Trump's confrontation with the Fed has caused market unease, with opportunities and challenges coexisting in the encryption sector.

As anger within the Republican Party towards Fed Chairman Powell's "long-term high interest rate" stance continues to rise, Trump's "Shadow Fed" proposal has sparked unease in the markets. While criticizing the Fed, Trump is also promoting candidates that may be beneficial for dropping interest rates. This move could not only affect confidence in financial markets, especially in the Crypto Assets market, but may also exacerbate market uncertainty.

Trump's "Shadow Fed" Proposal and Its Impact on the Crypto Market

The rift between Trump and Fed Chairman Powell is gradually deepening, especially the anger within the Republican Party over Powell's policy of maintaining "high Intrerest Rate for a long time." This policy is seen by many as suppressing the growth of the stock market and the Crypto Assets market.

According to reports, Trump prepared a resignation letter for Powell last week and placed it on his desk. Despite receiving positive responses from Republican lawmakers, Trump has not taken action. Jim Bianco, president of Bianco Research, stated on the X platform: "The design of the 'shadow Fed' is to make Powell a lame duck and render him less important." He added, "The next candidate is the key, they are more important."

Bianco stated that Trump may nominate a successor to undermine Powell's power, creating a situation of a "shadow" central bank president before Powell's term ends. Trump may ask the new chairman to implement interest rate cuts, while the market predicts that yields will soar as a result.

According to the CME FedWatch tool, traders now expect two rate drops this year.

The Independence of the Fed and the Uncertainty of the Crypto Market

Analyst Dominick John stated: "Any talk of firing Powell would disrupt market confidence, especially in the Crypto Assets market where trust is paramount." He added: "The 'shadow Fed' has muddied the drop signals, increasing market volatility and complicating price discovery."

Although Trump did not take actual action to fire Powell, this statement still sparked speculation in the market that the future Fed chairman may lean towards a drop in interest rates, which could boost risk assets in the short term.

However, this power struggle among the leadership may have a short-term impact on the Crypto Assets market. John stated: "These political struggles often lead to short-term fluctuations in Crypto Assets prices, mainly due to uncertainty." He also added: "If control is concentrated in the hands of a few and oversight is lacking, Crypto Assets may increasingly be viewed as a safe haven."

Fed's Legal Protections and Trump's Pressure Tactics

According to the Federal Reserve Act, Powell's dismissal is protected unless it involves improper "cause" or misconduct, rather than mere policy differences. The 1935 Supreme Court ruling in Humphrey's Executor v. United States affirmed this independence, emphasizing that the president cannot dismiss officials of independent agencies, such as the Fed chairman, solely based on policy differences.

Nevertheless, Trump still has other ways to exert pressure on the Fed without formally dismissing Powell.

Andrew Rossow, CEO of AR Media and digital media lawyer, said: "On one hand, he can continue to publicly criticize Powell, which is his common aggressive approach." He also added that Trump may force Congress to hold "hostile" or confrontational hearings, or create difficulties for the Fed through budget reviews, cumbersome administrative processes, and so on.

Trump's Potential Influence on Powell

Recently, Trump's supporter, Florida Republican Representative Anna Paulina Luna, filed criminal charges against Powell, claiming he "deliberately misled" Congress regarding the Fed headquarters renovation cost report.

Rossow believes that this situation reveals a paradox: "While firing Powell might boost crypto asset prices in the short term due to a weak dollar and expectations of rate drops, fundamentally, it would undermine the stable financial system that crypto assets ultimately rely on."

Rossow explained: "In the short term, Crypto Assets may benefit from the phenomenon of 'chaos hedging' against a weak dollar and the politicization of the Fed, but in the long run, maintaining an unstable U.S. financial system will have adverse effects on most risk assets (including Crypto Assets)."

Conclusion Trump's relationship with the Fed is tense. Although in the short term, expectations of a drop in interest rates may have a positive impact on the crypto market, the uncertainty brought by this political game may have a long-term negative effect on market confidence. The role of Crypto Assets as a hedging tool may improve in the short term, but maintaining a stable financial system is crucial for the long-term development of the crypto market.