Original title: "If Trump fired Powell, what would happen to crypto?"

Compiled & edited by Patti, ChainCatcher

In recent months, a certain pattern has played out repeatedly: U.S. President Donald Trump will take some action that is objectively harmful to the U.S. economy, and then the market will crash. Seeing this, Trump will turn to pressure Federal Reserve Chairman Powell to lower the federal funds rate - the interest rate at which the Federal Reserve lends money to banks. However, the hawkish Powell will flatly refuse, responding: "No."

Trump wants to lower interest rates because it is equivalent to injecting effective funds into the US economy, which can stimulate economic activities and boost the market. He believes that this can make him look like a great political achievement. Powell wants to set interest rates according to strict economic standards to carefully balance the Fed's dual mission of promoting maximum employment and maintaining price stability.

Powell is also committed to maintaining the Fed's independence from political pressure, especially in the public eye. If the market believes that the independence of the US central bank has been lost, it may become more difficult for the US to issue Treasury bonds. At a fundamental level, this means that the United States will have to pay more to borrow money, which will lead to a loss of national strength - this is particularly serious at a time when the United States already has a huge debt of $30 trillion and needs to refinance regularly.

If the U.S. is forced to refinance at higher rates because markets lose confidence in the U.S. government, the interest costs will eat up a larger share of GDP. In the parlance of the moment, the U.S. will be in trouble.

The above game has continued to this day. Last week, Trump repeatedly hinted that he intended to fire Powell, and the market did not respond well. On Monday, Trump slammed Powell as a "complete loser" on the social platform Truth Social, which triggered a market crash. In response, US Treasury Secretary Scott Bessant reportedly expressed concerns to Trump about the risk of firing Powell. At present, it seems that Trump has compromised and said on Tuesday that he would not fire the Fed chairman.

However, this process is more like a spiral that is deteriorating, and many market observers are waiting for the next crisis to break out. This can't help but raise a question: If Trump really can't resist the impulse and insists on removing Powell, what consequences will it bring? In particular, what impact will this have on the cryptocurrency industry?

Challenging the Fed’s authority

It is important to note that the president should not have the power to fire the Fed chairman at will. Section 10 of the Federal Reserve Act of 1913 provides that "each member of the Federal Reserve Board shall serve for a term of fourteen years, beginning at the expiration of the term of his predecessor, unless he shall be removed earlier by the President for good cause."

This wording may seem vague, but in the 1935 case Humphrey Executors v. United States, the Supreme Court ruled that the Constitution does not give the president "unlimited power to remove people from office" and that the president's power to remove people from office is therefore limited by statutory provisions.

The ruling established the concept of “independent agencies” that are part of the executive branch but have independent powers. While several agencies, including the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the Federal Trade Commission (FTC), have this characteristic, the Fed is the most important.

Economists rarely pay attention to the issue of political control of central banks. Politicians’ incentives are often short-term, and their decision-making cycles are usually measured in years or election cycles. This tendency makes them more inclined to implement policies that will have short-term effects, and injecting money directly into the economy is undoubtedly the purest means of short-termism. However, fiscal and monetary policies are a delicate art that often involves difficult policy choices.

A typical example is that Richard Nixon pressured then-Fed Chairman Arthur Burns to implement expansionary monetary policy before the 1972 election to improve his chances of re-election. Nixon did win the election by an overwhelming advantage, but what followed was the disastrous "stagflation" - economic stagnation and inflation coexisting, which hit the US economy hard for a decade, and its impact is still continuing in some hollowed-out industries today.

In stark contrast, Paul Volcker implemented a series of aggressive interest rate hikes between 1979 and 1987 after the stagflation crisis, triggering the "Volcker shock" and leading to multiple painful recessions. However, this policy ultimately succeeded in curbing inflation, laying the foundation for the economic boom in the 1990s and making Bill Clinton's fiscal policy a success.

These are not choices that politicians can make, and no politician will ever make. This is the crux of the matter - economists, and crucially market participants, believe that the Fed must remain independent or the entire economic structure of American society will be at risk of collapse. This is not an exaggeration - politically controlled central banks such as Weimar Germany, Peronist Argentina, and Venezuela have all experienced hyperinflation, leading to multi-generational geopolitical decline, even to the point where people were starving and eating rats, and helped the rise of dictators like Adolf Hitler.

If Trump wants to fire Powell, he would first need to overturn the precedent of the Humphrey Executor case. Given the current makeup of the Supreme Court, many legal scholars believe this is not impossible. However, once this "Rubicon" is crossed, it means that the president will have full legal power to command all administrative officials, including the Federal Reserve Chairman, at will. Most people believe that this will lead to disastrous consequences.

