Many in the crypto community have been skeptical of Warsh due to his previous advocacy of CBDCs.
Kevin Warsh is a contender for Treasury Secretary in president-elect Donald Trump’s administration.
(Associated Press)
Posted November 20, 2024 at 2:08 pm EST.
The crypto community has not reacted well to reports indicating that former Federal Reserve governor Kevin Warsh is a top contender for Treasury Secretary.
Prominent crypto figures have called out the fact that Warsh, who is expected to meet with President-elect Donald Trump in Mar-a-Lago this week, has previously stated support of central bank digital currencies (CBDCs) over stablecoins and other private cryptocurrencies.
However, Warsh, who had been a runner-up to become chair of the Federal Reserve back in 2018, may not be as unfriendly to crypto as some had thought. In fact, Warsh was an early investor in crypto startups, including one that created an algorithmic stablecoin, according to Pitchbook.
The crypto industry has been closely tracking Trump’s potential Treasury Secretary picks because the person in the role would have the power to reverse stances seen as hampering crypto innovation that were established by current Treasury Secretary Janet Yellen. Yellen, for example, has been critical of stablecoins, arguing that they should be replaced with a government-run CBDC. Under her leadership, the Treasury Department was also responsible for controversial (and, many argue, ineffective) sanctions on cryptocurrency mixer Tornado Cash.
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Warsh invested in the now-defunct algorithmic stablecoin project Basis, which launched the algorithmic stablecoin Basecoin, in 2018 and the crypto index fund manager Bitwise in 2021, both times as an angel investor. Bitwise also lists Warsh on its website on a list of advisors and investors. It is unclear exactly how much Warsh invested in each firm. Warsh exited Basis on December 13, 2018, according to Pitchbook.
In news coverage at the time, Warsh’s investment in Basis was contextualized by his critique of bitcoin as a currency with extreme price fluctuations, because of Basis’ claim that it could keep the price of its token pegged to the US dollar. However, he seemed supportive during this period of bitcoin in the way it is proposed as an asset held in a national reserve, according to the cited opinion piece published in the Wall Street Journal. Bitcoin’s “price volatility significantly diminishes its usefulness as a reliable unit of account or an effective means of payment,” he said. “Bitcoin might, however, serve as a sustainable store of value, like gold.”
A separate opinion piece written by Warsh in the Journal in Nov. 2022 arguing that the US should create its own CBDC to compete with China’s digital yuan has drawn the criticism of several Bitcoin advocates on X for arguing that the United States should create a CBDC to compete with China’s digital yuan. Walsh made similar arguments in a story written for American Renewal.
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Though Warsh does not specifically mention bitcoin in the 2022 Journal article, the piece is intensely skeptical of private cryptocurrencies, which Warsh says are “masquerading as money in some form of circulation.” Instead, Warsh wrote that he favored blockchain as an innovative software that, if used correctly, could be promising for the existing American financial system. “Cryptocurrency is a misnomer. It isn’t secretive and it isn’t money. It is software,” he wrote.
The American Renewal article, however, ties this argument to bitcoin specifically, asserting that Bitcoin’s pseudonymous founder Satoshi Nakamoto would have supported a sovereign currency.
“Kevin Warsh seems completely at odds with the @realDonaldTrump agenda on trade, Bitcoin and CBDCs,” Brian Morganstern, Head of Public Policy at Riot Platforms and Deputy Assistant Secretary at the Treasury Department during Trump’s first term in office, posted on X along with a screenshot of the 2022 Journal story, on Tuesday. Trump previously met with Riot executives at Mar-a-Lago ahead of the Bitcoin 2024 conference in Nashville in July, where he first promised to establish a bitcoin strategic reserve.
