The Impact of the Powell Investigation on Crypto as a Non-Sovereign Safe Haven

The ongoing investigation into Federal Reserve Chair Jerome Powell by the U.S. Department of Justice has ignited a global debate about the politicization of central banking and its implications for financial markets. As the Federal Reserve's independence faces unprecedented scrutiny, investors are increasingly turning to non-sovereign assets like Bitcoin and privacy coins as hedges against institutional instability. This shift reflects a broader reallocation of capital toward decentralized alternatives, driven by concerns over the erosion of trust in traditional monetary systems.

Central Bank Independence Under Threat

The DOJ's criminal inquiry into Powell's testimony regarding the Fed's headquarters renovation has been framed by the central bank as a politically motivated effort to pressure monetary policy decisions. Powell has warned that such actions could undermine the Fed's credibility, particularly its 2% inflation target and its ability to act based on economic data rather than political preferences. This perceived threat has triggered market volatility, with the U.S. dollar weakening against major currencies and gold surging to record highs as investors sought refuge in traditional safe-havens.

The investigation has also intensified fears of executive overreach in monetary policy. Former Fed chairs and economists have condemned the probe as a dangerous precedent, arguing that political interference could lead to inflationary pressures and a loss of confidence in U.S. Treasury securities. These concerns are not hypothetical: historical examples from less developed economies demonstrate that central bank independence is critical for maintaining macroeconomic stability.

Crypto's Mixed Performance as a Safe Haven

While gold has solidified its role as a trusted store of value during the crisis, cryptocurrencies have exhibited a more nuanced response. Bitcoin initially surged to $92,000 amid the escalation of tensions between the Trump administration and the Fed, but it quickly retreated, underscoring its volatility compared to gold's sustained gains. According to market data, Bitcoin briefly spiked to $92,000 before retreating. Privacy coins like Monero and Zcash, however, saw sharper price increases-17.9% and 9.76%, respectively- suggesting growing demand for assets with enhanced confidentiality features.

This divergence highlights a key challenge for Bitcoin: despite its narrative as a decentralized alternative, it has yet to fully displace gold as a primary safe-haven asset. According to a report by Duke University's Campbell Harvey, gold outperforms Bitcoin in times of geopolitical or market stress due to its lower volatility and longer track record. However, Bitcoin's performance during the October 2025 market crash-where it initially behaved like a risk-on asset before stabilizing- reveals its evolving role in the safe-haven landscape.

Institutional Reallocation and Privacy Coins

Institutional investors have begun to reallocate portfolios toward non-sovereign assets, particularly privacy coins, as a response to the Powell investigation. The Grayscale Zcash Trust, for instance, has enabled institutions to gain exposure to privacy-focused assets without directly holding them. Zcash (ZEC) surged by 248% in October 2025 alone, driven by demand for confidential financial tools in high-stakes corporate transactions. Similarly, Monero (XMR) and Dash (DASH) saw significant price gains, reflecting a growing appetite for assets that offer transactional privacy.

Regulatory developments have further catalyzed this shift. The U.S. passage of the GENIUS Act in 2025 and the EU's MiCA framework have provided a clearer legal environment for institutional adoption of crypto assets. These frameworks have enabled financial institutions to tokenize assets and integrate stablecoins into their operations, treating them as infrastructure-grade tools rather than speculative assets.

Challenges and Opportunities

Despite the momentum, privacy coins face regulatory headwinds. The U.S. Financial Crimes Enforcement Network (FinCEN) and the EU's MiCA framework have introduced stricter compliance requirements, raising concerns about their long-term viability. Additionally, scalability issues-such as the computational demands of privacy protocols- pose technical challenges for broader adoption.

For Bitcoin, the key question is whether it can overcome its volatility and establish itself as a durable safe-haven asset. Analysts suggest that Bitcoin's performance will hinge on macroeconomic sentiment and regulatory clarity. If the Fed's independence is perceived as compromised, Bitcoin could experience a "defining moment" as investors seek alternatives to politically influenced monetary systems.

Conclusion

The Powell investigation has accelerated a structural shift in asset allocation, with investors increasingly favoring non-sovereign safe havens. While gold remains the dominant refuge, cryptocurrencies-particularly privacy coins-are emerging as complementary tools for hedging against institutional instability. Institutional adoption, driven by regulatory clarity and infrastructure development, is likely to solidify this trend in 2026. However, the long-term success of crypto as a safe-haven asset will depend on its ability to balance privacy, scalability, and regulatory compliance.