Trump Is Taking On the Fed—With Crypto as the Tip of the Spear

As President Donald Trump continues to test the limits of executive authority by reshaping all manner of U.S. government agencies, one such battle appears poised to rope in the cryptocurrency industry: a brewing war against the Federal Reserve and its publicly stated mission to remain independent.

Since the early 1950s, the Fed has enjoyed final say on key decisions related to the American banking system and U.S. monetary policy. Now the Trump administration and its Republican allies in Congress appear intent on taking over some of that decision-making—first and foremost via numerous crypto-related policy initiatives. 

As Decrypt reported last week, the White House is planning to soon issue another cryptocurrency-focused executive order that will, among other things, likely direct the Fed to change its policies on withholding coveted master accounts from so-called crypto banks—financial institutions that possess banking licenses but also offer crypto custody services to their clients.

Master accounts, which allow banks to access the Fed’s financial services, are crucial for serving customers at scale. Should crypto banks finally receive such approval, the development would constitute a massive victory for the digital assets industry. Only the precious few crypto-focused banks that are registered as depository institutions, such as Kraken Financial, a subdivision of the cryptocurrency exchange Kraken, and Caitlin Long’s Custodia, would be immediately eligible to receive master accounts.

Master account approvals have, for decades, been the final say of the Fed’s seven-member board of governors. And while those governors are appointed by the president, their decisions have not been openly overridden by the executive branch ever since an informal agreement granted them policy-making independence in 1951, according to the Fed.

Last month, Trump laid the groundwork to begin undoing that understanding by signing an executive order declaring he had the right to dictate the Fed’s policies related to the “supervision and regulation of financial institutions.” That policy category would likely include the Fed’s decision-making related to master accounts.

Trump’s order did make the caveat that the Fed will continue to shape its own “monetary policy” on sensitive matters like interest rates. But efforts are brewing in Washington to undo even the Fed’s monetary policy independence—and once again, those plans run straight through the crypto industry. 

Last week, Sen. Cynthia Lummis (R-WY) introduced a bill, the Bitcoin Act, that would obligate the U.S. government to buy some $80 billion worth of Bitcoin in an effort to bolster a federal Strategic Bitcoin Reserve. That huge sum of crypto would be paid for, chiefly, by a scheme that would compel the Fed to have its Nixon-era gold certificates reissued at market prices.

Because gold has appreciated by some 6,000% in the intervening years, new gold certificates would theoretically be worth hundreds of billions more than the old ones. The Fed would receive these new, more valuable certificates—but then have to immediately fork over $80 billion to the Treasury Secretary to fund Bitcoin purchases.

A Capitol Hill source with direct knowledge of the thinking that went into the Bitcoin Act told Decrypt that no one has yet tried to tap into such a fundraising mechanism because, for decades, legislators and presidents alike have been hesitant to explicitly direct the Fed. 

That position has now changed.

“The view [behind the Bitcoin Act] is in line with the president’s, that there’s no such thing as an independent agency,” the source said. “The Federal Reserve can be instructed, especially through legislation.”

The Capitol Hill insider added that Republicans have likely been emboldened in recent years to take a stronger stance on overseeing the policies of ostensibly independent federal agencies because of the perceived politicization of these agencies, exemplified by the alleged political targeting that took place in the anti-crypto “Operation Chokepoint 2.0.”

Trump is by no means the first president to push against the Fed’s independence in the modern era. Presidents from both parties have pressured the Fed to enact or undo certain policies. In 1965, President Lyndon Johnson went so far as to physically assault then-Fed chair William McChesney Martin over a disagreement about raising interest rates, according to one biographer.

But still, since the 1950s, no president has successfully managed, or meaningfully tried, to rip key decision-making powers back from the Fed’s governors—at least not explicitly. Should Trump and his congressional allies keep pressing forward on that goal—and should crypto policy become the tip of that spear—how might the digital assets industry react? 

One crypto lobbyist told Decrypt that the Trump administration appears to be using crypto-related policy as a “test case” for reclaiming control over independent agencies. 

On one hand, those efforts could unlock crucial victories crypto leaders wouldn’t have dared dream of even a year ago. 

On the other hand, the same moves could not only end up in contentious litigation, but also associate the crypto industry—which has tried desperately to avoid political polarization—with a precedent-bucking agenda that is increasingly testing the limits of the U.S. Constitution.

“I can’t tell yet if it’s a good thing or a bad thing,” the crypto lobbyist said. “But we’ll take it. Right?”

Edited by Guillermo Jimenez