Trump Administration Challenges Federal Reserve’s Authority
As former President Donald Trump continues to explore the boundaries of executive power by altering various U.S. government agencies, the cryptocurrency sector finds itself caught in the crossfire of an escalating conflict with the Federal Reserve. This tension centers around the Fed’s publicly declared objective of maintaining its autonomy.
Federal Reserve’s Historical Independence
The Federal Reserve has held the ultimate authority over significant decisions regarding the U.S. banking system and monetary policy since the early 1950s. However, the Trump administration, along with its Republican supporters in Congress, appears determined to claim a portion of that decision-making power, primarily through an array of initiatives related to cryptocurrency.
Upcoming Executive Order on Cryptocurrency
Recent reports indicate that the White House is gearing up to issue a new executive order centered on cryptocurrency. This order is expected to instruct the Federal Reserve to revise its policies regarding the denial of master accounts to certain financial institutions, often referred to as crypto banks. These banks hold banking licenses and provide cryptocurrency custody services to their clients. Master accounts are essential for banks to utilize the financial services offered by the Fed, and if crypto banks are granted such accounts, it would mark a significant victory for the digital asset sector. Currently, only a select few crypto banks, like Kraken Financial and Caitlin Long’s Custodia, are positioned to qualify for these accounts.
Master Account Approvals and Fed’s Governance
For many years, the approval of master accounts has rested with the Fed’s seven-member board of governors. Although these governors are appointed by the president, their decisions have remained largely untouched by the executive branch since an informal agreement in 1951, which granted them policy-making independence.
Trump’s Executive Order and Its Implications
Last month, Trump initiated the process of challenging this established understanding by signing an executive order asserting his authority to influence the Fed’s policies concerning the oversight and regulation of financial institutions. This could encompass the Fed’s decisions regarding master accounts. While the order does maintain that the Fed retains the ability to set its own monetary policy, particularly on sensitive issues such as interest rates, there are growing efforts in Washington to undermine even this independence, with the cryptocurrency industry at the forefront of these discussions.
Bitcoin Act and Strategic Bitcoin Reserve
Recently, Senator Cynthia Lummis (R-WY) introduced the Bitcoin Act, which mandates the U.S. government to purchase approximately $80 billion worth of Bitcoin to establish a federal Strategic Bitcoin Reserve. This substantial investment would primarily be financed by a proposal to have the Fed reissue its Nixon-era gold certificates at current market values. Given that gold has significantly appreciated over the decades, these new certificates could be worth several times more than their predecessors. The Fed would receive these new certificates but would then need to transfer $80 billion to the Treasury Secretary to facilitate the Bitcoin acquisitions.
Changing Dynamics in Congressional Oversight
A source on Capitol Hill with insight into the motivations behind the Bitcoin Act revealed that previous attempts to utilize such a funding mechanism have been stymied by a longstanding reluctance among lawmakers and presidents to directly instruct the Fed. However, this perspective appears to be shifting. “The sentiment behind the Bitcoin Act aligns with the president’s belief that independent agencies are not truly independent,” the source noted. “The Federal Reserve can be guided, especially through legislative action.”
Political Pressure on the Federal Reserve
Republicans have seemingly gained confidence in their ability to exert influence over independent federal agencies, driven by the perceived politicization of these bodies. This includes concerns about alleged political bias in the anti-cryptocurrency initiative known as “Operation Chokepoint 2.0.” Historically, numerous presidents have sought to sway the Fed’s independence, with notable instances like President Lyndon Johnson’s infamous confrontation with then-Fed chair William McChesney Martin over interest rate policies.
Future of Cryptocurrency Industry Amidst Political Maneuvering
Despite the historical context, no president since the 1950s has decisively attempted to reclaim substantial decision-making authority from the Fed’s governors—at least not in explicit terms. If Trump and his congressional partners persist in their pursuit of this goal, particularly using cryptocurrency policy as a focal point, it raises questions about how the digital asset sector will respond. A crypto lobbyist remarked that the Trump administration appears to be using these cryptocurrency policies as a “test case” for reasserting control over independent agencies. This could lead to significant advancements for the crypto sector, although it may also result in contentious legal battles and further entrench the industry in political divisions, which it has sought to avoid. “I can’t tell yet if it’s a good thing or a bad thing,” the lobbyist reflected. “But we’ll take it. Right?”
