The impact of Kevin Warsh’s potential policies on Bitcoin, should he take office as FED Chairman, is being closely watched in the cryptocurrency markets.
Following the recent drop in Bitcoin prices, investors are trying to understand what kind of monetary policy roadmap Warsh will follow if he takes office in June.
Warsh had made positive statements about Bitcoin last year and argued that interest rates should be lowered. However, after his candidacy was announced, markets initially priced Warsh as a “hawk.” This approach reflects a tendency to keep interest rates high to control inflation. What truly worries investors, however, are the steps Warsh might take regarding the Fed’s balance sheet.
Since the 2008 Global Financial Crisis, the Fed has injected liquidity into the market by purchasing trillions of dollars worth of US Treasury bonds. This policy, known as “quantitative easing,” while supporting the economy, has led to financial markets becoming dependent on central bank liquidity. Warsh has previously highlighted this dependence and argued for a reduction in the size of the balance sheet. Shrinking the Fed’s balance sheet could create a negative outlook for Bitcoin, which has historically benefited from abundant liquidity.
Pepperstone research analyst Dilin Wu stated that increased volatility in crypto markets is “highly likely” if Warsh becomes Fed Chair. According to Wu, an aggressive tightening policy could deplete banking reserves and create financial stress at a time when technology companies are increasing their leveraged infrastructure and AI investments. If mismanaged, this could increase the risk of market volatility.
On the other hand, Warsh is known to be politically aligned with Donald Trump and to support Trump’s calls for lower interest rates. However, market observers consider Warsh a pragmatic figure; it is suggested that he may avoid rapid and aggressive interest rate cuts to prevent the economy from overheating. Indeed, the approximately 14% drop in Bitcoin following the announcement of Warsh’s candidacy may have stemmed from the markets seeing his hawkish monetary policy approach as more dominant in the short term.
Jimmy Xue, co-founder and COO of Axis, said this decline reflects concerns that Warsh’s hawkish monetary policy philosophy will prevail despite his crypto-friendly statements. However, experts also note that Warsh could be a positive figure for Bitcoin in the long term. In 2018, Warsh stated that Bitcoin could be a “sustainable store of value like gold.”
According to RedStone co-founder Marcin Kaźmierczak, while Warsh’s nomination may have unnerved markets in the short term, a Fed led by Warsh could paradoxically strengthen the narrative that Bitcoin is a hedge against monetary policy risk. Warsh’s personal sympathy for Bitcoin could create a positive outlook for the crypto asset in the long term.
Warsh’s candidacy isn’t the only reason for the pressure on Bitcoin’s price. David Lawant, head of research at Anchorage Digital, notes that Bitcoin has recently experienced a “narrative divergence.” Last year, Bitcoin traded in tandem with gold, acting as a hedge against currency devaluation, but in recent months it has moved away from this correlation. According to Lawant, Bitcoin now aligns more closely with technology stocks outside of AI; the weak performance of this asset class is also putting pressure on Bitcoin.
*This is not investment advice.
