Yesterday the American Senate voted 54-45 in favor of Kevin Warsh as the new Federal Reserve chairman. It’s the closest vote in history on a Fed chair and was almost fully party-line, except for Democratic Senator Fetterman who voted for Warsh.
Warsh is the first ever incoming chair with personal investments in crypto, such as Solana and Optimism as well as crypto business investments in Bitwise and Flashnet, through venture funds. He’s spoken very positively on crypto and digital assets on numerous occasions, such as at the Hoover Institution last year:
Bitcoin doesn't trouble me… [it's] an important asset… a very good policeman for policy
And at his own confirmation hearing he answered Cynthia Lummis saying:
Digital assets are already part of the fabric of our financial services industry in the United States
As far as monetary policy goes, he’s against a Central Bank Digital Currency and instead favors private stablecoins. This aligns with how the current version of the CLARITY Act is written. However, his views on monetary policy could also be adverse for crypto investors.
Inflation Risks
He’s been called a hawk with regards to quantitative easing (QE). Back in 2011, he resigned from the Fed in protest of the second, $600 billion, QE programme, calling benefits “small and fleeting” and its risks “unknown, uncertain, and potentially large”. Additionally, with the latest inflation numbers, something’s gotta give.
At this point, it’s clear Trump wants a Fed chair that will not increase interest rates or maybe even cut them. With inflation once again rising, Warsh’s options may be limited to reviving quantitative tightening (QT). This could be problematic for crypto. A model created by MEXC and HTX says a 15-20% balance sheet reduction could compress the crypto market cap as much as 30%.
Bitcoin held steady through the confirmation of Warsh, only dipping briefly due to inflation numbers. Despite his hawkish tendencies, the market says his pro crypto and pro private stablecoin stances weigh up for it.
