Author: Aaron Brogan Source: cointelegraph Translator: Shan Ouba, Golden Finance

In recent months, we have repeatedly witnessed a pattern: U.S. President Trump has taken certain actions that are objectively harmful to the U.S. economy, which have then led to market crashes. Seeing this, Trump pressured Federal Reserve Chairman Powell to lower the federal funds rate (the interest rate at which the Federal Reserve lends to banks). However, the determined Powell responded, "No."

The reason Trump wants to cut interest rates is that lowering rates effectively injects cash into the U.S. economy, which can stimulate economic activity and boost market performance. He believes this will help him demonstrate economic success in front of the public. Powell, on the other hand, hopes to formulate interest rate policies based on rigorous economic standards, precisely balancing the Fed's two main missions of "promoting maximum employment and maintaining price stability."

More critically, Powell is committed to preserving the Fed's independence from political interference – and the public's trust in its independence. If the market generally believes that the independence of the US central bank has fallen, then the sale of US Treasury bonds (that is, US sovereign debt) will become more difficult. Not only will this fundamentally lead to higher borrowing costs and poorer countries in the United States, but it is also particularly dangerous in the current context, where the United States already has a huge debt of up to $30 trillion that needs to be refinanced on a rolling basis.

If forced to refinance at higher interest rates due to a loss of market trust, an increasingly large portion of the US GDP will be eroded by interest payments. As the younger generation jokingly puts it: "America is finished."

This political and financial "dance" has brought us to the current moment. Last week, Trump hinted multiple times that he wanted to fire Powell, and the market reacted extremely negatively. On Monday, Trump publicly referred to Powell as the "number one loser" on Truth Social, leading to another significant market decline. According to reports, Treasury Secretary Scott Basset has privately expressed to Trump the serious risks associated with firing Powell. Trump seems to have temporarily accepted the advice, stating on Tuesday that he would not fire the current Federal Reserve Chairman.

Nevertheless, this process resembles a spiral decline rather than a true stabilization. Many market observers are closely watching, waiting for the next shockwave to arrive. This raises a key question: What would happen if Trump ultimately followed his instincts and fired Powell? In particular, what impact would this have on the cryptocurrency industry?

Shake the Fed

First of all, it should be pointed out that the President cannot dismiss the Chairman of the Federal Reserve at will. According to Section 10 of the Federal Reserve Act of 1913, "Each member of the Board shall serve for a term of fourteen years, except that any member may be removed from office before the expiration of his term by the President for cause."

This legal statement seems ambiguous, but in the 1935 case of "Humphrey's Executor v. United States," the U.S. Supreme Court clearly ruled: the Constitution does not grant the president unlimited removal power, and the president's removal authority must be limited by legislative provisions.

This jurisprudence established the concept of "independent bodies", i.e. certain institutions subordinate to the executive branch, although nominally part of the administrative system, have independent decision-making powers in practice. While agencies such as the U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Federal Trade Commission (FTC) are among these independent institutions, the Federal Reserve is undoubtedly the most important one.

Typically, economists rarely need to worry about the issue of central banks being subject to political interference. After all, the incentive cycles of politicians are often short, and their thinking is measured in election years. This short-termism naturally tends to favor "immediate stimulus" policies, the most typical of which is the injection of hot money. However, fiscal policy and monetary policy are essentially an art that requires fine balancing, often necessitating difficult and painful choices.

Taking a classic case as an example: Richard Nixon pressured then Federal Reserve Chairman Arthur Burns before the 1972 election to adopt an expansionary monetary policy to enhance his chances of re-election. Nixon won re-election with an overwhelming advantage, but what followed was a disastrous "stagflation" situation, with the entire U.S. economy trapped for a decade, and the hollowing out effect on industries during that period still leaves a profound impact in some areas today.

In stark contrast, there was a series of radical interest rate hikes implemented by Paul Volcker from 1979 to 1987, known as the "Volcker Shock." Although these policies triggered a consecutive economic recession, they ultimately succeeded in curbing inflation, laying the foundation for the prosperity of the American economy in the 1990s, and creating conditions for Bill Clinton to implement excellent fiscal policies.

This is the crux of the issue. Economists—and more importantly, the market—firmly believe that the Federal Reserve must maintain its independence, otherwise the entire economic system of American society is at risk of collapse. This is by no means an exaggeration. Historically, countries like Weimar Germany, Argentina during the Perón era, and Venezuela experienced devastating hyperinflation after their central banks were subjected to political manipulation, leading to geopolitical regressions for multiple generations, famine among the populace, and even survival by eating rats, which in turn contributed to the rise of Hitler. This is an extremely serious matter.

