Warsh's Monetarist Shift Sparks Concerns Among Crypto Traders

Kevin Warsh's appointment as Federal Reserve Chair has significant implications for crypto markets. With a background in monetarism, Warsh aims to bring back an instrument that central bankers had shelved in the 1980s: tracking the money supply. This move is seen as a departure from the previous focus on interest rates and bond purchases.

In his essay 'Money Matters,' Warsh advocates for a 'softer form of monetarism' that focuses on monetary aggregates as inputs for forecasting inflation. He acknowledges that this approach isn't perfect, but argues that ignoring it contributed to the post-pandemic inflation surge.

The relationship between money supply and inflation has become unreliable due to financial innovation, making it harder to define what 'money' is. However, Warsh's approach may lead to a more hawkish stance on balance sheet expansion and quantitative easing (QE), which could be bearish for the 'money printer go brrr' narrative that fueled Bitcoin's rally in 2020-21.