Trump's Threats to Fire Powell Spark Cryptocurrency Industry Concerns

In recent months, the economic landscape has been marked by a recurring pattern: US President Donald Trump takes actions that are perceived as harmful to the US economy, leading to market crashes. In response, Trump has turned to Jerome Powell, the chair of the Federal Reserve, demanding that he lower the Fed Funds Rate to stimulate economic activity and lift the market. Powell, however, has resisted these demands, adhering to rigorous economic standards to balance the Fed’s dual mandates of maximizing employment and maintaining stable prices. Powell's stance is crucial as it maintains the Fed’s independence from political pressure, which is essential for the stability of US Treasury Bills and the overall economy.

Trump's recent threats to fire Powell have raised concerns about the potential impact on the cryptocurrency industry. The President's ability to fire the Fed chair is limited by the Federal Reserve Act of 1913 and the Supreme Court's decision in Humphrey's Executor v. United States, which established the concept of "independent agencies." Economists and market watchers believe that the Fed must remain independent to avoid the risks of politically controlled central banks, which have historically led to economic collapse in nations like Weimar Germany and Venezuela.

If Trump were to fire Powell, it would mark a significant shift in the Fed's independence and could have profound implications for the cryptocurrency industry. The original Bitcoin White Paper aimed to disintermediate financial transactions from "financial institutions serving as trusted third parties." If the Fed falls and US monetary policy is unmoored from sound judgment, the thesis of cryptocurrency’s early years would be put in stark relief. Investors seeking safety in various assets during times of crisis traditionally fled to US Treasurys, but recent events have shown that this may no longer be the case. If Trump breaks the Fed, outflows from US Treasurys could move into cryptocurrencies, potentially leading to a "decoupling" where crypto-assets move independently from centralized assets.

However, a world-historical collapse would not be entirely beneficial for crypto. Stablecoins, which are crucial to the cryptocurrency ecosystem, would face dire consequences. USDC and USDT, two dominant USD-denominated stablecoins, are collateralized by US Treasurys. A Fed crisis could lead to a Treasury default, marking down the value of their collateral and potentially causing a bank run. This could have second-order effects, as smart contracts holding stables as collateral began liquidating positions, and contagion swept the rest of the market. Additionally, the US dollar's status as the world's reserve currency could be threatened, leading to increased regulatory control from the EU and China, which could be detrimental to the cryptocurrency industry.

Ultimately, the potential firing of Powell by Trump raises significant questions about the future of the cryptocurrency industry. While it could lead to increased adoption of crypto-assets, it could also result in a stablecoin crisis and increased regulatory control from other nations. The outcome remains uncertain, but the potential impact on the cryptocurrency industry is undeniable.