The transition of the next Federal Reserve Chair is a decisive factor in reshaping the macro environment for the future of the cryptocurrency industry.
Written by: Paramita Venture
I. Executive Summary and Strategic Insights: Personnel Dynamics and Macro Environment The transition of the next Federal Reserve Chair will fundamentally reshape the survival environment of the cryptocurrency industry. This personnel change is a key turning point affecting the transition of crypto assets from "marginal assets" to "mainstream finance." The Chair's policy stance will determine the direction of the crypto market over the next four years through two core pathways: the liquidity transmission efficiency of monetary policy and the regulatory enforcement strength of the GENIUS Act.
1.1 Key Conclusions: Strategic Impacts of the Federal Reserve Chair Transition
As the "gatekeeper" of the global financial system, the Federal Reserve Chair's influence far exceeds that of a typical central bank governor. Although the Chair's term does not coincide with the presidential term (the current Chair Powell's term will end in May 2026), the president's direct influence on the nominee ensures that the new Chair will largely implement the White House's economic policy preferences. The Trump administration has indicated that it will announce its nominee before Christmas 2025.
The strategic core difference in this personnel change lies in: a dovish candidate (such as Kevin Hassett) representing liquidity-driven bull market opportunities, while a hawkish candidate (such as Kevin Warsh) represents structural regulatory challenges in a high-interest-rate environment. According to data from the market prediction platform Polymarket, Kevin Hassett currently leads the nomination with an approximately 80% probability.
An important phenomenon in financial markets is that the market's judgment on the new Chair's policy inclination (i.e., the nomination itself) will occur well before actual policy adjustments take place. If Hassett is formally nominated, this dovish expectation will immediately affect capital flows and derivatives pricing, potentially triggering a "policy expectation-driven" market trend in the first quarter of 2026, accelerating the recovery of the crypto market rather than waiting for formal rate cuts.
1.2 Overview of Macro Risks and Opportunities Matrix
The main macro opportunity is: if Hassett is elected, his aggressive rate-cutting stance will significantly reduce the opportunity cost of holding risk assets, driving institutional capital to accelerate its inflow into the crypto market.
However, the market also faces core risks. The persistent high-interest-rate environment combined with the strict enforcement of the GENIUS Act may amplify the inherent systemic risks of the crypto market. In particular, the risk of exclusion from the MSCI index for MicroStrategy (MSTR) could trigger passive selling of up to $8.8 billion if the index provider determines that MSTR's digital asset holdings exceed 50% of total assets. This mechanical selling pressure will create a negative market feedback loop, which may exacerbate short-term volatility even if the macro environment slightly loosens.
II. Structural Transmission of Macro Monetary Policy: Liquidity, Interest Rates, and DXY
The Federal Reserve Chair has a decisive influence on the direction of monetary policy by guiding the consensus and public statements of the Federal Open Market Committee (FOMC). The differences in the Chair's policy stance directly affect market liquidity, thereby altering the valuation basis of crypto assets.
2.1 Analysis of Current High-Interest Rate Environment and Opportunity Costs
As of early December 2025, the FOMC has voted to lower the federal funds target rate range to 3.75%–4.00%. Although it is in a rate-cutting cycle, this interest rate level remains high relative to historical lows. In this environment, the yield on risk-free assets such as cash and U.S. Treasury bonds is relatively attractive, thereby increasing the opportunity cost of holding high-risk, high-volatility crypto assets.
A dovish Chair will promote larger and faster rate cuts, directly lowering funding costs and releasing market liquidity. For example, Bloomberg analysis indicates that each 0.25% rate cut could add approximately $5 billion to $10 billion in potential liquidity to the crypto market. If aggressive rate cuts are realized, institutional investors will be more motivated to reallocate funds from traditional low-risk financial assets to the crypto market.
2.2 Historical Correlation Correction: Deep Transmission Mechanism of Interest Rates and Crypto Market Relationship
Historical data shows a high correlation between the performance of the crypto market and the Federal Reserve's interest rate policy. Loose policies significantly enhance the relative attractiveness of risk assets by lowering risk-free rates.
One common misconception about historical correlation that must be corrected is that the Federal Reserve's rate hike cycle may coincide with a "booming" crypto market. In contrast, historical facts indicate that the Federal Reserve's rate hike cycles typically lead to sharp declines in the crypto market. For example, when the Federal Reserve entered a rate hike cycle in 2018, the price of Bitcoin plummeted by about 80%. Conversely, the aggressive rate cuts and quantitative easing policies adopted by the Federal Reserve after the pandemic in 2020 propelled Bitcoin's price from around $7,000 to a historic high of $69,000.
Therefore, equating "rate cuts" with a "liquidity bull market" is one-sided. The true liquidity drivers, as well as the global capital's preference for risk assets, are more closely related to the trend of the U.S. Dollar Index (DXY). Data shows that every major Bitcoin bull market occurred during periods of declining DXY, while bear markets coincided with rising DXY. The new Chair's policy stance will influence global confidence in the dollar, thereby affecting the trend of DXY, which constitutes a key barometer of macro risk premium. The impact of policy lies in its ability to stabilize market confidence, indirectly boosting the prices of risk assets like Bitcoin by weakening the dollar's relative position.
