Original | Odaily Planet Daily (@OdailyChina)
Author | Ethan(@ethanzhang_web3)
As the year draws to a close, the question of who will wield the scepter of the Federal Reserve Chair—the "master valve" of global liquidity—has become the most watched year-end suspense.
Months ago, when the benchmark rate ended its long pause and saw its first cut, the market was once convinced that Christopher Waller was the chosen one (Recommended reading: ‘The Academic Outsider: Small-Town Professor Waller Becomes Hottest Candidate for Fed Chair’). The winds shifted in October, with Kevin Hassett surging ahead, his odds once approaching 85%. He is seen as a "mouthpiece for the White House"; if he takes office, policy might completely follow Trump's will, even jokingly called a "human printing press."
However, today, we will not discuss the frontrunner with the highest probability, but focus on the wildcard "second in line"—Kevin Warsh.
If Hassett represents the market's "greed expectation" (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"? If he truly takes the helm of the Fed, what fundamental changes could occur in the underlying logic of the crypto market? (Odaily Note: The core views of this article are extrapolated based on Warsh's recent speeches and interviews.)
Warsh's Evolution: From Wall Street Golden Boy to Fed Outsider
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 M&A department. This experience gave him a mindset completely different from that of 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 vanishes from "available" to "unavailable."
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. During the darkest moments of 2008, Warsh's role had already surpassed that of a regulator; he became the sole "translator" between the Fed and Wall Street.
Excerpt from Warsh's interview at Stanford's Hoover Institution
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 was involved in the frantic weekend negotiations before Lehman's collapse. This close-quarters combat gave him a physiological sensitivity to "liquidity." He saw through the essence of quantitative easing (QE): the central bank must indeed act as the "lender of last resort" during a crisis, but this is essentially a transaction that mortgages future credit to buy survival time in the present. He even pointedly noted that the long-term输血 (blood transfusion) after the crisis was actually "reverse Robin Hood," artificially inflating asset prices to rob the poor to feed the rich, which not only distorted market signals but also planted the seeds for a bigger crisis.
It was this keen sense of the system's fragility that became his core bargaining chip when Trump was selecting candidates for the new Fed Chair. On Trump's list, Warsh and another frontrunner, Kevin Hassett, formed a stark contrast, a contest dubbed the "Battle of the Kevins" by the media.
Fed Chair Candidates: Hassett VS Warsh, Source: Odaily Original
Hassett is a typical "growth-first" advocate. His logic is simple and direct: as long as the economy is growing, low rates are justified. The market generally believes that if Hassett takes office, he would likely cater to Trump's desire for low rates, even initiating rate cuts before inflation is fully under control. This also explains why long-term bond yields surged whenever Hassett's odds increased—the market feared runaway inflation.
In contrast, Warsh's logic is far more complex; it's difficult to simply label him as "hawkish" or "dovish." Although he also advocates for rate cuts, his reasoning is completely different. Warsh believes the current inflationary pressure isn't because people are buying too much, but due to supply constraints and the massive monetary oversupply of the past decade. The Fed's bloated balance sheet is actually "crowding out" private credit and distorting capital allocation.
Therefore, the prescription Warsh offers is an extremely experimental combination: aggressive quantitative tightening (QT) coupled with moderate rate cuts. His intention is clear: control inflation expectations by reducing the money supply, restoring the credibility of the dollar's purchasing power—essentially, draining some water out of the pool; while simultaneously loosening corporate financing costs by lowering nominal rates. This is a hardcore attempt to get the economy moving again without turning on the liquidity taps.
The Butterfly Effect on the Crypto Market: Liquidity, Regulation, and Hawkish Core
If Powell is like a "gentle stepfather" to the crypto market, treading carefully so as not to wake the children, then Warsh is more like a "strict headmaster of a boarding school" holding a ruler. The storm stirred by this butterfly's wings might be more violent than we anticipate.
This "strictness" is first reflected in his obsession with liquidity cleanliness. The crypto market, especially Bitcoin, has been, to some extent, a derivative of global dollar abundance over the past decade. Warsh's policy core is a "strategic reset," a return to the sound money principles of the Volcker era. His aforementioned "aggressive balance sheet reduction" is both short-term bad news and a long-term litmus test for Bitcoin.
Warsh has clearly stated: "If you want to lower interest rates, you must first stop the 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 robust principles, a 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 reassessment pressure in the short term.
Kevin Warsh discusses Fed Chair Jerome Powell's利率 strategy on "Kudlow," source Fox Business
More importantly, if he actually achieves "inflation-free growth" through supply-side reforms, keeping real yields positive for the long term, then holding fiat currency and government bonds will become profitable. This is starkly different from the negative interest rate era of 2020, where "everything rallied, only cash was trash." Bitcoin's appeal as a "zero-yield asset" could be severely tested.