If Trump wants to fire Powell, he first needs to overturn the Humphrey’s Executor case precedent — and given the current composition of the Supreme Court, many legal scholars believe that such an overturning is not impossible. Once this Rubicon is crossed, it becomes an irreversible point. From then on, not only Trump, but every future president could legally and arbitrarily command all federal agency heads, including the Chairman of the Federal Reserve. The overwhelming majority believe this would lead to disaster.

However, regardless of whether it leads to disaster, this event will become a touchstone for cryptocurrency. The mission of the Bitcoin white paper from its inception was to decentralize, allowing financial transactions to no longer depend on "financial institutions acting as trusted third parties." If the Federal Reserve collapses and U.S. monetary policy is no longer based on prudent judgment, then the ideals of cryptocurrency's founding will be clearly validated.

With Trump-induced capital flight in recent weeks, investors are looking for safe havens. Traditionally, whenever a crisis erupts, smart money is withdrawn from risky assets and flows into US Treasuries. The reason is simple: US Treasuries were once considered risk-free assets.

Trump warned Powell, calling him "Mr. Too Late"

But this era may have already ended. During the tariff crisis, the yield on the ten-year U.S. Treasury bonds once approached 5%, and it has not fully retreated since. If Trump really undermines the independence of the Federal Reserve, then the current capital outflow is just a drop in the river, and funds may quickly flow into cryptocurrencies.

Historically, the price trend of Bitcoin has been highly correlated with the Nasdaq (and often amplified). However, since the tariff crisis, even as the overall U.S. stock market has been sluggish, Bitcoin has unexpectedly begun to rise. This has sparked discussions in the market about the so-called "decoupling phenomenon"—that is, crypto assets will truly begin to break free from their dependence on traditional centralized assets and embark on an independent market trend.

It is still uncertain whether this decoupling will actually happen. But what is certain is: if Trump really fires Powell, we will see the answer soon.

Out of the frying pan, into the fire

Of course, a global historical-level crash will definitely not be all good news for cryptocurrencies. In fact, this crisis will bring serious impacts on multiple levels.

The first to suffer may be stablecoins.

Over the past decade, two dollar-pegged stablecoins—USDC$0.9997 and Tether's USDT$1.00—have dominated the market. Their issuers, Circle and Tether, have become systemically important institutions and also significant buyers of U.S. Treasury securities to support the reserve assets of their stablecoins.

If the Federal Reserve faces a crisis, what may follow is a potential U.S. Treasury default. Economist Noah Smith speculates that Trump may try to respond to bad debts as he did in the business world in the past—seeking cheap bailouts, and if that fails, simply going "bankrupt."

In fact, Trump himself hinted at this idea back in February of this year:

"There may be problems with government bonds - you should have seen some related reports recently. This could be a very interesting issue. [...] It's possible that we find many of them are counterfeit, and our actual debt may be less than we think."

In the event of a sovereign default, the US Treasury bonds held by Circle and Tether will face asset impairment, leading to insufficient reserves for stablecoins. This could trigger a stablecoin run, undermine market confidence, and even cause a chain collapse.

The next secondary disaster is equally terrifying: a large number of smart contracts relying on stablecoins as collateral will be forced to liquidate, leading to a chain of liquidations and systemic contagion in the market.

However, the direct consequences of the stablecoin crisis may not be as far-reaching as the political consequences. After all, for the crypto world, not only are government bonds important, the importance of the US dollar itself is even greater.

The US dollar has long served as the global reserve currency, supporting essential functions such as cross-border trade and financial settlement. If the US government, which underpins the dollar's credit, becomes unstable itself, this system will also be shaken.

Once global trade shifts more towards being priced in euros or yuan, regulators in the EU and China will have greater control over the flow of fiat currency within the cryptocurrency system. A prominent cryptocurrency lawyer, who wished to remain anonymous, commented on this:

"I believe that China will fill most of the gaps, and the EU will occupy the remaining majority. However, whether it's the CCP or the EU, their regulatory orientations are different, but it's not good news for cryptocurrencies."

This situation may drive the market towards unsecured native cryptocurrencies (such as BTC, ETH, etc.), but historically, there has been no successful precedent for such assets being widely used in real-world transactions. Therefore, the stablecoin crisis may also mean that the entire crypto industry enters a years-long downturn rather than accelerating its development.

Conclusion

In the end, no one can determine whether Trump will really fire Powell or whether he has the ability to do so. Similarly, no one can accurately predict what kind of chain reaction would occur if this event were to take place.

But if a butterfly in Argentina flaps its wings and can cause a tornado in Prague, then a spell uttered by Trump in the White House may either prove the legitimacy of blockchain or completely subvert its future.

Whether we are willing or not, we are already on this journey.