Synopsis- Trump’s clash with Fed Chair Powell sparks fears he may fire him, threatening market stability. Analysts warn of lawsuits, dollar plunge, and rising inflation. While panic could initially hit crypto, long-term gains are possible if rate cuts follow. Bitcoin might benefit as a hedge, but extreme volatility is likely ahead.
President Donald Trump’s escalating feud with Federal Reserve Chair Jerome Powell has financial markets on edge. Recent reports suggest Trump seriously contemplated firing Powell. He publicly backtracked, calling it “highly unlikely.” However, his notorious unpredictability and past threats fuel intense speculation. What happens if he actually does it? Crucially, how would volatile cryptocurrency markets react?
Legal Problems
Trump desires aggressive interest rate cuts. Powell resists, prioritizing inflation control. This clash ignited talk of dismissal. Powell asserts Trump lacks legal authority to fire him without “cause.” The Federal Reserve Act protects governors from arbitrary removal. Analysts warn any firing attempt would spark immediate lawsuits. “This would be a mess,” cautioned Wolfe Research.
Litigation could drag for months. As a result, prolonged uncertainty would unsettle all markets. Investors typically hate such instability. The Fed’s cherished independence would appear under direct assault. Perceived political control over monetary policy frightens traditional investors. This fear could drive capital towards alternatives. Cryptocurrencies might attract some fleeing money. However, initial market panic seems likely.
Dollar Plunge & Crypto’s Potential Lift
Deutsche Bank predicts a dramatic outcome. Firing Powell could trigger a sharp dollar fall. The trade-weighted dollar might drop 3-4% within 24 hours. It has already weakened 9.75% this year. Further depreciation seems probable. Why? Fears of central bank politicization and rising inflation would hit confidence. A weaker dollar often boosts Bitcoin.
As a result, investors view it as a fiat currency hedge. History shows Bitcoin thrives during dollar weakness. Furthermore, crypto communities on X buzz with optimism. Some predict Bitcoin surging to $150,000 if Powell goes. They anticipate swift, deep rate cuts from a Trump-aligned successor. Lower rates reduce the cost of holding non-yielding assets. Therefore, Bitcoin and similar cryptos become comparatively more attractive.
Crypto’s Hedge Appeal
Powell’s removal risks Fed credibility. Markets might expect looser money under political pressure. Trump pushes hard for rate cuts. His tariff policies also stoke inflation. This will result in inflation expectations going up. This scenario potentially benefits cryptocurrencies.
Bitcoin is often marketed as “digital gold.” It positions itself as an inflation hedge. Gold prices already hit records amid Fed uncertainty. Similarly, crypto could see rising safe-haven demand. Investors losing faith in traditional systems might seek decentralization. Crypto offers an alternative outside central bank control. A prominent crypto attorney suggested capital could flood “uncollateralized crypto-primitive assets.” Nevertheless, this remains largely untested during major crises.
What Will be the Big Risks
The crypto reaction would likely be volatile and multifaceted. Initial panic could trigger broad sell-offs. Stocks have already dipped on mere firing threats. Crypto often correlates initially during risk-off events. Rising Treasury yields pose another near-term threat. Deutsche Bank forecasts a 30-40 basis point Treasury sell-off. Higher yields make safer bonds more appealing. This could temporarily pull money from volatile crypto.
On the other hand, aggressive rate cuts later might supercharge crypto. Speculation runs wild on X: $150,000 Bitcoin, $5,000 Ethereum, $500 Solana. Pro-crypto legislation talks add further bullish sentiment. However, significant dangers loom large. Stablecoins like Tether (USDT) represent Crypto liquidity. A U.S. institutional crisis could spark a “stablecoin crisis.” This might “kneecap” the entire industry overnight. Global regulators might also crack down hard. Furthermore, immediate risk-off sentiment seems almost certain. Previous Trump-Powell clashes caused stock drops. Crypto would likely follow suit, at least briefly.
Unprecedented Territory
Ultimately, firing Jerome Powell would plunge markets into chaos. Legal battles would rage for months. Traditional markets would reel from the shock. Cryptocurrencies face a complex path. Short-term pain seems probable from panic selling. However, a plummeting dollar and soaring inflation could later fuel massive crypto rallies.
The long-term allure of decentralized finance might strengthen permanently. Yet, stablecoin fragility and global regulation pose severe threats. Analysts like Roger Altman call the idea “dreadful,” comparing it to economies with politicized central banks. Investors must brace for extreme volatility. The stakes for crypto, and global finance itself, could not be higher.
Written By Fazal Ul Vahab C H
