When the Federal Reserve meets the "tough guy": a new era crisis in the crypto market

In the battle for the Federal Reserve chairmanship, the market was once convinced that Christopher Waller was the winner. But suddenly, in October, the tide turned, and Kevin Hassett’s support soared to 85%. Known as the “White House mouthpiece” and “liquidity printing machine,” he embodies the market’s idealized vision of low interest rates and abundant funds.

However, the most noteworthy candidate isn’t the one with the highest profile, but the long-underestimated “dark horse”—Kevin Warsh, once hailed as Wall Street’s golden boy. Unlike Hassett’s “growth-first” approach, Warsh represents a different force the market has never truly faced: a return of the monetary seriousness.

From Golden Boy to Outsider: Warsh’s Non-Traditional Path

Warsh’s background is quite unusual. He doesn’t hold a Ph.D. in macroeconomics, nor did he start his career in academia; instead, he gained practical experience in Morgan Stanley’s M&A department. This background gives him a completely different perspective on crises: for scholars, crises are anomalies in theoretical models; for traders like Warsh, crises are moments when counterparties suddenly stop paying, and liquidity shifts from “available” to “gone.”

In 2006, at age 35, Warsh was appointed to the Federal Reserve Board. Many questioned his qualifications at the time, but history has proven this was a wise choice. His Wall Street experience made him an indispensable figure during the 2008 financial storm—not just as a regulator, but as the sole “translator” between the Fed and Wall Street.

During that dark weekend, Warsh participated in critical negotiations before Lehman Brothers’ collapse. This experience gave him a profound understanding of liquidity’s fragility. He saw through the essence of quantitative easing(QE): the central bank must act as a lender of last resort in crises, but fundamentally, this is an overdraft on the future in exchange for survival today.

More importantly, Warsh keenly pointed out the hidden dangers of prolonged “money printing”—a kind of “reverse Robin Hood”—where asset prices are artificially inflated, enriching the wealthy while devaluing ordinary people’s savings. This distorts market signals and sows the seeds for the next crisis.

His deep understanding of systemic fragility made Warsh a key candidate for Trump’s new administration. On this list, Warsh and Hassett stand in stark contrast—so much so that the media even dubbed it “the war of two Kevins.”

Policy Clash: Growth Advocates vs. Discipline Advocates

Hassett’s logic is straightforward: as long as the economy grows, low interest rates are justified. Markets worry that if Hassett takes office, he might prematurely halt the fight against inflation, causing long-term bond yields to soar—precisely the “out-of-control inflation” signal markets fear most.

In contrast, Warsh’s policy framework is much more complex and difficult to categorize simply as “hawkish” or “dovish.”

He supports rate cuts too, but for entirely different reasons. To him, current inflation pressures are not due to excessive consumption but are the result of supply chain constraints and unchecked monetary expansion over the past decade. The Fed’s bloated balance sheet has actually squeezed private credit and distorted capital allocation.

Therefore, Warsh proposes an experimental, aggressive combination: rapid quantitative tightening(QT) paired with moderate rate cuts. The logic is:

• Shrink the money supply to control inflation expectations and restore the dollar’s credibility—“let some water out”
• Lower nominal interest rates to ease corporate financing costs—but this time, without flooding the market with liquidity

This is a tough, no-“market rescue” style economic revival attempt.

Butterfly Effect on Crypto Markets

If Powell is the “cautious father” of the crypto market (trying not to wake the child), Warsh is like the strict principal wielding a ruler.

Over the past decade, Bitcoin and the entire crypto asset class have essentially been derivatives of global dollar oversupply. Warsh’s core policy—“strategic reset,” returning to Volcker-era prudent monetary policy—is both a short-term blow and a long-term stress test for the crypto market.

Warsh has explicitly stated: “To cut rates, you must first stop printing money.” For high-risk assets accustomed to the “Fed umbrella,” this means the shelter disappears. If he truly implements a “strategic reset” and adopts a more disciplined monetary policy framework, global liquidity will tighten, becoming the first domino to fall.

Crypto assets, highly sensitive to liquidity, will inevitably face revaluation pressures in the short term.

