks ago, US Treasury Secretary Bessant stated that he hoped the new Federal Reserve Chairman would be a supporter of the productivity dividend of artificial intelligence, that is, a policymaker willing to maintain a high level of economic activity.

The news of Warsh's appointment as Federal Reserve Chairman did not emerge in a vacuum. The partial shutdown of the US government further exacerbated market risk aversion, even though the crisis seemed to be resolved quickly. Simultaneously, the explosion at Bandar Abbas in Iran escalated geopolitical tensions. Coupled with the uncertainty surrounding the new Fed Chairman's policy stance, multiple factors combined to trigger this comprehensive asset sell-off. Investors did not wait to clarify the core influencing factors before pressing the sell button. Precious Metals Experience Historic Volatility While the cryptocurrency crash made headlines, it was actually the performance of the precious metals market that truly set historical records. Last Friday's single-day drop in silver ranked among the largest since trading began; meanwhile, gold volatility surged to levels only seen during the 2008 financial crisis and the March 2020 COVID-19 pandemic crash. Leveraged fund holdings and crowded options markets turned what could have been an orderly correction into a dramatic, historic crash. To understand why the precious metals market has been so volatile, we must first identify the core force driving the rise in precious metals before this crash – China. Over the past year, Chinese investors have been the main driver of the rise in gold and silver prices. Currently, with the Chinese real estate market continuing its downturn and the banking system harboring huge amounts of bad debt, high-net-worth families are seeking ways to preserve their assets, making gold and silver ideal choices. Let's take a broader perspective to examine the significant impact of Chinese demand on the precious metals market. China's economy is about two-thirds the size of the US economy, but its central bank's gold reserves are far lower. China's gold reserves account for only about 10% of its foreign exchange reserves, while the US figure is as high as 80%. However, this gap is rapidly narrowing. According to chart data released by Capriole Investments, China has embarked on a gold-buying spree in the past two years, with its gold reserves increasing nearly tenfold.

The demand for precious metals is not only driven by the Chinese government; demand data from the retail sector also confirms this trend. Previously, the price of silver in the Chinese market was at a premium of up to 42% over the international price. As Alex Campbell stated: For high-net-worth families in China, would they rather place more funds in a stagnant banking system harboring trillions of dollars in bad debts, or would they rather buy physical silver at a high price and bear the risk of a price correction?

This market crash reveals a pattern that warrants serious attention. As investor Quinn Thompson illustrates in the chart below, historical data shows that whenever Bitcoin prices fall by 20% to 30% or more, the stock market tends to follow suit. The cryptocurrency market trades 24/7, reacts to macroeconomic policy changes far faster than traditional markets, and boasts higher leverage. This characteristic often makes the crypto industry a "canary in the coal mine," serving as a warning sign of potential risks in other markets.

(Data source: Quinn Thompson's MarketWatch report - February 1, 2026)

Gold volatility has surged to crisis levels, further exacerbating market anxieties. Historically, such sharp spikes in precious metal volatility tend to precede, rather than follow, broader market turmoil.

Of course, this does not necessarily mean the stock market will crash. However, when the cryptocurrency, gold, and silver markets simultaneously release warning signals, coupled with unusual signals from insider trading, investors must be highly vigilant.

The key question now is whether this market volatility is just another false alarm, or the beginning of a larger market correction. Regardless of the outcome, for the foreseeable future, investors are best advised to remain on the sidelines and allow the market to adjust itself.