Written by: Paramita Venture
I. Executive Summary & Strategic Insights: Personnel Dynamics and Macro Environment Reshaping
The succession of the next Federal Reserve Chair will fundamentally reshape the survival environment of the cryptocurrency industry. This personnel change is a key turning point influencing the transition of crypto assets from "marginal assets" to "mainstream finance." The Chair's policy stance determines the direction of the crypto market over the next four years through two core pathways: the efficiency of monetary policy liquidity transmission and the regulatory enforcement strength of the "GENIUS Act."
1.1 Core Conclusion: Key Strategic Impacts of the Fed Chair Succession
As the "gatekeeper" of the global financial system, the Federal Reserve Chair wields influence far beyond that of an ordinary central bank governor. Although the Chair's term is staggered with the President's (current Chair Powell's term ends in May 2026), the President's direct influence over nominations ensures that the new Chair will largely implement the White House's economic policy preferences. The Trump administration has stated it will announce its nominee before Christmas 2025.
The strategic core difference in this personnel change is: a dovish candidate (such as Kevin Hassett) represents 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 market prediction platform Polymarket, Kevin Hassett currently leads the nomination race with about an 80% probability.
An important financial market phenomenon is that the market's judgment of the new Chair's policy inclination (i.e., the nomination itself) will occur well before any actual policy adjustments. If Hassett is officially nominated, this dovish expectation will immediately affect capital flows and derivatives pricing, potentially triggering a "policy expectation-driven" market rally in Q1 2026, accelerating the crypto market's recovery rather than waiting for formal rate cuts.
1.2 Macro Risk and Opportunity Matrix Overview
The main macro opportunity is: if Hassett is elected, his aggressive rate-cutting stance will significantly lower the opportunity cost of holding risk assets, accelerating institutional capital inflows into the crypto market.
However, the market also faces core risks. A prolonged high-interest-rate environment combined with strict enforcement of the "GENIUS Act" could amplify the inherent systemic risks of the crypto market. In particular, MicroStrategy (MSTR)'s MSCI index exclusion risk: if the index provider determines that MSTR's digital asset holdings exceed the 50% threshold of total assets, it could trigger up to $8.8 billions in passive selling. This mechanical selling pressure would create a negative market feedback loop, which could intensify short-term volatility even if the macro environment slightly loosens.
II. Structural Transmission of Macro Monetary Policy: Liquidity, Interest Rates, and DXY
The Fed Chair, by guiding the Federal Open Market Committee (FOMC) consensus and public statements, has a decisive impact on the direction of monetary policy. The Chair's policy stance directly affects market liquidity, thereby altering the valuation basis of crypto assets.
2.1 Current High-Interest-Rate Environment and Opportunity Cost Analysis
As of early December 2025, the FOMC has voted to lower the federal funds target rate range to 3.75%–4.00%. Although the rate-cutting cycle has begun, this level remains high compared to historical lows. In this environment, the yield of holding cash and U.S. Treasuries—risk-free assets—remains relatively attractive, thus increasing the opportunity cost of holding high-risk, high-volatility crypto assets.
A dovish Chair would push for 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 about $5 billions to $10 billions in potential liquidity to the crypto market. If aggressive rate cuts are implemented, 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 Between Interest Rates and Crypto Markets
Historical data shows a high correlation between crypto market performance and Fed interest rate policy. Easing policies, by lowering risk-free rates, significantly increase the relative attractiveness of risk assets.
A common misconception about historical correlation must be corrected: that Fed rate-hiking cycles may coincide with "booming" crypto markets. On the contrary, historical facts show that Fed rate-hiking cycles usually lead to sharp declines in the crypto market. For example, when the Fed entered a rate-hiking cycle in 2018, bitcoin prices plummeted by about 80%. In contrast, the aggressive rate cuts and quantitative easing policies adopted by the Fed after the 2020 pandemic pushed bitcoin prices from around $7,000 to a historic high of $69,000.
Therefore, simply equating "rate cuts" with a "liquidity bull market" is one-sided. The true liquidity drivers and the degree of global capital's preference for risk assets are more closely related to the U.S. Dollar Index (DXY). Data shows that every major bitcoin bull market has occurred during periods of DXY decline, while bear markets coincide with DXY rises. The new Chair's policy stance, by influencing global confidence in the dollar, in turn affects the DXY trend—this is a key barometer of macro risk premium. The influence of policy lies in its ability to stabilize market confidence and indirectly boost the price 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 market's future development path.
