Trump nominates Kevin Warsh as the next Federal Reserve Chair: Short- and medium-term impact on the crypto market and long-term trajectory analysis

Writing Date: 2026-01-30 Disclaimer: This article is for informational and research purposes only and does not constitute any investment advice.

1. News Brief (What happened)

On January 30, 2026, U.S. President Trump announced the nomination of former Federal Reserve Board member Kevin Warsh as the next Federal Reserve Chair, to succeed Jerome Powell when his term ends in May 2026. The nomination still requires Senate confirmation. Multiple media reports indicate that Warsh served as a Fed Board member from 2006 to 2011, responsible for communication with Wall Street during the 2008 financial crisis; he has publicly supported “lower interest rates” over the past year but also emphasized balance sheet reduction/restructuring of policy frameworks, criticizing the Fed’s policy “loss of focus” in the post-crisis and post-pandemic era.

In a nutshell: this is a combination of “more dovish on interest rates, but possibly more hawkish on liquidity”—the impact on crypto assets depends not just on whether rates are cut or not, but on the net effect of “rate cuts + balance sheet reduction” and the market’s re-pricing of future liquidity expectations.

2. Market First Reaction: Why did BTC/ETH fall first?

From the same-day market movements after the news, risk assets generally weakened:

BTC dropped to around $82,000 (with significant intraday volatility); Market commentary generally attributes the decline to concerns over “smaller Fed balance sheet/more tightening financial conditions” and risk aversion driven by the dollar/long-term interest rate increases.

Intuitive explanation: Crypto assets (especially BTC) have been viewed over the past few years as “liquidity-sensitive assets.” When markets believe that “liquidity will be drained” in the future (regardless of nominal interest rate movements), short-term funds tend to withdraw first.

3. Understanding Warsh: The real focus isn’t “Will he cut rates,” but “How will he handle liquidity”

Based on public reports and market interpretations, Warsh’s potential policy profile can be broken down into two main themes:

1. Interest rate stance: He may be more willing to “cooperate with rate cuts,” but not necessarily faster

Trump has consistently emphasized lower borrowing costs and has publicly expressed a tendency for “more substantial rate cuts.” Warsh has also expressed more frequently over the past year that “interest rates should be lower,” so the market will naturally form an initial impression of “a more dovish chair.”

But two points to note:

The Chair is not an autocrat: The FOMC is a committee decision, and the new Chair needs to build consensus with the majority; The “room for rate cuts” depends on inflation and employment data, not the President or Chair’s preferences.

2. Liquidity stance: Balance sheet reduction and discussions of the “new Treasury-Fed agreement” may tighten financial conditions

Compared to “verbal dovishness,” Warsh has been more explicit and consistent in criticizing the Fed’s balance sheet expansion and advocating for “changes in policy framework/governance.” If he ties “rate cuts” to “faster balance sheet reduction or a clear path for shrinking,” then for crypto markets, the possible outcomes are:

Nominal interest rates decline (positive) But systemic liquidity is withdrawn (negative) The net effect ultimately depends on which factor dominates and market expectations differ.

4. Key transmission channels affecting crypto trends (clarify the logic)

Below are five “from Fed to coin prices” links, breaking down the impact:

Link A: Interest rates and real yields → Risk asset valuation

Lower interest rates generally increase the valuation tolerance for high-volatility assets; But if inflation expectations do not fall and long-term rates rise, real yields may increase, suppressing the attractiveness of “cashless assets” (including BTC).

Link B: USD strength (DXY) → Global risk appetite and USD liquidity

A stronger dollar often correlates with marginal tightening of global liquidity, pressuring risk assets; A weaker dollar generally benefits crypto and emerging market risk appetite.

Link C: Fed balance sheet (QT/QE) → “Net liquidity” environment

Many traders care more about “how much money is in the system” than “the interest on that money.” Historically, during balance sheet expansion periods, BTC tends to trend upward; Conversely, if markets expect “more determined balance sheet reduction,” BTC is often re-priced downward first.

