Federal Reserve Chairman: Cryptocurrencies Are Not A Threat To The Existing Financial System, Crime And Consumer Protection Are Concerns

According to Bloomberg, Jerome Powell, the Federal Reserve Chairman, in a testimony before the House of Financial Services Committee, confidently stated that the cryptocurrency industry is currently not a threat to the existing financial system.

Cryptocurrencies Aren’t Big Enough to Be a Threat

Powell was asked by Republican Congressman Patrick McHenry to give his general thoughts on cryptocurrency. Powell rephrased the question so that it was focused on whether cryptocurrencies pose a current financial stability threat.

“They’re not big enough to do that yet,” said Powell. He openly acknowledged that he wasn’t dismissing the future potential and ramifications of the technology, but noted that their influence and impact is not big enough for much concern at this time.

The cryptocurrency industry currently has a market capitalization of $285 billion as of July 20, 2018. While the cryptocurrency market cap has grown significantly in 2017, it’s fairly small in comparison to the world’s money and markets.

Visual Capitalist in October 2017, published an infographic to explain the cryptocurrency and Bitcoin market in comparison to the world’s money. Cryptocurrencies are minuscule in comparison to the total value of the world’s money which sits at $90.4 trillion.

Money Laundering and Investor Risks Are Great Concerns for the Cryptocurrency Industry

Powell, however, sees cryptocurrencies as a very challenging new technology. He commented on the frequent association of cryptocurrencies and crime.

Cryptocurrencies are often used “if you’re trying to hide money, or if you’re trying to launder money…so we have to be very conscious of that,” said Powell.

Powell’s statement is very true, especially since the Financial Action Task Force (FATF) also recognizes the growing involvement of cryptocurrencies and money laundering and terrorist financing activities. The FATF is also planning to introduce new rules for cryptocurrency exchanges to prevent this ongoing problem.

Aside from crime, the Federal Reserve Chairman also believes cryptocurrencies present significant consumer-protection risks.

“Relatively unsophisticated investors … see the asset going up in price, they think this is great I’ll buy this,” said Powell. “Instead, there’s no promise behind that… it’s not really a currency, it doesn’t really have any intrinsic value.”

Powell noted that investor and consumer issues are a big concern.

The U.S. Federal Reserve is Not Looking to Create a Digital Currency

Powell also mentioned that the U.S. Federal Reserve isn’t interested in regulating cryptocurrencies and that they’re not exploring the idea of creating their own digital currency at this moment in time.

His greatest concern seems to be on the definition and labeling of cryptocurrency as a currency.

“If you look at what currencies do, they’re supposed to be a means of payment and a store of value,” said Powell. “Cryptocurrencies are not really used very much in payment. Typically people sell their cryptocurrencies and pay in dollars. In terms of a store of value, look at the volatility of it. It’s just, not there.”

Nadine Baudot-Trajtenberg, the deputy Governor of the Bank of Israel also expressed a similar opinion in January 2018. She mentioned that since Bitcoin and cryptocurrencies are not backed by central governments and banks, “Bitcoin and similar virtual currencies are not a currency, and are not considered foreign currency.”

Institutional Investors Move into the Cryptocurrency Market

While Powell appears to be skeptical of the value of cryptocurrencies, the cryptocurrency industry is attracting great attention from institutional investors. It was recently reported that the world’s largest asset manager, BlackRock Inc., is evaluating cryptocurrencies and is looking at blockchain technology. While BlackRock does not see a lot of demand for cryptocurrencies, Larry Fink, the CEO of BlackRock mentioned that they “are a big student of blockchain,” and has a large group studying cryptocurrencies.

“BlackRock exploring crypto assets comes as no surprise and is definitely a positive development for the crypto market,” said Chris Yoo, a portfolio manager at Black Square Capital Management. “As the largest asset manager in the world, its interest in crypto assets could be a catalyst for upward price movement and encourage other asset managers, even with more conservative strategies, to seriously explore investing in the crypto space.”

The post Federal Reserve Chairman: Cryptocurrencies Are Not A Threat To The Existing Financial System, Crime And Consumer Protection Are Concerns appeared first on UNHASHED.