III. Detailed Assessment of Core Candidates' Policy Stances: Regulatory Attitudes and CBDC Comparison
The differences among the five main candidates in monetary policy and digital asset regulation constitute the core variables for the future development path of the market.
3.1 Analysis of Main Candidates' Policy Stances
3.2 Structural Opposition of Policy Tendencies
Kevin Hassett is viewed as the most favorable candidate for the crypto industry. He has publicly stated that if he were to become Chair, he would "immediately cut rates." As a core economic advisor to Trump, he not only advocates for leaving room for innovation in regulation but has also served as an advisor to Coinbase and holds stock in the exchange, making his regulatory-friendly stance a key catalyst for promoting a liquidity bull market.
Kevin Warsh, on the other hand, represents the most hawkish stance. He advocates prioritizing inflation prevention, supporting interest rate tightening and reducing the central bank's balance sheet. More importantly, Warsh has publicly supported the U.S. developing a wholesale CBDC (central bank digital currency), believing it will enhance the dollar's dominance in the digital realm. This position poses a direct challenge to the decentralized crypto fundamentalism, as his hawkish monetary policy and CBDC support create a dual headwind that could delay rate cuts and squeeze the market space for private stablecoins through competition with government-backed digital currencies.
Christopher Waller is a pragmatic centrist. As a current Federal Reserve governor, he supports gradual rate cuts and has an open attitude towards stablecoins, recognizing their complementary role as payment tools and believing they can enhance the dollar's position under proper regulation. His election would bring a relatively predictable policy environment conducive to the long-term development of compliant institutions.
Bowman and Warsh have subtle differences in their positions on crypto regulation: while Bowman supports maintaining high interest rates, she also supports banks participating in digital asset businesses as long as safety and soundness are ensured, and she is skeptical about CBDCs. This indicates her preference for innovation led by the private sector, providing digital asset services within the banking system.
3.3 The Game in Regulatory Details: Executors of the GENIUS Act
The GENIUS Act has become law, and one of the new Chair's core tasks is to determine its regulatory details. The opposition between the two core candidates regarding the implementation of this act is crucial. Hassett may promote a more flexible regulatory framework that allows stablecoins to scale quickly under compliance, facilitating the integration of on-chain dollars with the traditional financial system. However, Warsh may use his discretion to set higher compliance barriers regarding anti-money laundering (AML) and reserve requirements, thereby limiting the growth of private stablecoins at the implementation level and indirectly paving the way for government-supported CBDCs. This regulatory detail game will determine the scale and attributes of future "on-chain dollars."
IV. The GENIUS Act: Stablecoin Regulatory Framework and Industry Compliance Boundaries
The GENIUS Act was signed into law by the president in July 2025, establishing the first federal regulatory framework for payment stablecoins in the United States. The act requires stablecoin issuers to adhere to strict regulations similar to those of traditional financial institutions, profoundly reshaping the interaction rules of on-chain dollars.
4.1 Interpretation of Core Provisions of the Act: 100% Reserves and AML Requirements
The core of the GENIUS Act is consumer protection and enhancing the dollar's position. The act requires stablecoin issuers to:
100% Reserve Backing: Must hold U.S. Treasury securities, bank deposits, or similar short-term high liquidity assets equal to the amount issued as reserves.
Transparency and Auditing: Must publicly disclose the composition of reserve assets monthly and submit an annual independent audit report (for issuers with a market capitalization exceeding $50 billion).
Anti-Money Laundering (AML) Requirements: Issuers are explicitly bound by the Bank Secrecy Act, requiring the establishment of effective AML and sanctions compliance programs.
Additionally, the act requires all stablecoin issuers to have the technical capability to legally freeze, seize, or destroy their issued payment stablecoins. This marks the beginning of "on-chain dollars" accepting regulatory standards similar to those of traditional banks.
4.2 Prohibition of Interest Payments Clause's Structural Reshaping of the DeFi Ecosystem
One of the most structurally impactful provisions of the act is its explicit prohibition of stablecoin issuers from paying interest or returns to holders in any form (cash, tokens, or other consideration). This provision aims to prevent stablecoins from being viewed as "shadow deposit" products by the market, thereby triggering financial stability risks or circumventing bank regulation.
This regulation fundamentally eliminates the business model of "native yield stablecoins." Future DeFi yield generation will rely more on the activities of on-chain protocols themselves (such as lending interest, transaction fees) rather than the returns on the issuer's reserve assets. The Treasury is also required to take a broader interpretation to ensure that issuers cannot provide interest or returns through circumvention.
While the act provides a compliance path for digital assets, the mandatory requirement for issuers to have "freeze/destroy" capabilities and 100% reserves significantly sacrifices the spirit of decentralization, reflecting a "paradoxical centralization of compliant stablecoins." The new Chair's enforcement of these centralization requirements will determine the extent to which stablecoins can integrate into traditional finance while retaining the characteristics of digital assets.
