Bitcoin declined further to nearly eighty-one thousand dollars late Thursday as Warsh's nomination odds increased in betting markets.
On Thursday, President Donald Trump indicated he would announce his choice for the U.S. Federal Reserve chair to succeed incumbent Jerome Powell after Powell's term concludes in May.
While no official announcement has been made, reports suggest that the Trump administration is preparing to nominate Kevin Warsh, who served on the Federal Reserve Board of Governors from two thousand six to two thousand eleven.
Although Warsh has occasionally expressed support for cryptocurrencies, Bitcoin fell late Thursday to around eighty-one thousand dollars as his nomination odds surged on betting sites, with some analysts viewing him as a bearish influence on the asset.
"Markets generally perceive a resurgence of Warsh's influence as negative for Bitcoin, as his focus on monetary discipline, higher real rates, and reduced liquidity frames crypto not as a safeguard against currency devaluation but as a speculative excess that diminishes when easy money is withdrawn," remarked Markus Thielen, founder of ten times Research.
Higher real interest rates indicate the actual cost of borrowing money, adjusted for inflation, is elevated. This represents the "true" interest rate that negatively affects financial conditions. Elevated real rates typically lead businesses and investors to reduce exposure to high-risk investments like Bitcoin.
Warsh's historical stance adds to the concern. During the global financial crisis from December two thousand seven to June two thousand nine, Warsh consistently highlighted inflation risks even as the global economy faced significant deflationary pressures.
For instance, in September two thousand eight, following the collapse of Lehman Brothers, Warsh stated, "I'm still not ready to relinquish my concerns on the inflation front."
Seven months later, when the Fed's preferred inflation measure was at zero point eight percent and the unemployment rate was at nine percent, he remarked, "I continue to be more worried about upside risks to inflation than downside risks."
Over the years, many observers have suggested that Warsh's hawkish outlook and failure to recognize deflation risks exacerbated the crisis.
"From this perspective, his approach would likely have led to higher unemployment, slower recoveries, and greater deflation risks during the two thousand ten decade," Thielen noted.
This situation renders a potential Warsh appointment ironic, as the former Fed governor's hawkish record sharply contrasts with Trump's reflationary, pro-risk asset agenda. Trump has frequently criticized Powell, often resorting to personal attacks for maintaining elevated rates and constraining the economy. The President has emphasized the need for rapid rate reductions, advocating for interest rates to be as low as one percent from the current range of three point five to three point seven percent.
Consequently, several observers suggest Warsh would be an unsuitable choice for the Fed, which is expected to align with Trump's perspective.
"Kevin Warsh has maintained a hawkish monetary policy stance throughout his career, particularly during a time when labor markets were deteriorating. His current dovishness appears opportunistic. The President risks being misled," Renaissance Macro Research commented.
"I reviewed the Federal Open Market Committee transcripts during the financial crisis. His remarks alarmed me," remarked Bloomberg's Chief U.S. Economist Ana Wong.
Fortunately, even if appointed as Fed chair, Warsh cannot unilaterally dictate rates, as the Board of Governors votes collectively, which mitigates the influence of any single voice. It remains uncertain whether Trump will proceed with Warsh's nomination.
Until that decision is made, his hawkish history may continue to unsettle risk assets and strengthen the dollar in the interim.