On May 22, 2026, local time, according to Golden Finance, Kevin Walsh was sworn in as the Chairman of the Federal Reserve in Washington. Before the oath had even faded from the television screen, Treasury Secretary Bessent publicly stated that she believed Walsh would make the right decision on the core issue of "whether to cut interest rates." The statement sounded mild, but it touched on the most sensitive nerves in the market—current U.S. inflation and employment data are repeatedly swinging, and even the same set of data can be interpreted by different traders as entirely opposite stories: some bet that the rate cut channel will open this year, while others still insist on a "higher for longer" path. The timing and pace of the first rate cut implied by federal funds futures are being rewritten daily. In this context, a newly appointed Federal Reserve Chairman, along with a Treasury Secretary who clearly sends a "trust" signal, is not just a personnel change but is collaboratively redefining the narrative framework for future interest rate paths: if Walsh is seen as more willing to shift to easing under economic pressure, even changes at the expectation level alone could pivot actual interest rates, the yield curve, and the pricing of dollar liquidity, thereby altering BTC's risk premium as "digital gold," ETH's valuation anchor as a "tech growth asset," and the funding allocation between on-chain dollar assets and off-chain currency markets. Thus, in this round of repricing triggered by resetting interest rate expectations, whether the crypto market will usher in a new round of risk appetite repair or be forced to adapt to prolonged high interest rate pressure will become the starting point for all future position adjustments.

Hawkish Resume Takes Office: Rewriting the Interest Rate Path?

In the market's memory, Kevin Walsh last stood in the spotlight during the periods surrounding the financial crisis, particularly sensitive to inflation and asset bubbles. Now, with inflation yet to be firmly pressed back near 2%, and having historically been cautious about price risks, he steps into the role of chairman, naturally bringing the script of "higher rates lasting longer" back into play. Traders have begun to elevate the weight of "longer high rates" scenarios in their pricing: federal funds futures and OIS curves no longer boldly bet on rapid rate cuts but instead compress front-end rate cut positions and flatten the back-end curve, pushing the implied distributions of terminal rates and the timing of the first rate cut toward a more conservative direction; the faction supporting early easing still exists, but the tug-of-war with hawkish expectations is reflected in every basis point of price movement. Historically, each change in the Federal Reserve Chair has triggered a repricing of interest rate derivatives and U.S. Treasury yield curves; this time, the focus of debate is more precisely locked onto whether "Walsh will tolerate a longer period of restrictive rates."

The rewriting of the interest rate path first impacts the two valuation anchors of nominal and real yields. If the market believes Walsh will more firmly uphold anti-inflation positions, the mid to long-end of U.S. Treasury nominal yields will easily rise, combined with adjustments in future inflation expectations leading to an upward shift in real yield central tendency, and the global asset discount rates will rise in tandem. From U.S. stocks to tech stocks, to BTC seen as "digital gold," and ETH embodying tech growth attributes, the risk-free rate parameters in valuation models are adjusted upward, forcing risk assets to accept lower "reasonable multiples" and higher return requirements; meanwhile, increasing uncertainty around the interest rate path will also push up investors' required risk premiums, locking funds that could have flowed into high-volatility assets into assets with more certain rates. For the crypto market, this means that the next price centrality will revolve more around the main line of "real rates + risk premium," rather than a simple linear bet on liquidity easing stories.

Treasury Secretary Supports Rate Cut Judgment: Coordination or Pressure

Bessent's statement after Walsh's swearing-in that she "believes he will make the right decision on whether to cut interest rates" appears on the surface to respect the Federal Reserve's independence, but in essence, the market interprets it as a mild public naming of the White House's preference for quicker rate cuts. She did not provide a timetable or target rate but left behind a vague "correct," effectively brushing the political background of interest rates while data remains unstable. For traders, this kind of statement itself will be factored into the risk premium: on the one hand, it undermines the credibility of "maintaining high rates for longer," and on the other hand, it also narrows the space for the Federal Reserve to maintain high rates during repeated inflation, igniting a new round of debate on whether its independence will be eroded under political cycles.

Historical memories make such concerns not abstract. After the pandemic in 2020, the U.S., under the high coordination of massive fiscal stimulus and ultra-loose monetary conditions, unleashed unprecedented liquidity. U.S. stocks, tech stocks, and risk assets like BTC surged sharply, while on-chain dollar assets like USDT, USDC, and DeFi TVL expanded simultaneously under expectations of easing and actual rate cuts. Now, when Bessent "supports" Walsh's rate cut judgment, the market will naturally draw parallels with that scene of fiscal-monetary synergy: if this coordination reoccurs, it could imply that the pace of actual rate decreases may be quicker than what inflation data alone suggests. BTC's valuation anchor as "digital gold" would become more reliant on future real rate projections, while ETH might be trading ahead of a "tech growth valuation repair." Going forward, traders will closely watch the first FOMC meeting and dot plot under Walsh's leadership to assess whether this "belief in correct decision-making" is merely a polite gesture of coordination or the real starting point for monetary policy yielding to the political cycle.

Fluctuating Rate Expectations and Divergence between BTC and ETH

Under the triple pull of sticky inflation, unstable employment, and a continued tendency toward fiscal easing, the narrative of the interest rate path itself is unstable: one moment it is "to suppress inflation, we must maintain high rates longer," and the next it leans on the logic of "fiscal needs lower financing costs" betting on quicker rate cuts. Every repricing of implied paths in federal funds futures has BTC and ETH switching back and forth between "inflation hedge assets" and "liquidity trading targets": when actual rates are expected to fall, and the monetary environment is imagined to be more accommodative, BTC is more easily elevated as "digital gold," with the valuation anchor shifting from short-term profit expectations to projections of future real rate declines; conversely, when the market fears inflation resurgence and delayed rate cuts, the narrative reverts to "high-volatility risk assets," with funds favoring BTC as liquidity positions that can be reduced at any time.

