Kevin Warsh’s return to the Fed sparks bitcoin jitters over rates, balance sheet cuts

The market was blindsided by sudden news of President Donald Trump naming Kevin Warsh as his choice for the next Federal Reserve chair, ending a month-long saga of guessing game.

The U.S. dollar rallied, bitcoin fell and the equity market became volatile when the news broke; while the market might have stabilized a bit for now, the uncertainty is still gripping the traders across all asset classes.

So who is Kevin Warsh, and more importantly, how will his leadership shape the future of monetary policy and crypto?

Former Fed governor

Kevin Maxwell Warsh is a former U.S. Federal Reserve governor who served from 2006 to 2011 and played a senior role during the 2008 global financial crisis, including acting as a key liaison between the Fed and financial markets.

Before joining the central bank, Warsh worked at Morgan Stanley and served in the George W. Bush administration as Special Assistant to the President for Economic Policy and Executive Secretary of the National Economic Council, giving him experience spanning Wall Street and Washington.

After leaving the Fed, Warsh became a visiting fellow at Stanford University’s Hoover Institution, where he has written extensively on monetary policy, central bank credibility and what he views as the long-term risks of prolonged balance-sheet expansion by central banks.

It’s worth noting here that while the nomination spooked the market and bitcoin, Federal Reserve Chair Jerome Powell — whose second four-year term expires on May 15, 2026 — is eligible to remain on the Fed’s Board of Governors until Jan. 31, 2028. Warsh must still be confirmed by the Senate before assuming the role, but a vacancy created by Governor Stephen Miran’s expiring temporary term on Jan. 31, 2026 could allow him to join the board ahead of May.

The bitcoin view

Warsh’s appointment has drawn particular scrutiny from digital-asset investors — at least initially — given his long-held views on monetary discipline and skepticism toward bitcoin’s role as money.

While the concern is not with Warsh personally, his background has led many market participants to view him as potentially bearish for bitcoin and other risk assets. He is broadly viewed as favoring monetary discipline, higher real rates, and a smaller Fed balance sheet, all of which oppose a liquidity-heavy environment that has historically backed risk assets.

So what are his ties to crypto?

First, let’s take a look at what he said about bitcoin previously.

In public commentary in 2015, Warsh approached bitcoin and cryptocurrencies primarily through a monetary-policy lens, expressing skepticism about their use as stable mediums of exchange while acknowledging the potential of blockchain technology.

“The underlying technology in that white paper, it’s just software,” Warsh said during a video conversation with Stanley Drukenmiller. “It’s just the newest, coolest software that will provide us the opportunity to do things we could never have done before.”

While acknowledging all software can be used for good and for evil, Warsh said that by building it here in the US, that gives us the opportunity to be more productive and create something very special over the next decade…”

At one point in the conversation with the billionaire hedge fund manager and his former colleague, Warsh told Drukenmiller, “You made reference to Bitcoin and I thought I heard a little condescension in your voice, that people are buying bitcoin.”

He went on to make a case in favour of bitcoin, saying “it could provide market discipline, it could tell the world that things need to be fixed.” He also said he thinks of “bitcoin as a lot of things, but certainly with every passing day it’s getting new life as an alternative currency.”

While the interview is from 2015, when bitcoin was still seen as dangerous and mostly used for illegal activities, a lot has changed in the last eleven years. Now, the U.S. has a pro-crypto government, there is legislation in the works to create a legal framework for digital assets, and, most importantly, crypto has become too big to ignore, even for Wall Street giants.

The potential future Fed chair has argued that central banks must engage with digital money, including considering a U.S. central bank digital currency (CBDC) to counter bitcoin and rival China’s digital yuan. Worth noting that CBDC is a hotly debated topic in the crypto community due to privacy concerns.

He also said cryptocurrency was nothing more than “software pretending to be money.” He categorized cryptocurrencies as a symptom of “speculative excess” driven by loose monetary policy and argued that Bitcoin’s rise was largely a derivative of the “global dollar flood” and that, as liquidity tightens, such assets are likely to lose their appeal.

‘Not hostile to crypto’

Warsh also had close ties with crypto in general.

Warsh has drawn attention in crypto circles for his early involvement with digital-asset firms, including Bitwise Asset Management, a crypto index fund provider. Warsh was an investor in a cryptocurrency project called Basis, an algorithmic central bank. He also served as an adviser for Electric Capital, a VC firm focused on crypto, blockchain and fintech.

Market analysts covering crypto have said Warsh’s policy outlook, which emphasizes institutional credibility and monetary discipline, could matter for liquidity conditions affecting risk assets such as bitcoin.

Warsh is not a crypto evangelist, but has expressed a nuanced, pragmatic stance on innovation and regulation. Analysts view him as cautious about private crypto volatility and as more focused on systemic financial stability than on championing unregulated markets.

While criticizing its use as money, Warsh has conceded that bitcoin could potentially serve as a “sustainable store of value, like gold.” However, he maintains that its boom-and-bust cycles are speculative and may foretell “heightened market volatility” across broader financial assets.

“Warsh is not viewed as hostile to crypto, and the prospect of a new Fed Chair perceived as more inclined toward rate cuts could trigger a short-term relief rally across risk assets,” Market analyst and Adlunam founder Jason Fernandes said.

“However, without a genuine macroeconomic justification for easing, any such move will be met with skepticism and sold into,” Fernandes added.