At an event hosted by the Bank for International Settlements (BIS) on Monday, Jerome Powell spoke candidly about cryptocurrencies.
Powell disagrees with support for bitcoin.
When asked if he thought bitcoin and other cryptocurrencies posed a threat to financial stability, Powell borrowed familiar arguments that have long been out of traditional financial data.
Crypto assets – we call them crypto assets – are very volatile – see bitcoin, and therefore not very useful as a store of value, and they are not backed by anything, he said.
They are rather a speculative asset and are therefore not particularly used as means of payment. It’s more of a speculative investment. It is essentially a substitute for gold, not the dollar.
Powell’s words are among the most direct Fed opinions on bitcoin made public in recent history and are based on the 2019 outlook. They also came weeks after new Treasury Secretary Janet Yellen clarified her concerns about decentralized cryptocurrencies.
As with Yellen, Powell seems to have unleashed a wave of negative market sentiment, with BTC/USD dropping nearly $1,000 after his response.
1-hour candlestick chart of BTC/USD (Bitstamp). Source: TradingView
Despite all the disagreements, however, Powell and bitcoin’s biggest proponents agree on the cryptocurrency’s status as a new form of gold.
The ruling could hit bitcoin hostile goldbugs hard, including Peter Schiff, who continues to claim that fate is on his side when it comes to the generationless store of value.
Fiat has a public interest
Along with Augustin Carstens, director general of the BIS, and Jens Weidmann, president of the Deutsche Bundesbank, Powell also drew attention to the stables in the current trend of central banks in digital currencies, CBDCs.
Here the discussion was less posh, with speakers repeating familiar views on separating private stables from bank-led CBDs.
To the extent that stable sovereign currencies in major economies support it, it’s certainly an improvement over crypto assets, I would say, Powell continued.
But where does the confidence come from? It comes from this sovereign currency, which is the backbone.
He said fiat currencies are issued in the public interest, but stressed that stable currencies will not be the backbone of the global financial system in the future.