Trump’s assault on Federal Reserve independence could thrust cryptocurrencies into uncharted territory.
A Dangerous Pattern Emerges
In recent months, a troubling cycle has repeated: Donald Trump takes actions objectively harmful to the U.S. economy, markets crash, and he then pressures Fed Chair Jerome Powell to cut the federal funds rate. Powell, however, has stubbornly refused, replying: “No.”
Trump wants lower rates to inject liquidity into the economy, boost market sentiment, and burnish his political image. Powell, meanwhile, insists on setting rates based on economic fundamentals to balance the Fed’s dual mandate of maximum employment and price stability. Crucially, Powell also defends the Fed’s independence from political interference—a pillar of market confidence in U.S. Treasuries. If this independence erodes, borrowing costs for the U.S. (already saddled with $30 trillion in debt) could skyrocket, jeopardizing its economic standing.
The Threat to Fed Independence
Last week, Trump hinted at firing Powell, triggering market panic. After calling Powell a “total loser” on Truth Social, Treasury Secretary Scott Bessent reportedly warned Trump against such a move. While Trump later backtracked, the incident underscores a precarious dynamic.
Legally, presidents cannot unilaterally fire Fed chairs. The Federal Reserve Act of 1913 allows removal only “for cause,” reinforced by the 1935 Supreme Court ruling in Humphrey’s Executor v. United States, which limits presidential power over independent agencies. However, with the current Supreme Court’s composition, legal scholars argue Trump might circumvent this precedent—a move that would shatter institutional norms.
Historical Precedents and Risks
Politicizing central banks has historically backfired. Richard Nixon’s pressure on Fed Chair Arthur Burns in 1972 led to short-term electoral gains but long-term stagflation. Conversely, Paul Volcker’s aggressive rate hikes in the 1980s caused pain but ultimately tamed inflation, paving the way for 1990s prosperity.
If Trump dismantles Fed independence, the U.S. risks joining the ranks of Weimar Germany, Peronist Argentina, and Venezuela—nations where political control of central banks triggered hyperinflation and societal collapse.
Crypto’s Moment of Truth
Bitcoin was born to eliminate reliance on “trusted third parties” in finance. A politicized Fed could test crypto’s core promise of decentralization. Already, Trump’s policies have driven capital into crypto as a hedge. If the Fed falls, this trend could accelerate.
Notably, Bitcoin has recently decoupled from Nasdaq trends, surging despite equity market declines. Some speculate this marks the start of crypto’s “independence era.”
The Domino Effect on Stablecoins
A Fed crisis would immediately destabilize dollar-pegged stablecoins like USDC and USDT, whose reserves rely heavily on U.S. Treasuries. A sovereign debt default—hinted at by Trump’s talk of “technical” debt reductions—could trigger a collapse in stablecoin value, sparking mass redemptions and cascading liquidations across crypto markets.
Global Shifts and Regulatory Fallout
A dollar crisis might elevate the euro or yuan as reserve currencies, empowering EU and Chinese regulators to tighten control over crypto-fiat flows. As one anonymous crypto lawyer warned: “Strict oversight by Beijing or Brussels could stifle the industry’s growth.”
Conclusion: A Storm We Cannot Avoid
No one knows if Trump will fire Powell—or whether he even can. But his threats alone have already rattled markets. Like a butterfly flapping its wings in Argentina, Trump’s whispers in the West Wing could reshape crypto’s trajectory forever.
Whether for better or worse, the storm is here. We have no choice but to brace for the unknown.
