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Bitcoin rises 1% amid US Fed tensions, outperforming stocks and the dollar
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Summary
- It reported that amid tensions between the US president and the Fed chair, Bitcoin showed relative strength versus stocks and the dollar.
- It said the market is interpreting Bitcoin as a safe haven and a hedge amid uncertainty in the institutional financial system.
- It reported that concerns were raised that political attacks on central bank independence could damage investor sentiment and weaken currency credibility.
Bitcoin (BTC) showed relative strength, moving differently from stocks and the dollar, as tensions escalated between the US president and the Federal Reserve (Fed) chair.
According to CoinDesk on the 12th (Hong Kong time), Bitcoin (BTC) traded around $92,000, up about 1% from the previous day. However, it failed to break out of the $89,000–$95,000 range formed last week.
At the same time, US financial markets weakened. Nasdaq futures fell 0.8% and S&P 500 futures slid 0.5%, while the dollar index retreated to 99.00 from last week’s peak of 99.26. Given that Bitcoin has typically shown a high correlation with the Nasdaq, the latest price action is viewed as unusual.
The market is interpreting this as a sign that some “safe-haven” demand for Bitcoin has flowed in. That is because uncertainty over the institutional financial system has grown as tensions deepen between President Donald Trump and Fed Chair Jerome Powell. Bitcoin advocates have long viewed it as an anti-establishment asset and a hedge against fiscal and monetary policy risks. On the same day, the price of gold, a traditional safe haven, hit a record high of $4,600 per ounce.
Tensions between the two sides intensified further over the weekend. Powell said, “The Trump administration threatened to criminally prosecute me over the renovation of the Fed headquarters,” adding that “this is a political attempt to pressure rate cuts.” Trump has repeatedly criticized Powell, arguing that the Fed is not cutting rates aggressively enough.
Trump has publicly said the policy rate should be lowered to below 1%, but the Fed is expected to maintain a hold-for-now stance after cutting the policy rate by 25 bp last month to 3.5%. Prediction markets also price a low likelihood that Powell will step down early before his term ends (May this year).
Still, the market is wary that repeated political attacks on central bank independence could undermine investor sentiment and weaken confidence in the currency at a time when inflation has not been fully resolved. Turkey’s experience—where the lira plunged after President Recep Tayyip Erdogan intervened in the central bank—is cited as a cautionary tale. However, the prevailing view is that because the dollar is the world’s reserve currency, the likelihood that the US monetary system will slide into a severe breakdown in the short term is limited.
