Key Takeaways:
- Fed Chairman Jerome Powell said cryptocurrencies have hazards but urged against “stifling” restrictions.
- Mr. Powell desires a balance between crypto and fiat currencies like the US dollar to avoid massive withdrawals.
WISCONSIN (CoinChapter.com) — Federal Reserve Chairman Jerome Powell testified Tuesday and Wednesday before the Senate Committee on Banking, Housing, and Urban Affairs. Mr. Powell acknowledged cryptocurrency-related hazards and urged against “stifling” restrictions.
Mr. Powell told senators he saw various hazards regarding digital assets after making an opening statement that drove stocks lower by suggesting the Fed could speed up and augment upcoming interest rate hikes.
“What we see is, you know, quite a lot of turmoil,” Mr. Powell said before the Senate Committee, adding:
“We see fraud. We see a lack of transparency; we see run the risk and many things like that.”
Mr. Powell noted that as a result, the Fed has warned regulated US financial institutions to exercise caution and “great care in how they interact with the entire crypto industry.
Days after Mr. Powell’s remarks, Bitcoin dropped below $20,000.
Mr. Powell’s remarks reaffirmed a joint statement from the Federal Reserve Board of Governors, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency from January that cautioned banking institutions about the dangers of dealing with cryptocurrencies.
According to the statement, organizations with business models focused on cryptocurrency-related activities or major exposure to cryptocurrency assets “present serious safety and soundness concerns.” Mr. Powell argued that lawmakers should establish a legal framework for digital assets and that regulators shouldn’t go so far as to impede technological innovation.
Crypto May Be Part of the Financial Services — Powell
Crypto trading is massively tied to the US dollar, which raises the so-called “run risk.” Nonetheless, Mr. Powell asserted that stablecoins might find a home in the financial services industry with the right regulations.
Despite calls for tighter regulation, he highlighted that stablecoins and cryptocurrencies should follow the same rules as the traditional banking sector.
“People are going to assume when they deal with something that looks like a money market fund that it has the same regulations as a money market fund or a bank deposit,” he said.