3.1 Analysis of Main Candidates' Policy Stances
3.2 Structural Opposition in Policy Tendencies
Kevin Hassett is seen as the most crypto-friendly candidate. He has publicly stated that if he were Chair, he would "cut rates immediately." As a core economic advisor to Trump, he not only advocates leaving room for innovation in regulation but has also served as an advisor to Coinbase and holds shares in the exchange. His regulatory-friendly stance is a key catalyst for a liquidity-driven bull market.
Kevin Warsh, on the other hand, represents the most hawkish stance. He prioritizes inflation prevention, supports tightening rates, and shrinking the central bank's balance sheet. More importantly, Warsh openly supports U.S. development of wholesale CBDC (central bank digital currency), believing it will enhance the dollar's dominance in the digital realm. This stance poses a direct challenge to decentralization-focused crypto fundamentalists. His hawkish monetary policy and CBDC support constitute a double negative, potentially delaying rate cuts and squeezing private stablecoin market space through competition from government-backed digital currencies.
Christopher Waller is a pragmatic centrist. As a current Fed Governor, he supports gradual rate cuts and is open to stablecoins, recognizing their supplementary role as payment tools and believing that, under proper regulation, they can enhance the dollar's status. His election would bring a relatively predictable policy environment, favorable for the long-term development of compliant institutions.
Bowman and Warsh have subtle differences in crypto regulation: while Bowman supports maintaining high interest rates, she also supports banks' participation in digital asset business provided safety and soundness are ensured, and is skeptical of CBDC. This suggests she prefers innovation led by the private sector and providing digital asset services within the banking system.
3.3 Regulatory Game in Implementation Details: The Executor 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 in implementing this act is crucial. Hassett may promote a more flexible regulatory framework, allowing stablecoins to expand rapidly under compliance and facilitating the integration of on-chain dollars with the traditional financial system. Warsh, however, may use his discretion to set higher compliance barriers for anti-money laundering (AML) and reserve requirements, thereby restricting the growth of private stablecoins at the implementation level and indirectly paving the way for government-backed CBDC. This regulatory game in implementation details will determine the future scale and attributes of "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 U.S. payment stablecoins. The act requires stablecoin issuers to comply with strict regulations similar to those of traditional financial institutions, profoundly reshaping the interaction rules of on-chain dollars.
4.1 Interpretation of Core Provisions: 100% Reserve and AML Requirements
The core of the "GENIUS Act" is consumer protection and strengthening the dollar's status. The act requires stablecoin issuers to:
1. 100% Reserve Backing: Must hold U.S. Treasury bills, bank deposits, or similar short-term highly liquid assets equal to the amount issued as reserves.
2. Transparency and Audit: Must publicly disclose the composition of reserve assets monthly and submit annual independent audit reports (for issuers with a market cap over $5 billions).
3. Anti-Money Laundering (AML) Requirements: Issuers are explicitly subject to the Bank Secrecy Act, requiring effective AML and sanctions compliance programs.
Additionally, the act requires all stablecoin issuers to have the technical capability to freeze, seize, or destroy their issued payment stablecoins as legally required. This marks the beginning of "on-chain dollars" accepting regulatory standards similar to those of traditional banks.
4.2 Interest Payment Ban's Structural Impact on DeFi Ecosystem
One of the most structurally impactful provisions of the act is its explicit prohibition on stablecoin issuers 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, which could pose financial stability risks or circumvent banking 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, trading fees), rather than the reserve asset returns of issuers. The Treasury is also required to adopt a broad interpretation to ensure issuers cannot provide interest or returns through workaround methods.
Although the act provides a compliance path for digital assets, by mandating issuers to have "freeze/destroy" capabilities and 100% reserves, it greatly sacrifices the spirit of decentralization, reflecting a **"paradoxical centralization of compliant stablecoins."** The new Chair's enforcement strength of these centralization requirements will determine to what extent stablecoins can integrate into traditional finance while retaining digital asset characteristics.
