Fed Chair Jerome Powell: Crypto ‘Turmoil, Fraud, Run Risk’ is being monitored
by Arthur · March 7, 2023
Federal Reserve Chairman Jerome Powell said today that the crypto space must be closely watched because it is full of turmoil – but innovation in the world’s largest economy should not be stifled.
Testifying on Capitol Hill in front of lawmakers on Tuesday, Powell was asked about the cryptocurrency space. He said the US central bank had been “quite active” in that area, adding that the Fed does not want to stifle innovation.
But he added that regulated financial institutions overseen by the Fed must take “great care” in how they engage in the crypto space.
“Like everybody else, we’ve been looking at what’s been going on in the crypto space, and what we’re seeing is quite a lot of turmoil, we’re seeing fraud, we’re seeing a lack of transparency, we’re seeing risk, we’re seeing a lot of things like that,” Powell said . “What we have done is to make sure that the regulated financial institutions that we monitor and regulate are careful and take great care in the ways they engage in the whole crypto space.”
The crypto space was rocked by a series of high-profile bankruptcies and controversies last year. The most significant was the collapse of Sam Bankman-Fried’s digital asset exchange FTX, which imploded in November due to criminal mismanagement, US prosecutors allege.
The main topic of the political discussion today was inflation – which is sky high in the US
The Fed has tried to bring it down by raising interest rates: Last year it began raising them by 75 basis points four times, then slowed down by raising them by just 50 basis points.
This negatively affected the price of Bitcoin – and the broader crypto market – because, like US stocks, it is a risky asset. When interest rates are high and there is economic uncertainty, investors tend to look for safer things to park their money in.
Most recently, the central bank increased the interest rate by 25 basis points. But today Powell said the Fed could raise interest rates higher and potentially faster than expected because inflation remains too high.
“Core inflation has come down, but not nearly as far as we hoped, and it has a long way to go,” he said.
Stocks fell on the news — and so did Bitcoin: the biggest digital asset by market capitalization fell as low as $22,120 after the comments. It has since climbed back up and stands at $22,250, according to CoinGecko.
The asset is down 1.2% in the last 24 hours and 5.4% in the last week.