Divergence is more evident in the pricing logic between BTC and ETH. BTC is more sensitive to actual rates and safe-haven demand; once rate expectations point to increasing growth pressures and declining real yields, funds can naturally treat it as insurance against policy errors and fiscal risks. ETH, on the other hand, adds attributes of "tech growth assets," showing high correlation with the U.S. tech growth sector at various stages. When long-term rates decline and valuation pressure eases, it is more beneficial for high-beta growth crypto assets. Thus, with similar bets on "whether Walsh will cut rates soon," in BTC it often manifests as directional betting on the path of actual rates, while in ETH it is closer to leveraging the entire tech risk premium.

These rate bets will be directly incorporated into derivative structures. Futures funding rates are paid by both sides, and a high positive funding rate often corresponds to crowded longs: when the market anticipates rapid easing and risk appetite increases, ETH contracts’ funding rates are generally more easily driven higher by longs. In contrast, while BTC may also follow suit, its premium comes more from the elevation of "digital gold" valuation rather than pure leverage stacking. On the options side, the 25Δ risk reversal is a core tool for observing emotional bias: if the market bets on accelerated rate cuts and upward trends, the demand for call protection in BTC and ETH rises, pushing the premium for call options relative to put options higher; conversely, once data reinforces expectations of “high rates lasting longer,” put protection becomes aggressively bought, tilting skew toward bearishness. Coupled with the customary elevation in implied volatility and transaction expansion before and after major macro events, each fluctuation in rate expectations leaves distinctly different "fingerprints" on the funding rates, options skew, and term structure of BTC and ETH, providing the most intuitive price clues for determining which narrative is currently dominating.

Repricing Dollar Liquidity: The Tug of War Between Dollar Coins and U.S. Treasuries

Walsh's swearing-in, followed by Bessent's "support," makes the short-end interest rate story not just about "higher for longer," but begins to swing between "when to turn." The implied paths in federal funds futures and yield curves are forced to be rewritten: the duration for money market funds to enjoy high-rate dividends is now in question; and investors holding dollar cash begin to reassess how long they can still make “dormant earnings” by keeping money in short-term risk-free instruments. In the last rate hike cycle, short-term risk-free rates rose significantly, and the scale of money market funds expanded, siphoning off large amounts of dollar liquidity that had previously stayed in bank reserves, secondary markets, or even exchanges and on-chain. Now, with expectations of rates peaking or even retreating likely becoming repeatedly confirmed by Walsh's policy signals, this will effectively squeeze the thickness of this "risk-free spread."

As funds recalculate, three parking places are placed on the same table: money market funds, low-rate bank deposits, and on-chain dollar-denominated crypto assets. When rates are rising, the opportunity cost of the latter two compared to the former is very high, as holding USDT or USDC on-chain almost means giving up a whole segment of risk-free spread; however, when the market begins to bet on "cash returns declining," this cost rapidly narrows, leading to a preference for high liquidity and leverage-ready trading funds to remain on-chain. Referencing the historical experience of rapid expansion in total scales of on-chain dollar-denominated crypto assets like USDT and USDC, becoming the dominant pricing and settlement medium in the crypto market under extremely low rate and loose environment in 2020, if the rate path in Walsh's era indeed shifts from "how much more to add" to "when to cut how much," then on-chain TVL and DeFi yield curves may have the opportunity to rise again, pushed outwards by market-making funds. Ultimately, the depth and risk positions of BTC and ETH related pools will rely on which side of this liquidity repricing battle between dollar coins and short-end U.S. Treasuries it tilts.

Betting Before the Debut: Three Paths for the Crypto Market

After Walsh's swearing-in and Bessent's public support, the interest rate script laid before the market roughly outlines three paths: first, if inflation and employment data remain stubbornly persistent, the first rate cut keeps being pushed back by the dot plot and forward guidance, "longer high rates" means the short-term risk-free rate continues to exert pull on on-chain dollar funds, favoring the money market fund logic again. BTC, due to its "digital gold" narrative and safe-haven demand, will be relatively resilient, while ETH and high-growth narratives are more likely to see compressed valuations, causing on-chain dollar assets to lean toward passive contraction of "earning interest off-chain;" second, if Walsh's era presents a moderately easing path, the dot plot confirms limited instances and a controllable pace of reduction, thereby marginally alleviating rate pressure without flooding the market. BTC and ETH will exhibit more typical beta rotation—BTC as a macro hedge base, while ETH ties more closely with tech growth sentiment, funds will rebalance gradually between on-chain dollar assets and mainstream positions; third, if economic pressures force noticeable shifts toward easing monetary policy, the FOMC meeting and economic forecast summary pointing to a more aggressive rate-cutting path could quickly heat up risk appetite. The scale of on-chain dollar assets and DeFi TVL may expand again, with high-growth sectors and assets like ETH likely to outperform, while BTC continues to serve as the credit anchor for the entire cycle. Among these three scripts, what truly needs close attention is how the first FOMC meeting, economic forecast summary, and dot plot under Walsh's leadership redraw the interest rate path, as well as how each set of inflation and non-farm data adjusts this path thereafter. In an environment of rising macro uncertainty and customary elevation in implied volatility surrounding major events, crypto investors need to utilize options volatility trading around FOMC and data windows to match their faith in the strength of the interest rate path with different contract maturities, and conduct rhythmical rotations between BTC (low beta, macro hedge), ETH (high beta, growth elasticity), and on-chain dollar assets, translating judgments on the direction of rates in the Walsh era into fine management of duration and beta exposure.

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