But no matter what the outcome, this will be a test for cryptocurrency. The original goal of the Bitcoin white paper was to eliminate the middleman of "financial institutions as trusted third parties" in financial transactions. If the Federal Reserve fails and the US monetary policy deviates from rational judgment, the "decentralization" concept advocated by cryptocurrency in its early days will face severe tests.

Trump has recently triggered capital flight, and investors are seeking safe haven assets. Traditionally, when a crisis breaks out, savvy investors will convert risky assets into US Treasuries, treating them as risk-free assets. However, this concept may be outdated. At the height of the tariff crisis, the yield on 10-year Treasury bonds once approached 5%, and it has not yet fully fallen back to its previous low. If Trump really destroys the Federal Reserve, the current scale of capital outflows will be dwarfed by the scale of the outflows, and funds may pour into the cryptocurrency field on a large scale.

 Note: Trump criticized Powell and called him "Mr. Slow"

Historically, Bitcoin prices have been highly correlated with the Nasdaq (although with greater volatility). However, since the tariff crisis began, Bitcoin prices have miraculously begun to soar despite the continued slump in US securities prices. This has led to some speculation: Are we witnessing the long-predicted "decoupling" phenomenon - crypto assets will fulfill their original mission and break away from their association with centralized assets and operate independently?

We can’t say whether this trend will continue, but if Trump does remove Powell, the answer will soon be revealed.

Out of the frying pan, into the sea of fire

Of course, from a macro-historical perspective, a global collapse is by no means entirely good for cryptocurrencies, and this crisis will also have significant impacts on multiple sectors. The first to be affected is that stablecoins will face severe consequences almost immediately.

Over the past decade, two dollar-denominated stablecoins, USDC and Tether’s USDT, have dominated the market. Their issuers, Circle and Tether, are not only important systemic institutions, but also major buyers of U.S. Treasuries, which are the core components of their stablecoin reserve assets.

If the Federal Reserve falls into crisis, one of the most direct consequences is a sharp increase in the risk of U.S. Treasury default. Economist Noah Smith once speculated that Trump may try to deal with the U.S. sovereign debt problem through "debt restructuring":

“I suspect Trump will do what he usually does in the business world — seek a bailout at a low price when debts can’t be repaid, and if that doesn’t work, declare bankruptcy.”

In fact, Trump himself hinted at this possibility in February of this year, claiming that it might be possible to reduce the debt through some kind of "technical operation":

“There is a real risk with the U.S. Treasury debt, and that could be an interesting question… maybe a lot of this debt doesn’t ‘count’ at all. In other words, some of it could be fraudulent, so the actual size of the debt could be lower than we think.”

If the U.S. sovereign debt defaults, the value of the Treasury reserves held by Circle and Tether will directly shrink, resulting in insufficient stablecoin collateral, which may trigger a run. Although the market may eventually stabilize, if the situation worsens, the collapse of mainstream stablecoins may be inevitable.

This shock will have a domino effect: smart contracts that use stablecoins as collateral will be forced to liquidate their positions, and panic will spread to the entire cryptocurrency market.

However, this technical consequence may be more "mild" than the political cost of the Fed crisis. After all, for the cryptocurrency market, government bonds are not the only systemic risk assets. The dollar has been the world's reserve currency for decades, and there is a solid logic behind it - the relative strength and stability of the dollar make it the first choice for international trade settlement. However, if the credit of the US government that supports the dollar is no longer solid, this pattern may change fundamentally.

As more international trade is denominated in euros or yuan, regulators in the European Union and China will gain greater authority to monitor the flow of fiat currencies through cryptocurrency channels. A well-known cryptocurrency industry lawyer who wished to remain anonymous said:

“I think China will fill some of the gaps in the market, and the EU will take up most of the rest. But whether it is the strict regulation of the Chinese Communist Party or the excessive intervention of the EU based on different goals, it is definitely not good for the cryptocurrency industry. This situation is worrying.”

In this context, market funds may turn to uncollateralized native crypto assets, but such assets have almost no precedent for application in large-scale transactions in the real world. More likely, the stablecoin crisis will cause the cryptocurrency industry, which is in its rising stage, to fall into a long-term stagnation.

Ultimately, no one can predict whether Trump will fire Powell, or even whether he has the power to do so. Similarly, no one can predict what chain reactions his decision will trigger. But just as a butterfly flapping its wings in Argentina may trigger a tornado in Prague, every "whisper" from Trump's West Wing could permanently change the fate of the blockchain industry - either to make it famous or to destroy it.

Whether we like it or not, this storm cannot be avoided.

We can only embark on this unknown journey together.