BIT Research: Fed Leadership Change, Bitcoin Enters a New Favorable Period

The current market is in 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, he could bring new policy directions regarding the interest rate path, the balance sheet, and the inflation framework. At the same time, the persistently expanding debt environment and monetary system over the past decade are intensifying the market's reassessment of 'monetary purchasing power.'

Looking back at Bitcoin's development trajectory, its inception following the 2008 financial crisis overlaps significantly with multiple rounds of the Fed's quantitative easing. From the massive balance sheet expansion under Ben Bernanke, to the market skepticism during Janet Yellen's tenure, and then to the stress test of an over-5% interest rate environment under Jerome Powell, Bitcoin has continuously reshaped its market positioning across different policy phases. Notably, after the approval of spot Bitcoin ETFs in 2024, the 'currency debasement trade' has gradually entered the mainstream institutional narrative.

Against this backdrop, potential shifts in Fed policy direction are becoming a crucial variable influencing Bitcoin's narrative.

Evolution of the Monetary Cycle: From Quantitative Easing to Tightening, Bitcoin Completes a Narrative Reshaping

Over the past decade, the Fed's policy cycle has provided an 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 foundation 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, though it was still widely viewed as a highly volatile speculative asset.

Entering Powell's term, Bitcoin experienced a more complex cycle test. Early interest rate hikes and balance sheet reduction caused its price to drop over 80% from the 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.' In 2021-2022, Bitcoin surged to $69,000 before retracing approximately 75%, indicating it still retained risk asset characteristics.

However, a key change occurred in 2024: the approval of spot Bitcoin ETFs led the 'currency debasement trade' to be gradually accepted by institutions. Meanwhile, U.S. federal debt has risen to about $39 trillion. Bitcoin has not exited the mainstream market view even under high interest rates, completing a phase transition from a fringe asset to a macro asset.

Policy Shift and Uncertainty: Under a Warsh Path, the Strengthening and Disruption of Bitcoin's Narrative

Under a potential new policy framework, Warsh's core propositions include: reducing the balance sheet, re-emphasizing the interest rate tool, and establishing a new inflation policy mechanism. In his April 21, 2026, hearing testimony, he noted that the 2021-2022 inflation was one of the biggest policy mistakes in the past 40-50 years, and the cumulative 25%-35% price increase since 2020 continues to affect household living costs.

From Bitcoin's perspective, this assessment, to some extent, reinforces the 'currency debasement narrative.' If the Fed acknowledges the long-term impact of past balance sheet expansion, the market will re-evaluate the stability of the monetary system, which supports Bitcoin, whose narrative emphasizes fixed supply. Meanwhile, Warsh's explicit opposition to Central Bank Digital Currencies (CBDCs) also weakens a potential competitive path that was previously seen as an institutional alternative to Bitcoin.

Nevertheless, the short-term macro environment still faces significant disruptions. On one hand, oil prices have risen above $100; tightening energy supply has shifted market expectations from 'three rate cuts within the year' to pricing in the possibility of rate hikes. On the other hand, the energy demand from AI infrastructure investment may also push inflation higher before productivity dividends materialize. Internal models even suggest that a scenario with CPI rising to 6% cannot be ruled out.

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

Some of the above views are from BIT on Target, Contact us to get the full BIT on Target report.

Disclaimer: The market carries risks, and investment requires caution. This content 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.