In brief

• The Department of Justice has filed a criminal lawsuit against U.S. Federal Reserve Chairman Jerome Powell.
• Powell asserts the DOJ probe is a "pretext" for an attack on the Fed's independence, aimed at pressuring its interest rate decisions, a claim echoed by a Republican senator.
• The event could trigger a long-term re-evaluation of non-sovereign assets like Bitcoin as a hedge against compromised monetary institutions.

The Department of Justice has opened a criminal investigation into the sitting U.S. Federal Reserve chairman, Jerome Powell—an unprecedented legal move igniting concerns over the central bank’s independence. 

“The legal proceedings have added a new layer of uncertainty to the macro front,” Jimmy Xue, co-founder and COO of quantitative yield protocol Axis, told Decrypt. “The challenge to central bank autonomy reinforces Bitcoin's narrative as a ‘neutral’ asset that operates independently of legal or political disputes.”

Xue noted that this “perceived neutrality is attracting institutional capital that views Bitcoin as a hedge against the risk that monetary policy could be influenced by executive-level litigation.”

In early market reactions, haven assets gold and silver jumped nearly 2% and 5%, respectively. Bitcoin noted a relatively muted response, rising 1.7% to $92,000, according to CoinGecko data.

Powell confirmed the investigation in a Sunday statement, noting that it centers on allegations he misled Congress about a headquarters renovation project. Powell dismissed those allegations as a “pretext.” 

Instead, he framed the inquiry as a direct attack on the Fed’s autonomy.

“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation,” Powell stated.

The probe is being overseen by U.S. Attorney for the District of Columbia Jeanine Pirro, a Trump appointee, a detail that quickly drew political backlash from within the President’s own party. 

Senator Thom Tillis (R-NC), a member of the Senate Banking Committee, condemned the action as a clear attempt to undermine Fed independence and vowed to block all Fed nominations, including the upcoming Chair vacancy, until the matter is resolved.

“It is now the independence and credibility of the Department of Justice that are in question,” Tillis said in a Sunday statement.

“This escalation in Trump's war against the Fed smells like Powell not stepping down from the board after his role as Chair ends... they want to make his life hell to try to force it,” according to a tweet from Quinn Thompson, CIO of Lekker Capital, suggesting the fight could create a leadership vacuum at the central bank. 

After 12 months of silence, the Fed Chair Powell is fighting back against President Trump, according to a Sunday tweet from The Kobeissi Letter. The legal development comes as the Fed is expected to pause rate cuts again on January 28th.

What this means for crypto

If the Justice Department’s case succeeds, it would set an “extremely dangerous precedent,” Tim Sun, senior researcher at HashKey Group, told Decrypt. “The President could use executive authority and the judicial system to punish a central bank chair for failing to comply with his preferred monetary stance.”

A scenario that directly challenges the foundation of the dollar system by questioning the Fed’s independence would destabilize and erode confidence in the entire dollar and U.S. Treasury system, Sun explained. As such, it would embed political intervention into pricing models permanently, benefiting decentralized, non-sovereign assets that cannot be manipulated.

In the short term, Sun expects heightened volatility rather than a direct rally. “It would unanchor rate expectations, distorting the yield curve, and initially drive higher volatility across all risk assets—including Bitcoin,” he said.

The pivotal shift would come later. “After the market completes this round of repricing, Bitcoin could gradually evolve, at the narrative level, into an institutional hedge,” Sun said, as investors price in a permanent risk premium for political interference.

“If the Federal Reserve became subordinate to the president, leading to a sharp depreciation of the dollar or a loss of control over rate expectations, then Bitcoin may indeed be approaching its historic moment,” he concluded.

Sun tempered immediate expectations, however, noting that Bitcoin remains tethered to the dollar for now.

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