A deeper threat is: if Warsh achieves “inflation-free growth” through supply-side reforms and maintains positive real interest rates, holding fiat and government bonds will become attractive again. This is the complete opposite of the 2020 era of “everything rising, only cash depreciating”—when Bitcoin’s value proposition as a “zero-interest asset” was unshakable. In an environment of positive real rates, that value proposition will be severely undermined.

But there’s another side. Warsh is a fervent supporter of “market discipline”—he would never panic and bail out the stock market after a 10% decline like Powell. This “laissez-faire” attitude might give Bitcoin an opportunity: when traditional finance collapses under deleveraging pressure (like during the Silicon Valley Bank crisis), can Bitcoin truly detach from Wall Street and become a safe haven for capital seeking security? This is Warsh’s ultimate test for the crypto market.

Warsh’s View of Cryptocurrency: Code as Money

Interestingly, Warsh’s attitude toward cryptocurrencies is far from outright opposition. He even wrote in the Wall Street Journal: “The term ‘cryptocurrency’ is misused. They are neither mysterious nor money. They are software.”

It sounds stern, but reviewing his background reveals he’s a well-versed “insider”—not just an outsider. He has served as an advisor to the Bitwise index fund and was an early angel investor in Basis(, an algorithmic stablecoin project). Basis aimed to mimic central bank open market operations through algorithms—though it ultimately failed due to regulatory issues. This experience gave Warsh a deeper understanding than any bureaucrat of “how code becomes money.”

Because he understands, he is more resolute.

Warsh is a typical “institutionalist”—he accepts cryptocurrencies as commodities or tech stocks but has very low tolerance for “private issuance challenging dollar sovereignty.” This binary view directly influences the fate of stablecoins.

He is likely to impose strict “narrow banking” regulations on stablecoin issuers: 100% reserves in cash or short-term bonds, prohibiting fractional reserve lending. For Tether and Circle, this is a double-edged sword—they would gain bank-like status and a moat but lose the flexibility of shadow banking, with profit models entirely dependent on government bond yields. Small stablecoins attempting to “create credit” will struggle to survive.

As for CBDCs, Warsh’s stance is surprisingly nuanced. Unlike many Republicans who oppose them outright, he proposes a more “American” approach: firmly oppose retail CBDCs issued directly by the Fed to individuals (which infringes on privacy and exceeds authority), but support “wholesale CBDCs”—using blockchain technology to modernize interbank settlement systems to address geopolitical challenges.

Under this framework, interesting hybrid scenarios may emerge: settlement layers controlled by the Fed’s wholesale blockchain, with application layers reserved for regulated public chains and Web3 institutions. This would mark the end of the “Wild West” era of DeFi, but RWA(Real World Assets on-chain) could enter a true golden age—after all, in Warsh’s logic, as long as you don’t try to replace the dollar, technological efficiency is always welcome.

The Final Puzzle: The Game of Power

Kevin Warsh is not just another candidate on Trump’s list; he is a redemptive reinterpretation of Wall Street’s old order in the digital age. Under his guidance, RWA and DeFi built on real utility and institutional compliance may just be entering their true golden era.

But industry insiders present a cold reality: voters often make a directional mistake—it’s not what candidates believe before taking office that matters, but whom they will serve once in power.

The Fed’s century-long history has witnessed countless secret battles between presidents and chairs. Lyndon Johnson even resorted to gunfire in Texas farms to force a rate cut. Compared to that, Trump’s Twitter remarks are child’s play.

The brutal but true logic is: U.S. presidents ultimately get the monetary policy they want. Trump’s wishlist is never vague: lower interest rates, hotter markets, more abundant money—whoever is in office will ultimately use tools to achieve these goals.

This presents the ultimate dilemma for the crypto market:

Warsh indeed wants to turn off the liquidity tap, but when political pressure mounts, when the “Make America Great Again” growth demands collide with his “hard money” ideals, will he tame inflation or will the power game tame him?

For seasoned traders, Warsh might be a respected hawk. But in the eyes of market veterans, none of that matters—because as long as the political machinery keeps running, the liquidity faucet will eventually reopen. The fate of crypto markets may ultimately depend not on who is Fed chair, but on the deep logic of American power.