Trump's Monetary Policy Pressure and the Encryption Market: Liquidity Game under Institutional Constraints

The gap between political intervention narratives and market realities

Recently, news regarding the Trump administration's deep intervention in the Federal Reserve's personnel appointments, using interest rate cut promises as a bargaining chip, has sparked heated discussions in the encryption community. Some viewpoints regard it as a "get-rich-quick signal" for the cryptocurrency market, believing that once the "fig leaf" of the traditional financial system is removed, funds will flood into high-risk assets like a deluge. However, based on the existing institutional framework and market data, this narrative has significant factual biases and logical leaps. This article aims to strip away emotional market interpretations and objectively analyze the boundaries of Trump's influence and the real opportunities and risks in the encryption market from three dimensions: institutional constraints, policy transmission mechanisms, and historical experience.

1. Trump's Actual Influence on the Federal Reserve: Institutional Constraints and Procedural Limitations

1.1 Limited Intervention Space under the Legal Framework

According to the Federal Reserve Act, the Federal Reserve, as an independent agency, has its monetary policy decision-making authority vested in the Federal Open Market Committee (FOMC), which is not directly controlled by the executive branch. Although Trump has publicly criticized Powell for lowering interest rates "too slowly" and threatened to dismiss him, legal experts generally believe that the president does not have the authority to arbitrarily remove the chairman of the Federal Reserve. In April 2025, Trump himself also made it clear that he "has no intention of firing Powell," showing a compromise to institutional constraints.

The current term of Federal Reserve Chairman Jerome Powell will last until May 2026, which means that Trump cannot directly change the direction of monetary policy through personnel changes during his first term. Even after nominating a new chairman in 2026, the nominee must still be confirmed by the Senate, and the Federal Reserve's decision-making emphasizes committee consensus, with the chairman unable to unilaterally decide on interest rate policy.

1.2 The Substance and Limitations of the "Shadow Chairman" Strategy

The widely rumored "shadow chairman" strategy, which involves appointing Powell's successor in advance to exert influence, is essentially a tool application of the "forward guidance" proposed by Treasury Secretary Mnuchin. By releasing signals of succession, the Trump administration attempted to guide market expectations and reduce the term premium on long-term bonds. However, the actual effectiveness of this strategy is in doubt:

• Market pricing has been priced in ahead of time: Currently, the 10-year U.S. Treasury yield has fallen below 4%, reflecting that the market has incorporated dovish expectations.

• Policy implementation lag: Even if the new chairman takes office in 2026, interest rate cuts still require support from economic data and cannot immediately reverse the established path.

• Credibility Risk: The chairman labeled as "Trump's agent" may face a crisis of market trust, which could instead weaken the effectiveness of the policy.

1.3 Long-term Penetration of Human Resource Layout

Trump has indeed indirectly influenced the Federal Reserve through his appointments of governors. After the resignation of Federal Reserve Governor Quarles, Trump can nominate a new governor, gradually building a majority on the 7-member board. Additionally, he is considering nominating a "shadow chair" before Powell's term ends to apply pressure on current decisions. However, this process requires a time window of 12-18 months and must balance the political costs of congressional confirmation.

2. The Real Drivers of Interest Rate Cut Expectations: Economic Fundamentals Rather than Political Directives

2.1 The Quantitative Anchor Point of Current Interest Rate Cut Expectations

According to the latest market data, federal fund futures indicate that the expected interest rate cuts in 2026 are 3.7 times, with some institutions predicting that under Trump's intervention it may reach 4 times or more. However, the core factor driving this expectation is not political pressure:

1. Labor market cooling: The ADP employment report and retail sales data fell short of expectations, raising concerns about economic slowdown.

2. Tariff policy hedging: The Trump administration needs loose monetary policy to hedge against the negative impact of trade conflicts on the economy.

3. Relief of fiscal pressure: Lowering interest rates can reduce the interest payment pressure on government debt, supporting the performance of U.S. stocks.

2.2 Historical Experience: Re-examination of the 2019-2020 Cycle

The original text mentions "After Powell cooperated with the interest rate cuts in 2019, Bitcoin rose from $3,000 to $14,000." This narrative has a reversal of cause and effect. The interest rate cut cycle in 2019 started in July, but Bitcoin had already begun to rise in April, primarily driven by mainstream attention sparked by Facebook's release of the Libra white paper, as well as improvements in fundamentals due to the increase in mining power. The interest rate cuts in March 2020, combined with quantitative easing after the pandemic, did indeed lead to a flood of liquidity, but Bitcoin's surge to $69,000 occurred in November 2021, 19 months later, during which it also experienced a deleveraging crash in May 2021.

Key conclusion: Interest rate cuts are a necessary but not sufficient condition; the bull market in the encryption market still requires the resonance of multiple factors such as institutional adoption, clear regulations, and technological innovation.

2.3 Current Vulnerabilities in the Encryption Market

Ironically, as Trump intensifies pressure on the Federal Reserve, his family's encryption currency investments are facing massive losses. According to a report by First Financial, Trump Media & Technology Group (TMTG) purchased about 11,500 bitcoins when the price was around $115,000, currently incurring a cumulative loss of about 25%. During the bloodbath in the encryption market in November, Trump's family wealth evaporated by about $1 billion in two months.

This reveals a chilling fact: political influence ≠ investment profit. The volatility of the encryption market far exceeds that of traditional assets, and the impact is particularly pronounced during periods of liquidity contraction (such as the fourth quarter). Even if expectations for interest rate cuts heat up, the market may still plummet due to panic selling if there is a lack of substantial capital inflow.

