Bitcoin’s recent recovery could be hanging in the balance as the political deadlock over Kevin Warsh’s nomination to lead the US Federal Reserve deepens, raising fresh concerns about prolonged dollar tightening and the erosion of risk appetite across digital asset markets.
Treasury Secretary Scott Bessent has urged the Senate Banking Committee to begin confirmation hearings for Warsh without further delay, even as a Department of Justice investigation into current Fed Chair Jerome Powell remains unresolved.
Warsh, a known fiscal hawk and proponent of balance sheet reduction, has already unsettled markets since being nominated by President Donald Trump on Jan. 30.
Speaking on Fox News, Bessent appeared to criticise Republican Senator Thom Tillis, who has publicly said he would block all Fed nominations until the DOJ probe into Powell concludes.
“Senator Tillis has come out and said he thinks that Kevin Warsh is an extreme candidate. So I would say, why don’t we get the hearings underway and see where Jeanine Pirro’s investigation goes?” Bessent said.
US Attorney for the District of Columbia Jeanine Pirro launched the probe on January 9, tied to Powell’s congressional testimony about a $2.5 billion renovation project at the Fed’s headquarters.
Prosecutors are investigating whether Powell misled lawmakers about the scope and expense of the upgrades.
Powell has denied any wrongdoing and argued that the probe is being politically weaponised in response to his resistance to faster interest rate cuts.
Despite acknowledging Warsh as a “strong” and “qualified” nominee, Senator Tillis has insisted that no confirmation should move forward until the investigation is settled.
Warsh now awaits a Senate Banking Committee hearing that would determine whether his nomination advances to the full Senate.
If confirmed, he would formally replace Powell as chair of the Federal Reserve.
Is Bitcoin price at risk?
The political standoff comes amid heightened market sensitivity to Warsh’s policy stance, particularly in the crypto sector.
Bitcoin dropped sharply following Warsh’s nomination, falling nearly $16,000 from its $90,000 range to a low near $74,500 within a day.
The selloff triggered over $7 billion in liquidations and dragged the total crypto market cap down to $2.8 trillion.
Subsequently, other bearish catalysts pressured Bitcoin to visit a 16-month low of $62,822 on Thursday.
Although Bitcoin has since stabilised around $70,000, analysts warn that the price action reflects broader anxiety over what a Warsh-led Fed might mean for liquidity conditions.
Warsh has long advocated for aggressive balance sheet reduction and criticised what he calls the “bloated” state of central bank policy, and his stance has fueled speculation that the Fed may simultaneously lower rates and unwind its $7 trillion balance sheet, a combination some describe as paradoxical.
While rate cuts reduce the cost of borrowing, balance sheet rolloffs shrink the money supply, potentially choking off the very liquidity that speculative markets rely on.
For Bitcoin, which has historically thrived during periods of monetary expansion, the change could mark the start of a more prolonged period of consolidation or decline.
Although Warsh has previously described Bitcoin as a “policy watchdog,” his prioritisation of price stability over asset support has led many to conclude that the Powell-era “Fed put” may be off the table.
In this new environment, the Fed may refrain from stepping in during periods of market stress.
Key support levels in focus
Analysts remain divided on whether the worst of the Warsh shock has already been priced in.
Following Bitcoin’s drop below $60,000 last week, the market has shown signs of stabilisation, with many traders pointing to accumulation by long-term holders in the $70,000–$80,000 range.
Some argue that if Warsh signals a willingness to balance monetary discipline with the Trump administration’s pro-growth objectives during the upcoming hearings, investor confidence could return.
Others warn that any breach of the $70,000 floor, or worse, a drop back toward $60,000, would suggest that markets underestimated the severity of the policy changes ahead.
For now, Bitcoin’s trajectory appears tethered to the outcome of the Fed confirmation process.
If liquidity expectations deteriorate further, or if Warsh’s policy leanings appear uncompromising, a deeper repricing across risk assets may still lie ahead.
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