The nomination of Kevin Warsh as the next Federal Reserve Chair has sent shockwaves through the cryptocurrency market, with Bitcoin experiencing an immediate 14% price decline following the announcement. Investors are grappling with the implications of a potential shift towards tighter monetary policy under a leader perceived as a hawk, despite his past pro-crypto comments.
Markets reacted swiftly to the news, pricing in Warsh as an inflation-focused chair who would likely maintain higher interest rates and potentially reduce the Fed's balance sheet—a process known as quantitative tightening. This is a stark contrast to the era of quantitative easing, where the Fed's massive asset purchases flooded the economy with liquidity, a period during which Bitcoin historically thrived.
Dilin Wu, a research analyst at forex broker Pepperstone, told DL News it was "very likely" Warsh as Fed Chair could spark more volatility in crypto markets. "Aggressive tightening [from Warsh] could shrink bank reserves just as tech firms ramp up leveraged infrastructure and AI spending," she said, adding, "Mismanagement here could trigger stress."
The immediate 14% Bitcoin decline was directly attributed to market concerns. Jimmy Xue, co-founder and COO of liquidity infrastructure startup Axis, explained: "The 14% [immediate] Bitcoin decline since his nomination reflects market concerns about his hawkish monetary philosophy overriding his crypto-friendly credentials in the near term." This sentiment was echoed across trading desks, with increased put option activity and negative funding rates indicating a bearish shift among leveraged traders.
However, a counter-narrative exists regarding Warsh's long-term impact. Experts note that Warsh has previously praised Bitcoin, calling it a "fascinating innovation" and suggesting in 2018 that it could "serve as a sustainable store of value, like gold." Marcin Kaźmierczak, Co-Founder of RedStone, said a Warsh-led Fed "could paradoxically strengthen Bitcoin’s narrative as a hedge against monetary policy risk" in the long run due to this personal sympathy.
Beyond the nomination, analysts point to Bitcoin's current "narrative divergence" as a weight on its price. David Lawant, head of research at Anchorage Digital, noted that Bitcoin has recently decoupled from trading in tandem with gold (a debasement hedge) and is now moving more with "non-AI tech assets," a struggling cohort.
At the time of reporting, Bitcoin was trading at $68,143, unmoved over 24 hours, while Ethereum saw a 1% gain to $1,979.