3. Sensitivity of Policies in the Encryption Market: From Expectations to Implementation Chain

3.1 How Interest Rate Cuts Affect Encryption Assets

Interest rate cuts are transmitted to the encryption market through three channels:

1. Liquidity effect: Lower the risk-free interest rate and enhance the attractiveness of risk assets.

2. Pressure of US dollar depreciation: A downward trend in interest rates usually accompanies a weakening dollar, which raises the prices of dollar-denominated assets.

3. Improved risk appetite: A loose environment encourages leveraged funds to enter the market, increasing market depth.

However, this transmission is not linear. Data from September 2025 shows that despite rising expectations for interest rate cuts, cryptocurrencies still experienced large-scale liquidations due to regulatory uncertainty and seasonal liquidity contractions. This indicates that expectation management is more important than actual policies—the market needs a clear and sustainable easing path, rather than political slogans.

3.2 The Real Trends of Institutional Behavior

Currently, smart money is not blindly betting on the rate cut narrative. On the contrary, institutions are hedging risks through diversified layouts.

• The Solana ecosystem has received a strategic investment of $1.65 billion, led by Galaxy Digital and Jump Crypto, indicating that capital prefers infrastructure over single asset bets.

• Spot ETF fund flows are diverging: Bitcoin ETF saw net inflows as expectations for interest rate cuts increased, but quickly experienced outflows in the face of regulatory headwinds.

• Implied volatility in the options market: reflects the market's expectations for extreme conditions, currently still at a high level, indicating that institutions are skeptical about the "interest rate cut = surge" narrative.

3.3 The Warning Significance of the Trump Family's Investments

The Trump family is deeply involved in encryption, which is both an endorsement and a risk. Their investments in Truth Social platform tokens and Bitcoin have both resulted in huge losses, exposing the harsh reality that highly volatile assets are not suitable for heavy investment by political figures. For retail investors, following political narratives to chase gains and cut losses easily turns them into liquidity providers rather than beneficiaries.

4. The response framework for professional investors: Beyond narratives, returning to data.

4.1 Monitoring Index System

Based on the current environment, it is recommended to establish a "Political-Economic-Market" three-dimensional monitoring table:

Dimension Core Indicator Current Value Trigger Threshold Market Meaning

Politics Trump's approval rating ~45% <40% or >50% Impact on the 2026 midterm elections and policy continuity

Policy Progress on Federal Reserve Board Appointments 1/3 3/7 Vote advantage formed, dovish dominance

Economy Unemployment rate 4.4% >4.8% Recession risk, necessity of interest rate cuts increases

Market 10-Year U.S. Treasury Yield <4% >4.5% Tightening expectations, bearish for risk assets

encryption Bitcoin ETF net inflow Weekly average $500M <$100M Institutional interest cooling down

4.2 Asset Allocation Strategy

Scenario 1: Trump successfully appoints a dove chairman (Probability 30%)

• Strategy: Low allocation in USD, increased allocation in Bitcoin (30%), Ethereum (20%), and Solana ecosystem tokens (10%)

• Risk Control: Retain 30% cash, set **-15% trailing stop loss**

Scenario 2: Powell completes his term, policy continues (probability 50%)

• Strategy: Allocate according to the economic cycle, in the interest rate reduction cycle, **Bitcoin (20%), Gold (20%)** as inflation hedges.

• Risk Control: Pay attention to core PCE data; if inflation rebounds >3%, immediately reduce holdings in risk assets.

Scenario 3: Political intervention triggers market panic (Probability 20%)

• Strategy: Comprehensive deleveraging, holding cash in USD (60%) and short-term U.S. Treasuries (40%)

• Opportunity: If Bitcoin falls below $60,000 due to panic, gradually buy in to a 30% position.

4.3 Principles for Constructing the Rotation List

Avoid subjective speculation, based on quantitative screening and fundamental validation:

1. Liquidity-sensitive: BTC, ETH (market share > 60%, institutional holdings transparent)

2. Policy Beneficiary Type: Coinbase, MicroStrategy stocks (compliant targets, ETF channel)

3. Ecological Application Type: Solana, Avalanche (on-chain activity and TVL continue to grow)

4. Hedging against risks: Gold ETFs, US Dollar Index Futures (negatively correlated with encryption assets)

5. Conclusion: Finding Certainty in Uncertainty

Viewing Trump's personnel threats as a "signal of wealth in the encryption market" is essentially a projection of "political speculation" in the financial realm. History has shown that institutional constraints, market rationality, and random events together shape asset prices. Trump is indeed challenging the independence of the Federal Reserve, but this process is fraught with legal, political, and economic obstacles, and its ultimate effect is far less certain than portrayed on social media.

For cryptocurrency investors, the real margin of safety does not lie in betting on the likes and dislikes of political figures, but rather in:

1. Understanding the underlying logic: A reduction in interest rates is a necessary condition for improving the liquidity environment, but it is not a sufficient condition.

2. Control tail risk: Retain cash to cope with black swans, avoid going all-in due to FOMO.

3. Focus on long-term value: The ultimate value of encryption assets lies in the decentralized settlement layer and digital scarcity, rather than short-term policy noise.

"Staring at the White House" is not as effective as "Staring at on-chain data". When the number of active Bitcoin addresses continues to grow, the proportion of long-term holders increases, and the Layer2 ecosystem's TVL breaks new highs, that is the true signal of a healthy bull market. Before that, all politically narrative-driven rises should be treated with skepticism and strict risk control.

Risk Warning: This article is based on publicly available market information and institutional analysis and does not constitute investment advice. Cryptocurrency is a high-risk asset, and investors should make independent decisions based on their own risk tolerance. Past performance does not guarantee future results, and market fluctuations caused by political intervention are highly unpredictable. #Gate广场圣诞送温暖 #非农数据超预期 #反弹币种推荐