US President Donald Trump has nominated former Federal Reserve governor Kevin Warsh to lead the central bank, a decision market analysts say sends mixed signals for cryptocurrencies and dollar liquidity.
Trump tapped Bitcoin-friendly Warsh on Friday; he would replace Jerome Powell when Powell’s term ends in May, subject to Senate approval. Warsh’s nomination may keep the Fed on a path toward interest rate cuts, but Thomas Perfumo, global economist at crypto exchange Kraken, warned it also suggests broader market liquidity is likely to “stabilize rather than meaningfully expand.”
“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,” Perfumo said. He added investors could be disappointed by Warsh’s “skeptical posture on balance sheet expansion,” a reference to policies such as quantitative easing that involve bond-buying to lower borrowing costs and spur activity.
Cryptocurrency markets lost about $250 billion in market capitalization over the weekend amid a wider sell-off that hit stocks and precious metals. Analyst Raoul Pal pointed to a US liquidity drought — not crypto-specific events — as the main driver of the crash.
Nic Puckrin, investment analyst and Coin Bureau co-founder, said Warsh’s nomination was the spark for investor liquidity concerns, arguing markets are digesting Warsh’s view that the Fed’s balance sheet is “trillions larger” than necessary. “If he does indeed adopt policies to shrink the balance sheet, markets will have to reckon with a lower-liquidity environment – a backdrop that isn’t supportive of either risk assets or precious metals,” Puckrin said.
Uncertainty remains over Warsh’s stance on interest rates and how closely he might align with Trump’s push for lower rates. Market expectations for interest rate moves have been largely unchanged since the nomination: CME Group’s FedWatch tool shows about 85% of participants expect rates to remain steady at the March 18 meeting. For the June 17 meeting — the first FOMC session after Powell’s term ends — 49% of participants now expect a 25 basis-point rate cut, up from 46% the prior week.
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