BIT Research: Fed Leadership Change Ushers in a New Favorable Period for Bitcoin

The current market is undergoing a macro repricing phase driven by policy expectations. The Federal Reserve leadership may be on the cusp of a new transition. If Kevin Warsh takes over successfully, he could introduce new policy orientations regarding the interest rate path, the balance sheet, and the inflation framework. At the same time, the debt environment and monetary system that have expanded continuously over the past decade are intensifying the market's reassessment of "monetary purchasing power."

Looking back at Bitcoin's development trajectory, its birth followed the 2008 financial crisis, highly overlapping with multiple rounds of the Federal Reserve's quantitative easing cycles. From Ben Bernanke's large-scale balance sheet expansion, through Janet Yellen's era marked by market skepticism, to Jerome Powell's tenure which included the stress test of an interest rate environment above 5%, Bitcoin has continuously reshaped its market positioning under different policy phases. Notably, after the approval of spot Bitcoin ETFs in 2024, the "monetary debasement trade" has gradually entered the mainstream institutional narrative.

Against this backdrop, potential shifts in Federal Reserve policy direction are becoming a significant variable influencing Bitcoin's narrative.

The Evolution of Monetary Cycles: From Quantitative Easing to Tightening, Bitcoin Completes a Narrative Reshaping

Over the past decade, the Federal Reserve's policy cycles have provided a continuously evolving macro backdrop for Bitcoin. The quantitative easing under Bernanke led the market to systematically focus on fiat currency expansion for the first time, laying the groundwork for Bitcoin's narrative as a "fixed-supply asset." During Yellen's tenure, Bitcoin's price rose from around $300 to nearly $17,000, gradually entering the mainstream spotlight, though it was still widely regarded as a highly volatile speculative asset.

Entering the Powell era, Bitcoin experienced more complex cyclical tests. Early interest rate hikes and balance sheet reduction caused its price to decline over 80% from its 2017 peak. Subsequently, the Fed expanded its balance sheet by nearly $3 trillion within weeks during the pandemic, reinforcing the market's perception of "monetary expansion." Between 2021 and 2022, Bitcoin rallied to $69,000 before retracing approximately 75%, demonstrating its continued risk-asset characteristics.

However, a key shift occurred in 2024: the approval of spot Bitcoin ETFs allowed the "monetary debasement trade" to gain gradual institutional acceptance. Meanwhile, U.S. federal debt has climbed to roughly $39 trillion. Despite high interest rates, Bitcoin has not faded from the mainstream market view, completing a phase transition from a peripheral asset to a macro asset.

Policy Shift and Uncertainty: Under the Warsh Path, Strengthening and Disrupting the Bitcoin Narrative

Under a potential new policy framework, Warsh's core tenets include: reducing the balance sheet, re-emphasizing the interest rate tool, and establishing a new inflation policy mechanism. During an April 21, 2026, hearing, he pointed out that the 2021–2022 inflation was one of the biggest policy mistakes in the past forty to fifty years, and that accumulated price increases of 25%–35% since 2020 are still impacting household living costs.

From Bitcoin's perspective, this assessment, to a certain extent, strengthens the "monetary debasement narrative." If the Fed acknowledges the long-term impact of past balance sheet expansion, the market will reevaluate the stability of the monetary system, which supports Bitcoin's emphasis on a fixed supply. Concurrently, Warsh's explicit opposition to Central Bank Digital Currencies (CBDCs) has also weakened a potential competing pathway previously seen as an institutional alternative to Bitcoin.

However, the short-term macro environment still faces significant disruptions. On one hand, oil prices have risen above $100, and tightening energy supply has shifted market expectations from the originally anticipated "three rate cuts within the year" towards pricing in the possibility of rate hikes. On the other hand, the energy demand driven by AI infrastructure investment could push inflation higher before productivity dividends materialize. Internal models even suggest that a scenario where CPI rises to 6% cannot be ruled out.

Furthermore, if balance sheet reduction proceeds too quickly against the backdrop of continued U.S. fiscal bond issuance, long-term interest rates could rise, thereby putting pressure on risk assets. Conversely, if inflation is systematically underestimated, it could also undermine the Fed's institutional credibility.

Some of the above insights are from BIT on Target. Contact us to access the full BIT on Target report.

Disclaimer: Market conditions involve risk and investment requires caution. This article does not constitute investment advice. Digital asset trading may involve significant risk 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 made based on the information provided in this content.