But there are two sides to every coin. Warsh is someone who is extremely superstitious about "market discipline"; he would never rush to rescue the market after a mere 10% stock market drop like Powell did. This "no bottom" market environment might反而 give Bitcoin a chance to prove its worth: when the traditional financial system develops credit cracks due to deleveraging (like the Silicon Valley Bank crisis), can Bitcoin break free from the gravitational pull of US stocks and truly become a Noah's Ark for safe-haven funds? This is the ultimate test Warsh poses to the crypto market.
Hidden behind this test is Warsh's unique definition of cryptocurrency. He left a famous quote in The Wall Street Journal: "Cryptocurrency is a misnomer. It is not mysterious. It is not money. It is software."
Excerpt from Kevin Warsh's column ‘Money Matters: The Dollar, Cryptocurrency, and the National Interest’
This sounds harsh, but if you look at his resume, you'll find he is not a blind opponent but an insider who understands the technical mechanisms deeply. He is not only an advisor to the crypto index fund Bitwise but also an early angel investor in the algorithmic stablecoin project Basis. Basis attempted to mimic central bank open market operations with algorithms. Although the project ultimately died due to regulation, this experience made Warsh understand better than any bureaucrat how code generates "money."
Precisely because he understands, he is more severe. Warsh is a typical "institutionalist." He recognizes crypto assets as investment vehicles like commodities or tech stocks, but he has very low tolerance for "private coinage" that challenges dollar sovereignty.
This binary attitude will directly determine the fate of stablecoins. Warsh is highly likely to push for bringing stablecoin issuers under a "narrow bank" regulatory framework: requiring 100% cash or short-term debt reserves, prohibiting fractional reserve lending like banks. This is a double-edged sword for Tether or Circle. They would gain a legitimate status similar to banks, with extremely deep moats; but they would also lose the flexibility of "shadow banking," and their profit model would be彻底 locked into government bond interest. As for those small and medium-sized stablecoins trying to engage in "credit creation," they would likely be eliminated under such high pressure. (Recommended reading: ‘Farewell to the ‘Correspondent Bank’ Era? Five Crypto Institutions Get the Key to the Fed's Payment System’)
The same logic extends to CBDCs. Unlike many Republicans who oppose them outright, Warsh offers a more refined "American solution." He firmly opposes a "retail CBDC" issued directly by the Fed to individuals, seeing it as an invasion of privacy and an overreach of power—a view surprisingly aligned with the crypto community's values. But he is a proponent of "wholesale CBDCs," advocating for the use of blockchain technology to reform the interbank clearing system to address geopolitical challenges.
Under this architecture, the future might see a奇妙 fusion: the underlying settlement layer controlled by the Fed's wholesale chain, while the upper application layer is left to regulated public chains and Web3 institutions. For DeFi, that would be the end of the "Wild West" era, but perhaps also the true beginning of spring for RWA. After all, in Warsh's logic, as long as you don't try to replace the dollar, technological efficiency gains will always be welcome.
Conclusion
Kevin Warsh is not just an alternative on Trump's list; he is the embodiment of the old Wall Street order trying to redeem itself in the digital age. Perhaps under his leadership, RWA and DeFi, built on real utility and institutional compliance, might just be entering their true golden age.
However, just as the market overinterprets Warsh's resume, BitMEX founder Arthur Hayes poured a bucket of very sobering cold water. In Hayes' view, we might all be making a directional error. The key is not what that person "believes in" before becoming Chair, but whether he understands, after taking that seat, who he actually "works for."
Looking back at the Fed's century-long history, the博弈 (game) between the President and the Chair has never stopped. Back then, President Lyndon B. Johnson reportedly even physically intimidated then-Chair William McChesney Martin on a Texas ranch to force a rate cut. Compared to that, Trump's Twitter attacks are child's play. Hayes' logic is cruel but真实 (real): The US President will ultimately always get the monetary policy he wants. And what Trump wants is always lower rates, a hotter market, and more abundant money supply. No matter who sits in that chair, they will eventually have to use the tools to get the job done.
This is the ultimate suspense facing the crypto market:
Warsh is indeed someone who wants to put his hand on the printing press's switch and try to turn it off. But when political gravity strikes, when the growth demand of "Make America Great Again" collides with his "hard money" ideals, will he tame inflation, or will the power game tame him?
In this博弈 (game), Warsh might be a respectable "hawkish" opponent. But in the eyes of seasoned traders like Hayes, who becomes Chair doesn't really matter, because no matter how曲折 (tortuous) the process, as long as the political machine is still running, the liquidity valve will ultimately be turned back on.
Recommended Reading:
‘Inflation Is a Choice: Kevin Warsh on Fixing the Fed | Extraordinary Insights’
‘Farewell to the ‘Correspondent Bank’ Era? Five Crypto Institutions Get the Key to the Fed's Payment System’)
‘Money Matters: The Dollar, Cryptocurrency, and the National Interest’
