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Original | Odaily Planet Daily Ethan
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As the year draws to a close, the suspense over who will wield the scepter of the Federal Reserve Chair, the \“master valve\“ of global liquidity, has become the most watched year-end cliffhanger.
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Months ago, when the benchmark interest rate ended its long pause and saw its first cut, the market was once convinced that Christopher Waller was the chosen one (Recommended reading\“Academic Upset: Small-Town Professor Waller Becomes Hottest Candidate for Fed Chair\“). In October, the winds shifted, and Kevin Hassett surged ahead, with odds once approaching 85%. He is seen as \“the White House’s mouthpiece\“; if he takes office, policy might completely follow Trump’s will, even jokingly called a \“human money printer.\“
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However, today, we will not discuss the \“frontrunner\“ with higher odds, but instead focus on the \“second in line\“ with the most variables—Kevin Warsh.
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If Hassett represents the market’s \“greedy expectations\“ (lower rates, more liquidity), then Warsh represents the market’s \“fear and awe\“ (harder money, stricter rules). Why is the market re-examining this outsider once hailed as the \“Wall Street Golden Boy\“ at this moment? If he were to truly lead the Fed, what seismic shifts would occur in the underlying logic of the crypto market? (Odaily note: The core viewpoints of this article are based on deductions and summaries of Warsh’s recent speeches and interviews.)
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Warsh’s Evolution: From Wall Street Golden Boy to Fed Outsider
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Kevin Warsh does not hold a Ph.D. in macroeconomics, and his career did not start in an ivory tower, but in Morgan Stanley’s mergers and acquisitions department. This experience gave him a mindset completely different from Bernanke or Yellen: in the eyes of academics, a crisis is just a data anomaly in a model; but in Warsh’s eyes, a crisis is the second a counterparty defaults, the life-or-death moment when liquidity instantly goes from \“available\“ to \“nonexistent.\“
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In 2006, when the 35-year-old Warsh was appointed as a Federal Reserve Governor, many questioned his lack of seniority. But history is humorous; it was precisely this \“Wall Street insider\“ practical experience that made him an indispensable player in the subsequent financial storm. In the darkest moments of 2008, Warsh’s role had already transcended that of a regulator; he became the sole \“translator\“ between the Fed and Wall Street.
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Clip of Warsh participating in an interview at Stanford University’s Hoover Institution
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On one hand, he had to translate Bear Stearns‘ toxic assets, which went to zero overnight, into language that academic officials could understand; on the other hand, he had to translate the Fed’s obscure rescue intentions to the panicked market. He personally experienced the negotiations during that frantic weekend before Lehman’s collapse. This close-quarters combat gave him a physiological sensitivity to \“liquidity.\“ He saw through the essence of quantitative easing (QE): central banks indeed need to act as \“lenders of last resort\“ during crises, but this is essentially a transaction of mortgaging future credit to buy survival time in the present. He even pointed out sharply that the long-term blood transfusions after the crisis were actually \“reverse Robin Hood,\“ artificially inflating asset prices to rob the poor and give to the rich. This not only distorted market signals but also planted bigger landmines.
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It was precisely this keen sense of systemic fragility that became his core bargaining chip when Trump was selecting candidates for the new Federal Reserve Chair. On Trump’s list, Warsh and another hot candidate, Kevin Hassett, formed a stark contrast, a contest dubbed by the media as the \“Battle of the Two Kevins.\“
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Fed Chair Candidates: Hassett VS Warsh, Image Source Odaily Original
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Hassett is a typical \“growth-first\“ advocate. His logic is simple and direct: as long as the economy is growing, low interest rates are justified. The market generally believes that if Hassett takes office, he would likely cater to Trump’s desire for low rates, even starting to cut rates before inflation is fully under control. This also explains why long-term bond yields surged whenever Hassett’s odds rose, as the market feared runaway inflation.
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In contrast, Warsh’s logic is much more complex; it’s hard to simply label him as a \“hawk\“ or a \“dove.\“ Although he also advocates for rate cuts, his reasons are completely different. Warsh believes that current inflationary pressures are not because people are buying too much, but due to supply constraints and the excessive monetary expansion of the past decade. The Fed’s bloated balance sheet is actually \“crowding out\“ private credit and distorting capital allocation.
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Therefore, the prescription Warsh offers is a highly experimental combination: aggressive quantitative tightening (QT) coupled with moderate rate cuts. His intention is clear: control inflation expectations by reducing the money supply and restore the credibility of the dollar’s purchasing power—essentially, draining some water out. At the same time, lower nominal interest rates to ease corporate financing costs. This is a hardcore attempt to get the economy moving again without turning on the liquidity taps.
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Butterfly Effect on the Crypto Market: Liquidity, Regulation, and Hawkish Underpinnings
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If Powell is like a \“gentle stepfather\“ to the crypto market, cautiously trying not to wake the children, then Warsh is more like a \“strict boarding school headmaster\“ with a ruler in hand. The storm stirred by this butterfly’s wings might be more violent than we anticipate.
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This \“strictness\“ first manifests in his obsession with liquidity. The crypto market, especially Bitcoin, has been somewhat a derivative of the global dollar glut over the past decade. Warsh’s policy core is a \“strategic reset,\“ returning to the sound monetary principles of the Volcker era. His aforementioned \“aggressive quantitative tightening\“ is both short-term bad news and a long-term litmus test for Bitcoin.
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Warsh has explicitly stated: \“If you want to lower interest rates, you must first stop the money printing press.\“ For risk assets accustomed to the \“Fed put,\“ this means the disappearance of the safety net. If he takes office and firmly implements his \“strategic reset,\“ guiding monetary policy back to more prudent principles, global liquidity tightening will be the first domino to fall. As a \“frontier risk asset\“ highly sensitive to liquidity, the cryptocurrency market will undoubtedly face valuation pressure in the short term.
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Kevin Warsh discusses Fed Chair Jerome Powell’s interest rate strategy on \“Kudlow,\“ source Fox Business
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More importantly, if he truly achieves \“inflation-free growth\“ through supply-side reforms, keeping real yields positive in the long term, then holding fiat currency and government bonds will become profitable. This is completely different from the negative interest rate era of 2020, where \“everything went up, only cash was trash.\“ Bitcoin’s appeal as a \“zero-yield asset\“ may face a severe test.
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But there are always two sides to a coin. Warsh is someone who deeply believes in \“market discipline.\“ He would never rush to rescue the market like Powell did when stocks fell 10%. This \“no-bottom\“ market environment might ironically give Bitcoin a chance to prove its worth: when the traditional financial system develops credit fissures due to deleveraging (like the Silicon Valley Bank crisis), can Bitcoin break free from the gravitational pull of U.S. stocks and truly become a Noah’s Ark for safe-haven capital? This is the ultimate test Warsh poses to the crypto market.
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Behind this test lies Warsh’s unique definition of cryptocurrency. He left a famous quote in The Wall Street Journal: \“Cryptocurrency is a misnomer. It is not mysterious, nor is it money. It is software.\“
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