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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 switch\” of global liquidity—has become the most anticipated year-end cliffhanger.
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Months ago, when the benchmark rate ended its prolonged pause and saw its first cut, the market was once convinced that Christopher Waller was the chosen one (Recommended reading\”Academic Outsider Rises: Small-Town Professor Waller Becomes Hottest Candidate for Fed Chair\”). In October, the winds shifted, and Kevin Hassett surged ahead, with odds once nearing 85%. He was seen as \”the White House’s mouthpiece\”; if he took office, policy might fully 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 focus on the \”second in line\” with the greatest uncertainty—Kevin Warsh.
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If Hassett represents the market’s \”greedy expectations\” (lower rates, more liquidity), then Warsh embodies 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\”? If he were to helm the Fed, what seismic shifts would occur in the underlying logic of the crypto market? (Odaily note: The core views of this article are based on inferences from 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 entirely different from Bernanke or Yellen: to academics, a crisis is just a data anomaly in a model; but to Warsh, a crisis is the second a counterparty defaults, the life-or-death moment when liquidity instantly vanishes from \”present\” to \”absent.\”
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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 has a sense of humor—it was precisely this \”Wall Street insider\” practical experience that made him an indispensable player in the subsequent financial storm. In the darkest hours 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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Excerpt from Warsh’s 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, he had to translate the Fed’s obscure rescue intentions to a panicked market. He personally witnessed the negotiations during that frantic weekend before Lehman’s collapse, and this close-quarters combat gave him a physiological sensitivity to \”liquidity.\” He saw through the essence of quantitative easing (QE): central banks must indeed act as \”lenders of last resort\” during crises, but this is essentially a transaction that mortgages future credit to buy survival time in the present. He even pointedly noted that the prolonged post-crisis monetary easing was actually \”reverse Robin Hood,\” artificially inflating asset prices to rob the poor and feed the rich, which not only distorts market signals but also plants the seeds for a bigger crisis.
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It was this keen sense of systemic fragility that became his core bargaining chip when Trump was selecting candidates for the next Fed chair. On Trump’s list, Warsh and another hot contender, 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, with a simple, direct logic: as long as the economy is growing, low rates are justified. The market widely believes that if Hassett takes office, he would likely cater to Trump’s desire for low rates, even cutting rates before inflation is fully under control. This also explains why long-term bond yields surged whenever Hassett’s odds rose—because the market fears runaway inflation.
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In contrast, Warsh’s logic is far more complex; it’s hard to simply label him as a \”hawk\” or a \”dove.\” While he also advocates for rate cuts, his reasoning is entirely different. Warsh believes that current inflationary pressures stem not from excessive buying but from supply constraints and the massive monetary overhang of the past decade. The Fed’s bloated balance sheet is actually \”crowding out\” private credit and distorting capital allocation.
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Thus, Warsh’s prescription is an experimental combination: aggressive quantitative tightening (QT) coupled with moderate rate cuts. His intent is clear: to control inflation expectations by reducing the money supply, restoring the credibility of the dollar’s purchasing power—essentially draining some liquidity—while lowering nominal rates to ease corporate financing costs. This is a hardcore attempt to restart the economy without flooding it with liquidity.
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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\” in the crypto market, careful not to wake the children, then Warsh is more like a \”strict boarding school headmaster\” wielding a ruler. 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 QT\” is both a short-term nightmare and a long-term litmus test for Bitcoin.
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Warsh has explicitly stated: \”If you want to lower rates, you must first stop the money printer.\” For risk assets accustomed to the \”Fed put,\” this means the loss of a 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 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 long-term, then holding fiat and Treasuries will become profitable. This is starkly different from the negative-rate era of 2020, where \”everything rose except cash was trash,\” and Bitcoin’s appeal as a \”zero-yield asset\” may face severe challenges.
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But there are two sides to every coin. Warsh is someone who deeply believes in \”market discipline\” and would never rush to rescue the market like Powell did when stocks fell 10%. This \”no-bottom\” market environment might instead give Bitcoin a chance to prove its worth: when the traditional financial system cracks under deleveraging (like during 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, and it is not money. It is software.\”
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Excerpt from Kevin Warsh’s column \””}
