Trump announces: Federal Reserve's new king Kevin Warsh Just now, Trump confirmed the nomination of former Federal Reserve Governor Kevin Warsh to replace Powell. Tonight, let me introduce who this person is first. Warsh is 55 years old and has a strong Wall Street background. He graduated from Morgan Stanley's mergers and acquisitions department and was recruited by George W. Bush into the Federal Reserve in 2006. At the age of 35, he became a director, the youngest in history. During the 2008 financial crisis, he was a core aide to Bernanke, specifically responsible for making phone calls and communicating with Wall Street tycoons. By the way, let me share some gossip: His wife is the heir of the Est é e Lauder family, My father-in-law is a Republican financier and has a close relationship with Trump. His monetary policy stance: eagle inside and dove outside Warsh is a notorious hawkish in history. In 2009, the unemployment rate was almost 10%, and he was still calling for tightening policies to prevent inflation. In 2010, when the Federal Reserve proposed QE2, he voted in favor and then went to the Wall Street Journal to write an article opposing it. At that time, the industry's evaluation was' hard money hawk ', a staunch supporter of austerity. But recently he has changed. His current argument is that the productivity improvement brought by AI is a deflationary force, so it can be boldly cut interest rates; At the same time, the Federal Reserve's $7 trillion balance sheet is too bloated and subsidizes Wall Street, so it should significantly reduce its balance sheet. To translate it into human language is: lower interest rates, but also draw liquidity. This combination is very subtle. Trump wants interest rates to be lowered to 1%, Warsh says he supports it, but his hawkish DNA seems to still exist. Renaissance Macro said directly, "His current dovish faction is pretending, Trump may have been fooled What does it mean for the cryptocurrency industry? Firstly, the conclusion is that there may be a short-term bearish trend. The bearish logic is straightforward: Warsh's previous viewpoint was to shrink the balance sheet. In the past decade or so, the bull market in the cryptocurrency industry has essentially benefited from the Federal Reserve's liquidity dividend. The balance sheet has expanded from less than 1 trillion to 9 trillion, and Bitcoin has risen from a few hundred dollars to six figures. Now someone wants to tighten the faucet, so the valuation naturally needs to be reassessed. Of course, whether he will shrink his balance sheet or not depends on his subtle relationship with Trump. Warsh's attitude towards BTC is actually quite subtle. In 2021, he publicly stated on CNBC, "It makes sense to include Bitcoin in the investment portfolio in the context of the Federal Reserve's aggressive monetary policy He also said a golden saying: "If you're under 40 years old, Bitcoin is your new gold He recognizes BTC as a store of value, but opposes its replacement of the US dollar. The real thing to be careful of is the stablecoin track. Warsh is a staunch supporter of CBDC (central bank digital currency), which is negative for Tether, but compliance players like Circle may not necessarily be a bad thing. What impact does it have on the US stock market? I actually think the market has already voted with its feet. After the news came out, US stock futures fell, and the Nasdaq fell even more fiercely. The reason is the same as in the cryptocurrency industry, Warsh wants to shrink its balance sheet. Over the past decade or so, the bull market in the US stock market has been feeding on this milk, and now some people are going to be weaned off. So in terms of sectors, overvalued technology stocks are the first to bear the brunt, while financial and defensive sectors benefit relatively. One sentence summary of 'late' Warsh is a hawk wearing a dove coat. What Trump wants is obedient interest rate cuts, but he has hired someone who fundamentally believes in monetary discipline. Whether this combination can be well adjusted will determine the direction of US monetary policy in the next two years. For us, the next two things to focus on are whether he can pass the Senate confirmation smoothly, and the actual pace of downsizing after taking office. After all, liquidity is the lifeblood of this market.