The market expected a different scenario. Many in the crypto industry initially saw Kevin Warsh’s appointment as head of the Fed as a positive for Bitcoin, but BTC almost immediately went down and dropped to $74,190 — the lowest in more than a month.
The reason was not Warsh’s attitude toward cryptocurrencies, but rather expectations about rates. Investors quickly realized that a ‘pro-crypto’ stance does not mean a dovish monetary policy. On the contrary, the market began preparing for a more hawkish Fed scenario in 2026.
The Market Fears Bond Yields, Not Warsh
Daily chart of 2-year US Treasury yields
The main signal for traders was the movement of US bonds. The yield on two-year US Treasury notes rose to 4.14% — the highest since February 2025.
This part of the debt market usually best reflects investors’ expectations for Fed rates in the coming quarters. When the yield on short-term bonds starts to rise above the current Fed rate, the market is essentially pricing in a more hawkish policy ahead.
Currently, the Fed’s rate range remains around 3.50–3.75%, but the rise in two-year bonds shows that market participants no longer believe in a quick policy easing under Warsh.
The Market Is Talking About Rate Hikes Again
Probability of setting the target interest rate at the December Fed meeting
CME futures have sharply changed expectations. Just a month ago, investors were talking about a possible rate cut at the end of the year, but now the market is factoring in the possibility of a new hike in December 2026.
Yield on two-year US Treasury notes compared to the Fed’s target rate
This seriously changes the picture for Bitcoin. BTC does especially well in an environment of cheap money, a weak dollar, and falling bond yields. When the market starts expecting expensive money for longer than usual, pressure on risk assets increases. For the crypto market, this means lower liquidity and more cautious behavior from institutional players.
Warsh Supports Crypto but Remains a ‘Hawk’
The paradox of the situation is that Kevin Warsh himself has repeatedly spoken positively about digital assets. He has criticized central bank digital currencies, supported private financial innovation, and advocated for freer technological development. But for the markets, something else is more important now — his attitude toward inflation.
Analysts remind us that Warsh has long been considered a proponent of tight monetary policy. In macroeconomics, such officials are called ‘hawks’ — they prefer to keep rates high to fight inflation, even if it slows the economy and puts pressure on markets.
That is why traders have started to separate the concepts of ‘pro-crypto regulator’ and ‘dovish Fed chair.’ For BTC, these are far from the same thing.
Inflation Is Becoming a Problem Again
Additional pressure is coming from the situation around Iran and oil prices. The military conflict is keeping energy prices high, which increases inflation risks in the US.
If oil stays high, it will be harder for the Fed to move to rate cuts. Moreover, some market participants are already discussing a scenario in which the regulator will have to maintain a tight policy for almost all of 2026.
This is especially sensitive for Bitcoin. Recent cycles have shown that BTC is highly dependent on global liquidity and the cost of money in the US economy.
History Also Makes the Market Wary
Traders are paying attention to another detail. Historically, Bitcoin has struggled during periods of Fed leadership changes.
After Janet Yellen took over in 2014, BTC lost about 84%. After Jerome Powell’s appointment in 2018, the market fell by about 73%. During Powell’s second term in 2022, the drop was about 60%.
Of course, this does not mean a direct dependency. But market participants see a change in the Fed chair as a period of uncertainty, when investors prefer to reduce risk until the new leadership’s policy becomes clearer. The market is behaving similarly now.
Bitcoin Remains Between Macroeconomics and ETFs
Another problem for BTC is weakening institutional demand. After a series of inflows, US spot ETFs have started to see capital outflows, and the Coinbase premium has turned negative again.
This shows that large players are not yet ready to take aggressive positions amid uncertainty around Fed policy.
At the same time, technically, the market remains in a vulnerable position. Losing the area around $75,000 has increased pressure on short-term buyers, and rising bond yields continue to worsen market sentiment.
What's Next?
Now the market’s attention is fully switching to the first signals from the new Fed under Warsh. Investors will closely watch inflation, bond yields, and comments from the regulator itself.
If the market ultimately believes in a high-rate scenario until the end of 2026, pressure on Bitcoin may persist. Especially if the dollar continues to strengthen and ETFs do not return to steady inflows.
But if inflation starts to slow and rate expectations soften again, BTC could quickly recover some losses. For now, the market is in caution mode, and Warsh’s appointment has not been a bullish signal for crypto, but a reminder that macroeconomics is once again driving Bitcoin’s movement.
Read more: Rising Bond Yields Fuel Talk of a Bitcoin Supercycle
