What Federal Reserve Chair nominee Kevin Warsh could do to Bitcoin’s price

With Bitcoin’s price down the pan, investors are now waiting to see what Federal Reserve Chair nominee Kevin Warsh will do to markets if he takes the helm in June.

Despite praising Bitcoin and calling for lower interest rates last year, markets initially priced in Warsh as a hawk — someone who would keep interest rates high in an aggressive bid to tamp down inflation. But it’s what Warsh might do with the Fed’s balance sheet that concerns investors.

Since the Great Recession, the Fed has purchased trillions of dollars of US Treasury bills, flooding banks, and, in turn, the economy with cash. That policy, known as quantitative easing, stimulated the economy, but it has also led financial markets to be addicted to central bank liquidity, Warsh has said.

Reducing its balance sheet could be a problem for Bitcoin, which has in the past benefited from quantitative easing.

Dilin Wu, 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 “Mismanagement here could trigger stress.”

Hawk or dove?

While Warsh is aligned with Trump, who has aggressively pushed for lower interest rates, market observers have said he is a pragmatist who wouldn’t cut too quickly for fear of overheating the economy.

This explains Bitcoin’s price dip since Trump announced his nomination.

“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,” Jimmy Xue, co-founder and chief operating officer of Axis, a liquidity infrastructure startup, said.

Still, experts told DL News that Warsh being a pro-crypto candidate would help Bitcoin in the long-run.

Warsh back in 2018 said that Bitcoin could “serve as a sustainable store of value, like gold.”

Marcin Kaźmierczak, Co-Founder of RedStone, a blockchain oracle network, said that while Warsh’s nomination in the short-term “spooked markets immediately,” a Warsh-led Fed “could paradoxically strengthen Bitcoin’s narrative as a hedge against monetary policy risk” in the long run due to him being personally sympathetic to the coin.

Narrative matters

Factors other than the Warsh nomination are weighing on Bitcoin’s price. One is its “narrative divergence,” David Lawant, Anchorage Digital’s head of research, said.

The asset last year was trading in line with gold as part of the so-called debasement trade — hedging against a currency losing value — but it has since diverged.

“Bitcoin is now trading more in tandem with non-AI tech assets, a cohort that has struggled over the past few months,” Lawant said.

But Bitcoin could soon find its feet again.

“A lot of that feels out of place and can correct over time,” he said, pointing to the calibre of institutional investment.

Crypto market movers

• Bitcoin is unmoved over the past 24 hours, trading for $68,143.
• Ethereum is up 1% over the past day and is priced at $1,979.

What we’re reading

• Bitcoin dev says we’re ‘not prepared’ for quantum future where major players are ‘spooks’ — DL News
• Bitcoin Trapped in Fragile Trading as Hedge Funds Pivot to Cash — Bloomberg
• OpenAI KYC provider accused of sharing users’ crypto addresses with federal agencies — DL News
• CME to Launch 24/7 Crypto Futures Trading in May — Unchained
• Why crypto’s future is built on AI — Milk Road

Mathew Di Salvo is a news correspondent with DL News. Got a tip? Email at [email protected].