BIT Investment Research: The Federal Reserve appoints a new leader, Bitcoin enters a new tailwind period

The current market is in a macro re-pricing phase driven by policy expectations. The Federal Reserve leadership may undergo a new round of succession; if Kevin Warsh succeeds smoothly, he will bring new policy orientations regarding the interest rate path, balance sheet, and inflation framework. Meanwhile, the debt environment and monetary system that have been expanding for over a decade are also intensifying market reassessment of “monetary purchasing power.”

Looking back at Bitcoin’s development path, it was born after the 2008 financial crisis and overlaps significantly with multiple rounds of quantitative easing by the Federal Reserve. From Ben Bernanke’s large-scale balance sheet expansion to market skepticism during Janet Yellen’s tenure, and then to Jerome Powell’s stress tests under an environment with interest rates above 5%, Bitcoin has continuously reshaped its market positioning across different policy stages. Especially after the approval of spot Bitcoin ETFs in 2024, the “currency devaluation trade” has gradually entered mainstream institutional narratives.

Against this backdrop, potential changes in the Fed’s policy direction are becoming an important variable influencing Bitcoin narratives.

Currency Cycle Evolution: From Quantitative Easing to Tightening, Bitcoin’s Narrative Reformation

Over the past decade, Fed policy cycles have provided a continuous macro backdrop for Bitcoin’s evolution. Bernanke’s quantitative easing made the market focus systematically on fiat currency expansion for the first time, laying the foundation for Bitcoin’s narrative as a “fixed supply asset.” During Yellen’s tenure, Bitcoin’s price rose from about $300 to nearly $17,000, gradually entering mainstream view, but still widely regarded as a high-volatility speculative asset.

After Powell took office, Bitcoin experienced more complex cycle tests. Early rate hikes and balance sheet reductions caused its price to fall more than 80% from the 2017 high. Subsequently, during the pandemic, the Fed expanded its balance sheet by nearly $3 trillion within weeks, reinforcing market perceptions of “monetary expansion.” In 2021–2022, Bitcoin surged to $69,000 before retracing about 75%, demonstrating its still-risky asset characteristics.

However, a key change occurred in 2024: the approval of spot Bitcoin ETFs, which led to the gradual acceptance of the “currency devaluation trade” by institutions. Meanwhile, U.S. federal debt has risen to about $39 trillion, and Bitcoin remains in the mainstream market under high interest rate conditions, completing a phased shift from a marginal asset to a macro asset.

Policy Shift and Uncertainty: Under Warsh’s Path, Strengthening and Disrupting Bitcoin Narratives

Under a potential new policy framework, Warsh’s core propositions include: shrinking the balance sheet, re-emphasizing interest rate tools, and establishing a new inflation policy mechanism. At a hearing on April 21, 2026, he pointed out that the inflation of 2021–2022 was one of the biggest policy mistakes in the past four or fifty years, with cumulative price increases of 25%–35% since 2020 still affecting residents’ living costs.

From Bitcoin’s perspective, this judgment to some extent reinforces the “currency devaluation narrative.” If the Fed admits to the long-term impacts of past balance sheet expansions, markets will reassess the stability of the monetary system, which supports Bitcoin’s emphasis on fixed supply. At the same time, Warsh explicitly opposes central bank digital currencies (CBDCs), weakening the previously perceived potential competitive path of Bitcoin as a systemic alternative.

However, the short-term macro environment still faces significant disruptions. On one hand, oil prices have risen above $100, and tightening energy supplies are shifting market expectations from “three rate cuts within the year” to factoring in possible rate hikes; on the other hand, investments in AI infrastructure driving energy demand could push inflation higher before productivity dividends are realized. Internal models even suggest scenarios where CPI could rise to 6%.

Additionally, if balance sheet reduction proceeds too quickly, in the context of ongoing U.S. debt issuance, long-term interest rates may rise, exerting pressure on risk assets. Conversely, systemic underestimation of inflation could also undermine the Fed’s institutional credibility.

The above viewpoints are from BIT on Target. Contact us for the full BIT on Target report.

Disclaimer: Markets carry risks; investments should be cautious. This article does not constitute investment advice. Trading digital assets involves significant risks and volatility. Investment decisions should be made after careful consideration of personal circumstances and consultation with financial professionals. BIT is not responsible for any investment decisions based on the information provided herein.