Behind the major shift in monetary policy is a reform that is bitter at first but sweet afterward.
"Why is my account still shrinking with a new Federal Reserve chairman?" This is probably a common question among many in the cryptocurrency community today.
Yesterday, Trump officially nominated Kevin Warsh as the next Chairman of the Federal Reserve, replacing Powell. Once the news broke, gold plummeted over 12%, silver crashed by 36%, and Bitcoin briefly fell below $85,000.
Behind the market's vote with its feet is a complete shift in the logic of global liquidity pricing. As an observer who has been navigating this market for many years, I want to talk about how this new chairman will affect our wallets.
01 Who is Walsh? A "Rule Rebuilder" who does not play by the book.
First, eliminate a misconception: Walsh ≠ traditional hawk.
This guy is indeed known for his "strong discipline", but unlike those central bank officials we are familiar with who only raise interest rates, his core idea is: "Inflation is a choice."
What does it mean? In his view, inflation is not inevitably caused by external factors such as supply chains or wars, but is the result of central bank policy choices. This means that solving the inflation issue can rely on policy restructuring, rather than necessarily going through a hard landing like "economic recession".
Walsh's career spans regulation, investment, and academia. He experienced the 2008 financial crisis and was one of the earliest Federal Reserve officials to say "no" to quantitative easing— resigning in protest in 2010 for opposing QE2. This experience as a "defector" shaped his dedication to central bank independence.
More crucially, he proposed a seemingly contradictory policy mix: simultaneous interest rate cuts and balance sheet reduction. It's like giving a patient a blood transfusion while also letting blood out; it seems contradictory but directly points to the core contradiction of the current U.S. economy: the enormous debt pressure requires low interest rates to alleviate, but the inflation problem requires tightening liquidity.
02 The Essential Difference from Powell: From "Data Dependency" to "Rule Driven"
During Powell's era, the market got used to the "Federal Reserve's put option"—as long as the market crashes, the central bank will intervene to save it. This policy logic has turned investors into "spoiled children."
Walsh's arrival means that parents need to change their discipline methods.
Powell is a "data dependent" decision-maker who needs to see a series of economic data confirmations before making decisions, which always results in a lag. In contrast, Walsh emphasizes rules and foresight, believing that the Federal Reserve should reduce its dependence on data and abandon the tool of "forward guidance."
The fundamental divergence is reflected in the balance sheet. During Powell's tenure, the Federal Reserve's balance sheet peaked at nearly $9 trillion, and despite having reduced it by $2.4 trillion, it still stands at about $7 trillion. Walsh has long criticized this "fat balance sheet", believing it distorts capital pricing and is one of the sources of inflation.
For the market, this shift means that future monetary policy will be more predictable, but the buffer has also thinned.
03 The Real Impact on the Crypto Market: Short-term Pain and Long-term Restructuring
On the day the news broke, Bitcoin briefly fell below $85,000, but quickly regained some ground. This volatility reflects the market's contradictory psychology: worried about tightening liquidity while also seeing long-term possibilities.
My judgment is that Walsh's impact on the crypto market will unfold in three stages:
Short term (3-6 months): Deleveraging pain period
If Walsh indeed raises the balance sheet reduction limit from $95 billion per month to $150 billion, market liquidity will quickly tighten. The highly leveraged crypto market will inevitably face a wave of deleveraging pressure, especially those pure narrative coins without substantial support.
Medium term (6-18 months): Structural Differentiation Period
Bitcoin may benefit from misfortune, establishing its status as a "non-sovereign asset". Walsh's policy framework is essentially about rebuilding monetary discipline, and Bitcoin's scarcity characteristics resonate with this. He views Bitcoin as a tool to hedge against fiat currency credit rather than merely a risky asset.
Long term (18 months or more): Institutional Integration Period
Walsh has an open attitude towards financial innovation, supporting "allowing banks to hold crypto assets." This means that spot ETFs, compliant exchanges, and institutional-level DeFi protocols may gain "limited access." Crypto assets will move from the margins to the mainstream, but they must adhere to traditional financial rules.
04 Walsh's True Position: A Redefinition of Bitcoin
Walsh has a widely circulated saying in the crypto sphere: "If you are under 40, Bitcoin is your new gold."
This is not just a trading signal, but a redefinition of asset attributes. During Powell's era, Bitcoin was classified as a "high-risk tech stock", with its movements highly correlated to the Nasdaq. Under Walsh's framework, Bitcoin may be redefined as a value storage tool.
He is highly optimistic about the productivity gains brought by AI, believing that the technological revolution is a deflationary force. This view coincides perfectly with the narrative of "decentralization" and "efficiency improvement" advocated by cryptocurrencies.
05 Strategies for Ordinary Investors: Survive and wait for spring.
In the face of this macro-level "policy surgery", what should we do?
First, maintain liquidity. In the next 3-6 months, market volatility will intensify. Keep a certain proportion of USDC or cash to avoid being forced to liquidate during the deleveraging process. This is not retreating, but rather preparing to strike from a better position.
Second, focus on real value. The risk of Meme coins and dog projects with no cash flow or practical use is increasing. The focus should shift to assets with solid fundamentals like Bitcoin and Ethereum, as well as Web3 projects that can truly combine AI to enhance production efficiency.
Third, a long-term perspective. Walsh's appointment may be painful in the short term, but in the long run, the monetary discipline and financial innovation framework he promotes precisely provides a more sustainable development environment for the crypto market. If you believe Bitcoin is the "new gold", do not be troubled by 10%-20% volatility.
The essence of this transformation is that money no longer backs all assets. For investors accustomed to a loose environment, this is undoubtedly bad news. But for the crypto industry wanting to move towards the mainstream financial system, it is rather a necessary rite of passage.
Only those who survive the pain period are qualified to enjoy the feast after the interest rate cuts.
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