4.3 Systemic Impact Analysis of Stablecoin Reserves on the U.S. Treasury Market
Due to the GENIUS Act's requirement that stablecoins must be backed by U.S. Treasury securities or dollars, the stablecoin market has become an undeniable participant in the U.S. Treasury market.
The research from the Bank for International Settlements (BIS) reveals the asymmetric risks of stablecoins to the U.S. Treasury market: a net inflow of stablecoins increasing by 2 standard deviations can lead to a moderate decline of 2-2.5 basis points in the 3-month Treasury yield within 10 days; however, a net outflow of the same magnitude can push yields up by 2-3 times the amount of the inflow. This asymmetry means that during market panic or regulatory uncertainty leading to large redemptions, the sell-off of stablecoins could disproportionately impact the short-term Treasury market. The Federal Reserve Chair's strictness in regulatory requirements and transparency will directly affect the scale of this systemic risk.
V. Opportunities for Integration with Traditional Finance and Systemic Risk Transmission
The new Federal Reserve Chair will determine the degree to which the banking system opens up to the crypto industry, a decision that will influence whether the crypto industry maintains an "independent ecosystem" or integrates into the mainstream financial system.
5.1 Bank System Access and the Role of Regulatory Technology
The Chair's policy stance will directly affect whether banks and non-bank financial institutions can compliantly provide services to crypto enterprises. Federal Reserve Governor Michelle Bowman has explicitly supported banks participating in digital assets, provided they ensure safety and soundness, arguing that regulation should not hinder bank innovation; otherwise, innovation may shift to less transparent non-bank sectors.
If a dovish Chair is elected, their support for regulatory technology (RegTech) may accelerate the process of bank collaboration. For example, blockchain-based RegTech has developed applications that can achieve near-zero-cost rapid AML and KYC verification through blockchain technology. The Federal Reserve's support for these technologies will significantly lower the compliance barriers for banks participating in crypto business.
Additionally, the tokenized financial market is a future trend for the integration of traditional finance and the crypto world. Stablecoins may play a key role in converting securities into digital tokens and achieving real-time, low-cost DvP (delivery versus payment) settlements, thereby enhancing liquidity and transaction speed.
5.2 Institutional Risk Amplifier: Feedback Loop of MicroStrategy Index Exclusion
The flow of institutional capital is the core transmission mechanism linking the crypto market with Federal Reserve policy. MicroStrategy (MSTR), as the largest corporate holder of Bitcoin, holds over 640,000 Bitcoins and is viewed by institutional investors as a proxy stock for Bitcoin. The correlation coefficient between MSTR's stock price and Bitcoin's price has reached as high as 0.97, indicating a strong resonance effect.
However, MSTR faces significant systemic risks. One of the world's largest index providers, MSCI, is considering a rule to remove companies whose digital asset holdings exceed 50% of total assets from its index, and MSTR's Bitcoin holdings account for over 77% of its total assets.
If MSCI decides to exclude MSTR in January 2026, it could trigger passive index fund selling pressure of up to $8.8 billion. This sell-off is mechanical and mandatory, unrelated to Bitcoin's fundamentals. Once it occurs, it will create a negative systemic feedback loop: a hawkish Chair maintains tight policies → macro environment comes under pressure → BTC price declines → MSTR's exclusion risk rises → passive index sell-off → further exacerbation of BTC decline.
The triggering of this mechanical risk is directly related to the policy of the new Federal Reserve Chair. If hawkish policies lead to macro liquidity tightening, and risk assets remain under pressure, it will increase the likelihood of MSTR's stock price decline and index exclusion, thereby disproportionately impacting the illiquid crypto market.
5.3 Deepening Correlation Between Bitcoin and Traditional Indices
The impact of macro policy is also reflected in the correlation between crypto assets and traditional markets. Currently, the correlation coefficient between Bitcoin and the Nasdaq 100 index has risen above 0.72. This confirms that, in the eyes of institutions, Bitcoin is still viewed as part of equity risk assets in a risk-on environment, rather than a safe-haven tool. The Chair's policy will influence the overall risk appetite, thereby synchronously affecting the valuations of crypto assets and tech stocks.
VI. Conclusion and Long-Term Outlook
The transition of the next Federal Reserve Chair is a decisive factor in reshaping the macro environment for the future of the cryptocurrency industry. This personnel change will not only affect short-term price volatility and market liquidity but also concerns the regulatory framework for the crypto industry and its degree of integration with traditional finance over the next four years.
In the long term, the implementation of the GENIUS Act will force "on-chain dollars" to become safer and more transparent, but at the cost of issuers having to sacrifice some decentralization spirit and accept strict centralized regulatory requirements (such as freezing and destruction capabilities). The stablecoin market will trend towards centralization and high compliance.
For institutions and professional investors, the key lies in accurately understanding the differentiated impacts of different Chairs' policy inclinations on the crypto market. Proactive management of policy expectations and control of systemic risks such as MSTR's index exclusion are crucial. Only by treating macro policy analysis as a core risk control indicator can opportunities be seized and challenges met at this historic turning point.
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