4.3 Systemic Impact of Stablecoin Reserves on the U.S. Treasury Market
Since the "GENIUS Act" requires stablecoins to be backed by U.S. Treasuries or dollars, the stablecoin market has become an unignorable participant in the U.S. Treasury market.
Research by the Bank for International Settlements (BIS) reveals the asymmetric risk stablecoins pose to the U.S. Treasury market: a 2-standard-deviation increase in net stablecoin inflows can moderately lower 3-month Treasury yields by 2-2.5 basis points within 10 days; but an outflow of the same scale can raise yields by 2-3 times that amount. This asymmetry means that in times of market panic or regulatory uncertainty triggering mass redemptions, stablecoin sell-offs could disproportionately impact the short-term Treasury market. The Fed Chair's strictness and transparency requirements in regulation will directly affect the scale of this systemic risk.
V. Opportunities for Traditional Finance Integration and Systemic Risk Transmission
The new Fed Chair will determine the degree of banking system openness to the crypto industry, a decision that will affect whether the crypto industry remains an "independent ecosystem" or integrates into the mainstream financial system.
5.1 Banking System Access and the Role of RegTech
The Chair's policy stance will directly affect whether banks and non-bank financial institutions can compliantly provide services to crypto businesses. Fed Governor Michelle Bowman explicitly supports banks' participation in digital assets provided safety and soundness are ensured, believing that regulation should not hinder bank innovation, or else innovation may shift to less transparent non-bank sectors.
If a dovish Chair is elected, their support for regulatory technology (RegTech) could accelerate bank cooperation. For example, blockchain RegTech has developed applications that can achieve near-zero-cost, rapid AML and KYC verification through blockchain technology. The Fed's support for these technologies would significantly lower the compliance threshold for banks to participate in crypto business.
Additionally, tokenized financial markets are the future trend of traditional finance and crypto world integration. Stablecoins may play a key role in converting securities into digital tokens and achieving real-time, low-cost DvP (delivery versus payment) settlement, thereby increasing liquidity and transaction speed.
5.2 Institutional Risk Amplifier: MicroStrategy Index Exclusion Feedback Loop
Institutional capital flows are the core transmission mechanism linking the crypto market and Fed 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. MSTR's stock price correlation with bitcoin has reached as high as 0.97, showing a strong resonance effect.
However, MSTR faces significant systemic risk. One of the world's largest index providers, MSCI, is considering a rule to remove companies from the index if their digital asset holdings exceed 50% of total assets, and MSTR's bitcoin holdings already account for over 77% of its total assets.
If MSCI makes an exclusion decision in January 2026, it could trigger up to $8.8 billions in passive index fund selling pressure. This selling is mechanical and mandatory, unrelated to bitcoin's fundamentals. Once triggered, it would create a negative systemic feedback loop: hawkish Chair maintains tightening policy → macro environment under pressure → BTC price drops → MSTR exclusion risk rises → passive index selling → further exacerbates BTC decline.
The triggering of this mechanical risk is directly related to the new Fed Chair's policy. If hawkish policies lead to macro liquidity tightening and risk assets remain under pressure, the likelihood of MSTR stock price decline and index exclusion increases, causing a disproportionate impact on the illiquid crypto market.
5.3 Deepening Correlation Between Bitcoin and Traditional Stock 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 rebounded to above 0.72. This confirms that, in the eyes of institutions, bitcoin is still regarded as part of equity risk assets in a risk-on environment, rather than a safe-haven tool. The Chair's policy will synchronously affect the valuation of crypto assets and tech stocks by influencing overall risk appetite.
VI. Conclusion and Long-Term Outlook
The succession of the next Federal Reserve Chair is a decisive factor in reshaping the future macro environment of the cryptocurrency industry. This personnel change not only affects short-term price fluctuations and market liquidity, but also concerns the regulatory framework and degree of integration with traditional finance for the crypto industry over the next four years.
In the long run, 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 part of the spirit of decentralization and accept strict centralized regulatory requirements (such as freezing and destruction capabilities). The stablecoin market will trend toward centralization and high compliance.
For institutions and professional investors, the key lies in accurately understanding the differentiated impact of different Chairs' policy tendencies on the crypto market. Proactive management of policy expectations and control of systemic risks such as MSTR index exclusion are crucial. Only by making macro policy analysis a core risk control indicator can one seize opportunities and meet challenges at this historic turning point.
