How does the dispute between Trump and Powell affect Bitcoin?

Article by Blockchain Knight

At the beginning of the year, Bitcoin still followed its usual trend under macroeconomic uncertainties, fluctuating with interest rates, the US dollar, and risk appetite.

However, this week’s market focus shifted from “What will the central bank do” to “Can the central bank make decisions without being forced,” with the core trigger being the escalation of conflict between Trump and Federal Reserve Chair Powell.

Powell stated that he received a subpoena from a grand jury and faced criminal litigation threats related to testifying before Congress on the Fed building renovation project. The White House and Trump denied any misconduct, but the market has begun to reassess risks.

In the initial market response, gold surged to a near-record high of $4,600 per ounce, the US dollar weakened, US stock futures declined, and Bitcoin initially rose then fell amid “reputation hedging” sentiment.

This linkage highlights that the dispute is not just political noise but involves substantive trading logic: for the first time, the market has listed “Federal Reserve independence” as a core risk factor.

Powell emphasized that the judicial threats are a consequence of the Fed’s insistence on making decisions based on public interest and refusing to blindly follow the president’s wishes. This confrontation essentially tests whether US monetary policy is guided by “evidence or intimidation,” and central bank independence is crucial for stabilizing long-term inflation expectations and preventing monetary policy from becoming politicized.

Bitcoin’s situation is somewhat awkward, as it possesses dual attributes of a risk asset and a reputation hedge. Its short-term trend is more deeply influenced by the positioning of financialized instruments (derivatives, compliant products), but this recent linkage with gold indicates that investors have incorporated it into a “policy reputation hedge” asset portfolio.

The conflict between Trump and Powell will influence Bitcoin through two opposing channels:

1. Liquidity channel: If market expectations of political pressure force an early rate cut, declining short-term yields and a weakening dollar will benefit Bitcoin;

2. Reputation channel: If the conflict is interpreted as a sign of the Fed yielding to political pressure, it will trigger a credibility shock, increasing the premium on long-term dollar assets. Bitcoin may initially sell off along with risk assets, then later see a narrative-driven demand driven by concerns over the credibility of the traditional monetary system.

Two important upcoming dates to watch are: the FOMC meeting on January 27-28, where Powell’s response to political pressure and policy guidance will reshape market pricing; and May 2026, when Powell’s term ends, with markets already beginning to anticipate “succession risk.”

Additionally, the amplification effect of spot Bitcoin ETFs cannot be ignored, as they can convert institutional sentiment into price movements and trigger mechanical buying and selling during volatility, amplifying market ups and downs.

The core issue now is not whether the conflict will continue but whether investors see it as a farce or as a structural change in US monetary governance.

In the short term, Bitcoin is likely still dominated by interest rates and liquidity, with debates centered around the January FOMC meeting and rate cut paths; if a structural trend emerges, it will fluctuate between risk-off selling and “substitute gold” demand.

Currently, the macro context may be clearer: Bitcoin is no longer just reacting to Fed decisions but is also beginning to respond to whether the Fed has genuine decision-making independence.