The Fed stirs up trouble, Trump steps in to cause a ruckus, and the crypto world suffers.

Trump finally took action against the Fed.

The interest rate cut has caused widespread anxiety, and Trump's big stick can no longer be restrained, swinging towards the Fed. On the evening of August 25, Trump announced that he had dismissed Fed Governor Lisa Cook for allegedly being involved in "mortgage fraud," marking the first time in the 111-year history of the Fed that a president has removed a governor. In response to this accusation, Cook firmly argued her case and clearly stated that she would file a lawsuit regarding her dismissal. The battle between the president and the Fed is about to erupt.

In the face of this once-in-a-century great turmoil, the cryptocurrency market has suffered. Just yesterday, BTC briefly fell below $109,000, hitting a low of $108,600, a drop of 12.7% from recent highs. Ethereum, after reaching a peak of $4,954, crashed to $4,311. According to Coinglass data, as of noon yesterday, over $935 million in liquidations occurred across the network in 24 hours, with long positions being the primary targets, resulting in over $821 million liquidated, affecting 168,320 people worldwide.

Can Trump dismiss Cook? Can he truly control the Fed? The drama that Trump is staging will ultimately make the entire market pay the price.

Let's take a look back at the major events in the crypto space in recent days. Just last week, Fed Chairman Powell spoke at the annual economic symposium in Jackson Hole, Wyoming, hinting that despite the current upward inflation risks in the U.S., the Fed may still cut interest rates in the coming months. He stated, "In the short term, the risks of inflation in the U.S. are tilted to the upside, while the risks to employment are rising. Based on changes in the economic outlook and the balance of risks, the Fed's monetary policy stance may need to be adjusted."

Overall, this is already a clear signal of "softening", and it can basically be considered that a rate cut in September has become a foregone conclusion. The market's reaction was also very direct; on that day, the three major U.S. stock indexes all closed higher, with the Dow Jones rising by 1.89%, the S&P 500 index rising by 1.52%, and the Nasdaq rising by 1.88%. Even the A-shares, which have been criticized, rose by more than 3800 points, and the market echoed with the sound of a bull return. The chain reaction was also very evident, and the crypto market was no exception, with BTC rebounding to 117,000 USD, and ETH performed impressively, breaking through 4,800 USD on that day, and on August 25, it refreshed its historical high of 4,956 USD.

But good times never last. Along with the interest rate cuts came the panic of recession. On August 25, Moody's chief economist Zandi issued a warning that the risk of a downturn in the U.S. economy is increasing. Nearly one-third of states, which account for almost one-third of U.S. GDP, have fallen into recession or are very likely to do so, another third are experiencing stagnation, while the remaining third is still expanding. Subsequently, the internationally renowned investment bank Barclays also released its latest forecast, indicating that during Trump’s presidency, the likelihood of a recession in the U.S. is 50%. The market snapped back from the joy of interest rate cuts, with U.S. stocks starting to pull back first, and BTC clearly following the trend of U.S. stocks, while only ETH continued to rise supported by institutional buying.

Coincidentally, on the morning of August 26th, Beijing time, another heavyweight news drew the market's attention. Trump suddenly announced that he had signed a document to dismiss Fed Board member Lisa Cook, citing her involvement in mortgage fraud. At the same time, Trump also publicly shared an open letter to Cook on social media, stating that he had sufficient reasons to dismiss her, and his words were quite intense: "Given your deceptive and potentially criminal behavior in financial matters... I have lost confidence in your integrity."

As for whether the reasons are true, we need to pull the timeline back to last week. Also on social media, Bill Pulte, the director of the Federal Housing Finance Agency, accused Cook of declaring two properties as his primary residence to obtain more favorable interest rates, and stated that he had submitted this accusation to the Department of Justice. The seemingly minor property interest rates stirred up a mess under Trump’s relentless efforts. After this incident, Trump immediately retweeted the report and stated, "Cook should resign immediately." Subsequently, Cook responded on social media, saying he would never resign due to bullying.

Breaking down the language is merely to pay a little less on the mortgage, yet a dignified Fed governor has to be labeled as "having no integrity" and even face dismissal. Whether true or not, it is indeed quite absurd. After a fruitless confrontation on social media, the incident escalated, and finally on the 25th, Trump signed the aforementioned dismissal document. This marks the first time in the 111-year history of the Fed that a president has dismissed a Fed governor through an executive order.

Cook himself has a very strong attitude, not only publicly stating that Trump has no right to fire her, but also hiring renowned lawyer Abbe Lowell to take Trump to court. It is foreseeable that this will be a protracted legal battle.

Questions also arise, why Cook? Does Trump actually have the power to fire her? From a legislative perspective, although it is difficult for the president to dismiss someone to ensure the independence of the Fed, this power does indeed exist. The Federal Reserve Act stipulates that the terms of the Fed Board members are long-term and fixed, and the president can only remove them "for cause." However, this "cause" is relatively vague, as no one has attempted such actions over the years, but rationally speaking, serious misconduct or moral issues could become one of the reasons.

