Trump’s Fed Pick Kevin Warsh Sends Mixed Signals for Crypto

US President Donald Trump has nominated former Federal Reserve governor Kevin Warsh to replace Jerome Powell as chair of the Federal Reserve in May. 

This is a choice that combines a pro-Bitcoin (BTC) outlook with a preference for tighter money and a smaller central bank balance sheet. Interestingly, BTC slipped about 2% to roughly US$81,000 (AU$123K) after the announcement as traders weighed the implications for dollar liquidity.

Kraken economist Thomas Perfumo told Cointelegraph that the nomination suggests the Fed’s rate-cut path is likely to stay in place, but without a major new wave of liquidity. 

In his view, broader financial conditions are expected to “stabilize rather than meaningfully expand,” keeping a macro backdrop for crypto that is sensitive to liquidity but not obviously supportive.

This sustains the mixed macro backdrop for Bitcoin and crypto, which are sensitive to overall liquidity conditions, perhaps moreso than changes to the Fed Funds Rate.

Thomas Perfumo, Kraken

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A Hawkish Central Banker, And A Bitcoin Supporter

Warsh, 55, served as a Fed governor from 2006 to 2011 after roles at Morgan Stanley and in the George W. Bush White House. He has long argued for higher interest rates and a leaner Fed balance sheet, putting him on the hawkish side of monetary policy debates.

At the same time, he has been unusually positive on Bitcoin for a former central banker. Warsh has described BTC as an “important asset” and a “sustainable store of value like gold,” and has framed it as a kind of policy “watchdog” that reflects when the Fed misjudges inflation. 

Interestingly enough, he has defended Bitcoin against high-profile critics, invested in crypto companies, and said the asset “doesn’t make me nervous,” while warning that some private cryptocurrencies are “fraudulent” or structurally unreliable without official backstops.

Keep in mind Warsh also backs a US central bank digital currency as a counterweight to China’s digital yuan, but has expressed doubts about privately issued stablecoins.

Overall, the crypto community’s response has been split between welcoming a Fed chair who takes Bitcoin seriously and worrying about his preference for tighter liquidity and a smaller balance sheet. 

Read more: Visa, Mastercard Play Down Stablecoins for Payments as Consumer Demand Falls Short