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Fed’s Powell on Cryptocurrencies: “Highly Volatile”

Fed’s Jerome Powell on Cryptocurrencies: “Highly Volatile” as Bitcoin Continues to Make New Records and Gains Growing Acceptance Among Hedge Funds.

SageFX - Mar, 23, 21

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Principal Points

  • Jerome Powell says bitcoin is a “speculative asset”
  • Bitcoin slips below $54,000, trades around a one-week low

Fed’s Powell on Cryptocurrencies: “Highly Volatile”

The US Federal Reserve Chairman Jerome Powell appeared in an online panel discussion on Monday in which he gave his opinion on cryptocurrencies, in general, and bitcoin, specifically. “Crypto assets are highly volatile — see Bitcoin — and therefore not really useful as a store of value. They’re not backed by anything. They’re more of an asset for speculation,” Mr. Powell said in his opening remarks on the crypto topic. This happened during a webinar hosted by the Bank of International Settlements.

“It is essentially a substitute for gold rather than the dollar,” the Fed Chair continued, dismissing the idea that bitcoin could replace the dollar as a store of value and a means of payment. He warned that crypto market participants need to understand the inherent risks of crypto asset investing such as high volatility and “the fact that they are not backed by anything”.

The rather dismissive stance for crypto assets is in contrast with his views on stable coins. Such as those backed by sovereign currencies. “That’s certainly an improvement over crypto-assets” as the “credibility comes from the sovereign currency that is the backstop,” he said. “Stable coins may have a role to play with appropriate regulation, but that role will not be to form the basis of a new global monetary system,” the Fed Chairman added.

A Slight Decline for Bitcoin

At the time of the event, bitcoin was trading in its consolidation range around $57,000. On Tuesday, the price has dropped to $53,500, or a decline of 6%. Bitcoin entered into a correction yesterday when the price declined by more than 10%. This was a drop from its all-time high on March 13, when the historical top of $61,700 was reached. Bitcoin has depreciated by roughly 14% to reach its current market price of $53,700.

The total crypto market capitalization has dropped from an all-time top of $1.84tn in mid-march to $1.68tn today. Thus representing a decline of 8.7%. Bitcoin has been losing its dominance over the crypto market in recent months, going from a 70% market share in January to 59.7% today.

Bitcoin Making New Records

Bitcoin, this year, has been making new records even amid heightened criticism. This backlash is mainly coming from investment banks such as Bank of America, famed investors like Michael Burry, and now the Federal Reserve. It is clear that the Fed does not seem ready to embrace cryptocurrencies. However, more investment banks, institutional investors, and corporations are opening up to the digital asset class.

Citibank, JPMorgan, Goldman Sachs, Morgan Stanley, BNY Mellon are some notable examples from the banking sector that have expressed interest to get involved with bitcoin and the crypto space. Growing acceptance is also visible among hedge funds.

Stanley Druckenmiller’s Duquesne family office and Paul Tudor Jones’ Tudor funds are already holding bitcoin in their portfolio. And companies like Tesla, MicroStrategy, and Square have allocated some of their company cash to bitcoin. Consequently, the asset is now present in their balance sheets. In addition, payment giants like PayPal, Visa, and Mastercard are working on allowing their clients to pay with bitcoin.