Recently, I have been closely watching the developments surrounding Warsh, the new Federal Reserve Chair candidate. There is a very interesting paradox about him—he advocates for both "interest rate cuts" and "balance sheet reduction" simultaneously. This makes no sense in traditional economics, but he believes this is the solution to the problems.

Let's briefly review the background. Trump nominated Warsh at the end of January to succeed Powell. This individual has experience at the Fed from 2006 to 2011 and personally witnessed the 2008 financial crisis. Back then, he was known as a hawk, warning about inflation risks even during the most difficult economic times, and strongly opposed QE2. In essence, he is the type who no longer wants to see the central bank recklessly printing money.

But that was Warsh nine years ago. Now, his stance has shifted. Recently, he stated in the media that the Federal Reserve's "hesitation to cut interest rates" was a major mistake, and he even implied that presidential pressure on the Fed was justified. This shift has left Wall Street somewhat stunned—someone who once opposed easing now believes that rate cuts are necessary.

What is his logic? The core paradox lies here: rate cuts help the real economy, but at the same time, shrinking the Fed's balance sheet aims to correct distortions in the financial markets. The Federal Reserve’s balance sheet has expanded from about $1 trillion before 2008 to now $6.8 trillion. He believes that this is the real problem—not the level of interest rates, but the enormous size of the central bank’s assets, which makes money on Wall Street too cheap and causes ordinary companies to struggle with financing.

What does this mean for the markets? In the short term, stocks may benefit from rate cuts, but in the medium to long term, liquidity tightening could pose risks. The yield curve in the bond market might steepen. The dollar’s trajectory is the hardest to predict—it depends on whether Warsh can control inflation while maintaining economic growth.

For the crypto market, Warsh is a contradictory figure. On one hand, he says Bitcoin is "software, not money," criticizing most crypto projects as scams. On the other hand, he admits that Bitcoin could serve as a store of value like gold, even calling it a "good policeman for monetary policy"—meaning Bitcoin’s existence could help constrain central banks from unlimited money printing. Interestingly, this critic has previously invested in crypto index funds and blockchain venture capital. This is typical Wall Street pragmatism: criticize, but not let it hinder profits.

If Warsh truly implements this policy framework, the crypto market will enter an era of liquidity tightening. The crypto boom of the past five years was largely supported by the liquidity provided by the Federal Reserve. Once that engine stalls, the market will need to find new growth drivers. This presents both a challenge and an opportunity—because in an environment of tight liquidity, assets with real applications and strong fundamentals will stand out.

Overall, Warsh’s policy approach is full of paradoxes and uncertainties, but that is precisely what the market needs to monitor closely. In any case, the upcoming months’ central bank actions will directly influence the rhythm of the entire crypto market.