Powell warns against crypto risks, but doesn’t want innovation to be stifled
Federal Reserve Chairman Jerome Powell addressed the Senate Banking Committee on March 7, 2023. Win McNamee—Getty Images
After an opening statement in which Chairman Jerome Powell sent stocks lower by suggesting the Fed could speed up and increase upcoming rate hikes, he touched on crypto and told senators he saw more risks when it comes to digital assets.
“What we’re seeing is, you know, quite a bit of turmoil,” Powell said Tuesday before the Senate Banking, Housing and Urban Affairs Committee. “We see fraud, we see lack of transparency, we see risk, lots and lots of things like that.”
As such, the Fed has asked regulated U.S. financial institutions to exercise caution, Powell added, and to take “great care in the ways they engage … with the entire crypto space.”
Following Powell’s comments, Bitcoin was down 0.84% to $22,200, while Ether was down 0.7% to around $1,500, according to CoinMarketCap.
Powell’s comments echoed a January joint statement issued by the Fed’s board, along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency that warned banking organizations about the risks of engaging with crypto assets. The statement said organizations with business models centered on crypto-related activities or with high exposure to crypto-assets “raise significant security and soundness concerns.”
Still, Powell said regulators should not go so far as to inhibit technological progress and that Congress should create a legal framework for digital assets.
“We don’t want regulation to stifle innovation in a way that just favors incumbents and things like that,” he said.
The January statement attended by the Fed’s board argued that stablecoins, or cryptocurrencies pegged to the price of a fiat currency such as the US dollar, were subject to “risk,” or the risk of overwhelming withdrawals. But on Tuesday, Powell said that stablecoins could find a place in the financial sector if they are properly regulated.
He stressed that the regulations for crypto and stablecoins should mimic those of the traditional financial world, despite calls for more tailored rules from the crypto industry.
“People are going to assume when they’re trading something that looks like an MMF that it has the same regulations as a MMF or a bank deposit,” he said.