As for why it's Cook, the signal conveyed is even more obvious. In the confrontation with the Fed, Trump's cards are really a bit insufficient. From the decision-making body perspective, the Federal Open Market Committee (FOMC), which decides the U.S. federal funds rate, is composed of 7 members of the Board of Governors of the Fed and 5 presidents of regional Federal Reserve Banks. Therefore, the Board of Governors is the core decision-making body of the Fed. The 7 seats on the Board are all nominated by the President of the United States and confirmed by the Senate. Except for the Chairman and Vice Chairman of the Board, whose terms last 4 years, the theoretical term for each member of the Board can last up to 14 years, potentially spanning 4 presidential administrations. This term system is designed to reduce the impact of presidential transitions and helps the Fed maintain stability, laying the foundation for the Fed's independence.

Current members of the Fed Board of Governors, source: oanda

From the current composition of the council, apart from Fed Chairman Powell, only 2 of the remaining 6 members were nominated by Trump during his first term. The remaining 4 members were all nominated by former President Biden. The impeached Cook is the first Black woman on the Fed board, having taken office in May 2022 with a term ending in 2038. She was previously an economics professor at Michigan State University and served on the Economic Advisory Council during the presidency of Democrat Obama. Cook had previously stated that the current president's trade policies could suppress U.S. productivity.

It is evident that the internal structure of the Fed is very stable, but this structural stability also has a natural shortcoming, namely insufficient flexibility and adaptability, acting solely based on data. This characteristic of the Fed, which has been maintained for many years, has made Trump very dissatisfied. However, the objective existence of long terms makes it difficult for him to intervene quickly, leaving him in a bind between policy advocacy and inflation balance. Previously, Trump had repeatedly criticized Powell for not lowering interest rates, and after trying various methods without success, he naturally shifted his focus to the governors. Cook, who was already "not from my party" and had been caught in a scandal, became the first choice for political maneuvering, attempting to use Cook's case to create a deterrent against the council. In fact, "mortgage fraud" is no longer a new issue, as several members of the Democratic Party have been investigated by the Trump administration.

From a core perspective, under legal protection, the independence of the Fed is unlikely to face a risk of weakening in the short term. Trump's actions are more of a demonstration, exerting pressure to force the Fed to adhere to his personal views, and further attempt to achieve a major overhaul of the board to enhance his influence over the Fed. Earlier this month, Trump nominated his confidant Stephen Moore to replace a resigning board member, Kugler, whose term ends next January. If Cook's dismissal is successful, he will have successfully placed more "insiders" within the Fed. According to informed sources, Trump intends for Moore to replace Cook with either former World Bank President David Malpass. Just yesterday, Trump stated on social media, "We will soon gain a majority seat on the Fed, and we may transfer Moore to another longer-term position at the Fed; we must lower interest rates to alleviate housing cost pressures."

It is precisely under the multiple games of interest rate cuts and recession, Trump and the Fed, that the market experienced a flash crash yesterday. BTC fell below the support level of $112,000, reaching a low of $108,000, while ETH also dropped to $4,311, a decline of 12.97% from its peak. There is indeed a sense of panic; after breaking below $112,000, the turnover rate of BTC surged, and even small holders showed signs of exiting. However, overall, although it has moved down to $108,000, the bottom support remains effective. ETH's performance has been even better; from the perspective of ETFs, on August 26, Eastern Time, the total net inflow of Ethereum spot ETFs was $455 million, with net inflows for 4 consecutive days, and the single-day inflow amount was more than 5 times that of BTC.

In terms of capital flow, it seems that more funds are flowing from BTC into ETH. On the day of the flash crash, approximately $2 billion worth of Bitcoin was reallocated to Ethereum, showing that capital has a more positive expectation for ETH. Institutional accumulation is also continuing, with the leading ETH stock BitMine receiving 131,736 ETH from the business platform addresses of three institutions: BitGo, Galaxy Digital, and FalconX within the past 12 hours.

Currently, the performance of the US stock market shows that there has not yet been widespread systemic risk, and market panic has eased. BTC has returned to over $111,000, while ETH has returned to over $4,600. SOL has risen to $202 with the support of treasury news, and BNB has also returned to $859.

On the other hand, in addition to continuously exerting influence in the macro direction, another major crypto event involving Trump is also underway. On August 23, Trump's family crypto project World Liberty Financial (WLFI) announced that it will open for the first application and trading of WLFI tokens on September 1, which also means that WLFI tokens are really going to be listed.

From the perspective of unlocking, to maintain price stability, early supporters will only unlock 20%, while the remaining 80% will be decided by the community through governance votes. It is worth noting that the tokens of the founding team, advisors, and partners will not be unlocked at the time of listing. From the current pre-contract perspective, WIFI has already dropped to $0.26 after surging to $0.55. Although there is still significant upside compared to the early purchase prices of $0.015 and $0.05, under the current circumstances, the fully diluted valuation of WIFI is only $26 billion, which can only be described as mediocre. Although the founding team will not unlock at the time of listing, the early cashing out of contract hedging value is not a new thing.

It is foreseeable that by September 1st, Trump’s calls and promotions will not be few, but whether this action will suck liquidity dry like Trump or pump the market to deliver benefits to the public is still unknown. It is more likely that, for this crypto paradise that can be withdrawn at any time, Trump will also release new positive news on September 1st.

Looking at it solely from the perspective of cryptocurrency, with the US stock market pulling from the outside and policies supporting from within, the independent market for cryptocurrencies is clearly diminishing. However, whether internally or externally, it seems to be closely related to Trump. Ultimately, we must acknowledge that with the continuous politicization of the cryptocurrency market, Trump and the crypto world are already like grasshoppers on the same rope.