Link D: Volatility and “policy uncertainty premium” → Leverage and liquidation chains

Rising political and monetary policy uncertainty increases volatility; Crypto markets, with higher leverage and more intense liquidation mechanisms, are prone to “accelerated declines” or “short squeezes.”

Link E: Banking system and compliance channels → Stablecoin/exchange fiat inflows and outflows

Fed Chair influences regulatory climate (especially banking regulation and payment system attitudes). If banks become more cautious about crypto activities, stablecoin and exchange fiat channels may narrow; Conversely, emphasizing “financial innovation + controlled compliance” can facilitate larger traditional fund inflows.

5. Three most important scenario analyses (also what you should watch)

You can interpret the upcoming market as continuously re-pricing these three scenarios.

Scenario 1: “Mild rate cuts + manageable balance sheet reduction” (more bullish)

Economy slows but does not recession; inflation recedes; FOMC allows continued rate cuts, but balance sheet reduction is not aggressive; Impact: Long-term rates fall / dollar weakens → risk appetite recovers → BTC/ETH may experience “trend reversal rally.”

Scenario 2: “Rate cuts paired with faster balance sheet reduction (small rate cuts, but QT accelerates)” (more bearish)

Appears more dovish, but systemic net liquidity is withdrawn; Impact: Dollar and long-term rates may not decline, and term premiums may rise → funds prefer cash and high-grade bonds → crypto valuations are pressured, with shorter, more fragile rebounds.

Scenario 3: “Hawkish anti-inflation + rising long-term rates” (strong bearish)

Sticky inflation / tariffs and supply shocks raise price expectations; New Chair emphasizes discipline and credibility, markets price in higher long-term rates; Impact: Real yields rise + dollar strengthens → crypto and growth stocks generally under pressure, prone to “gradual decline + leverage liquidation.”

6. Short-term and mid-term “observation checklist” (very practical)

If you want to turn this news into an actionable trading/asset allocation framework, I recommend monitoring these 8 items:

Senate confirmation progress: hearing schedules, key senator statements, whether “nomination stalls/ bargaining” occurs. Warsh’s initial policy statements: especially “balance sheet path, asset target, coordination with Treasury.” Long-term US debt yields: trends of 10Y/30Y, more indicative of financial conditions than the federal funds rate. Dollar index and offshore USD funding pressure: the stronger the dollar, the harder risk assets find it to sustain gains. Implied path of federal funds futures: see if market expectations shift from “multiple rate cuts” to “fewer cuts/delays.” Weekly changes in Fed balance sheet: whether QT accelerates, whether bank reserves shrink. Crypto market leverage indicators: perpetual funding rates, open interest (OI), liquidation volume. Stablecoin supply and exchange net inflows: reflect real fund inflows and outflows.

7. Conclusion: core judgment on “future crypto trends”

Short-term (days to weeks): “Nomination event” is more like a risk re-pricing shock. If markets continue to believe in “smaller balance sheets + tighter financial conditions,” BTC/ETH may remain weak or volatile. Medium-term (1–3 months): Market will shift toward “data-driven,” especially inflation, employment, long-term rates, and the dollar. If the economy weakens and inflation recedes, markets will reprice the “rate cut” narrative, making crypto more likely to recover. Long-term (3–12 months): The key is whether Warsh links “rate cuts” to “faster QT.” If yes—crypto is likely to enter a “more liquidity-scarce” phase: higher volatility, shorter trends, and a bull market more dependent on exogenous factors (ETF flows, regulation, institutional cycles).

One sentence conclusion:

For crypto, the key point of this news isn’t “who is in the chair,” but “whether net liquidity will shift from ‘loose’ to ‘discipline’ over the next year.”

Sources (selected by publication date):

Reuters (2026-01-30): Reports and market commentary on Bitcoin decline and “balance sheet reduction/liquidity concerns” TIME (2026-01-30): Details of nomination, candidate background, discussions on balance sheet/restructuring policy, and term timeline The Washington Post (2026-01-30): Background on nomination and policy independence controversy Barron’s / Financial Times / The Guardian (2026-01-30): Additional reports on market reactions and macro interpretations