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US Fed Considers Including BTC Market Crash as ‘Salient Risk’ for Stress Tests

The U.S. Federal Reserve is considering the inclusion of the Bitcoin market collapse as one of the “salient risks” to be taken into account for its supervisory stress tests.

The United States Federal Reserve (the Fed) is considering the inclusion of this year’s Bitcoin (BTC) market collapse as one of the “salient risks” to be taken into account for its supervisory stress tests. The prospective amendment was revealed as part of a policy statement published on the official federal government daily journal, The Federal Register, on Feb. 28.

The Fed’s annual supervisory stress tests provide the framework for covered companies to conduct their internal stress tests. These have been mandatory pursuant to the landmark Dodd-Frank Wall Street Reform Act (effective 2010), which was introduced as a direct response to the 2008 financial crash.

For the tests, the Board of Governors of the Federal Reserve System establishes three scenarios — “baseline, adverse, and severely adverse” — and projects a “firm’s balance sheet, risk-weighted assets, net income, and resulting post-stress capital levels and regulatory capital ratios” according to each one.

In its new policy statement, the board states that it is working to make its tests “sufficiently dynamic” by “augmenting the scenarios with risks it considers to be salient.” This year, notably, a commenter:

“recommended that the Board consider extraordinary shocks, such as a war with North Korea, the collapse of the Bitcoin market, or major losses caused by trader misconduct, in its scenarios.”

Any of these, and other proposed amendments, should they be accepted, are to come into effect as part of the Board’s stress test policy by April 1, 2019. In an outline of the function of its policy, the Board further outlines that:

“Together, the Dodd-Frank Act supervisory stress tests are intended to provide company management and boards of directors, the public, and supervisors with forward-looking information to help gauge the potential effect of stressful conditions on the ability of these large banking organizations to absorb losses, while meeting obligations to creditors and other counterparties and continuing to lend.”

As reported, Randal K. Quarles — the governor and vice chairman for supervision at the Fed and new chair of the Financial Stability Board (FSB) — has this month stated that the growth of cryptocurrencies as an asset class “may challenge any framework,” noting that the FSB has:

“decided to undertake a review of its framework for assessing vulnerabilities to ensure that we are at the cutting edge of financial stability vulnerability assessment.”

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Fed Chair: Cryptocurrencies Are 'Great' For Money Laundering

Jerome Powell, chairman of the U.S. Federal Reserve, had some harsh words for cryptocurrencies during an appearance before the U.S. Congress.

Speaking to the House Financial Services Committee, the head of U.S. central bank said Wednesday that cryptocurrencies have no “intrinsic value” and presented severe risks to investors, as CNBC reported. Part of his concerns seemingly stem from the apparent crypto bubble – he said that “relatively unsophisticated investors see the asset go up in price, and they think ‘this is great, I’ll buy this.’ In fact, there is no promise of that.”

He added:

“It’s not really a currency. We’re not looking at this as something that we should be doing … Mainly I have concerns. If you think about what currencies do, they’re supposed to be a means of payment and a store of value basically and cryptocurrencies are not used very much in payment … and in terms of the store of value, if you look at the volatility it’s just not there.”

“They are very challenging because cryptocurrencies are great if you’re trying to hide or launder money, we have to be very conscious of that,” he said.

That being said, though “there are investor and consumer protection issues,” Powell said the cryptocurrency market isn’t big enough to threaten financial stability, and therefore the Fed isn’t seeking to regulate it, according to Bloomberg.

Powell’s testimony comes hours before the Financial Services Committee is set to host another hearing directly focused on cryptocurrencies. As previously reported by CoinDesk, the committee hearing will hone in on the question of whether cryptocurrencies are a new form of money.

A memo published after the hearing was announced notably states that members will examine “the extent to which the U.S. government should consider cryptocurrencies as money and the potential domestic and global uses for cryptocurrencies.”

Powell image via Wikimedia Commons

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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XRP Not A Security and Bitcoin (BTC) Whales Will ‘Die Out’, Says Crypto Expert

Ethereum World News had the privilege of Interviewing BitcoinIRA’s Chief Operations Officer, Chris Kline. Mr. Kline shared a lot of insights into the current events affecting the cryptocurrency industry.

The interview touched on issues such as a possible market recovery; status of Bitcoin (BTC) whales; SEC regulatory concerns; XRP being declared a security; the recent hacks; and the ‘Feds’ issuing their own currency.

The full interview was as follows:

Q: Why are the cryptocurrency markets bound to bounce back?

A: I believe that the crypto markets are bound to bounce back for a number of reasons. Firstly, we are seeing an increased amount of institutional interest, from Goldman Sachs opening up a Bitcoin trading operation to Nasdaq enabling cryptocurrency exchange Gemini to leverage its SMARTS Market Surveillance Technology. Secondly, the SEC’s recent statement about Bitcoin and Ether not being securities is clearing up some of the regulatory uncertainty in the space that many experts in the space, including myself, believe has been contributing to market stagnation. And finally, we are already seeing decentralized technology change the world and the way data is stored and processed…with many top companies such as Amazon and Facebook dedicating an enormous amount of money and resources to better understand and leverage blockchain technology. 

Q: What is the status of Bitcoin whales in the industry?

A: Whales are the big players, where the ocean is a metaphor for the cryptocurrency ecosystem. While they currently have the potential to impact investments, over the long term and as the crypto market matures, I believe their ability to impact the market will dwindle. First, the larger the cryptocurrency market gets, the less impact any individual whale may have on the market. Additionally, regulators and the DOJ are stepping in already to combat dangerous market manipulation, so there will be less incentive for whales to create waves.

Q: What does the recent SEC announcement mean for the crypto space?

A: I believe that the recent SEC announcement is positive news for the crypto space for a couple reasons. Firstly, as I mentioned before, I believe it clears up some of the regulatory uncertainty that experts such as Tom Lee and myself believe is contributing to price stagnation. Secondly, I believe that the SEC’s statement demonstrates an ongoing cooperative, respectful, and productive rapport between regulators and the decentralized technology sector in working together to create a compliant, present-day financial landscape.

Q: Is Ripple a security?

A: In my opinion, it is not. Explaining why bitcoin and ether are not securities, William Hinman said: “Based on my understanding of the present state of ether, the Ethereum network, and its decentralized structure, current offers and sales of ether are not securities transactions.” Similarly, Ripple, while arguably more centralized than other cryptocurrencies, is actively moving forward in its decentralization strategy. The platform has announced plans to diversify validators for XRP ledger as well as add attested validators to unique node lists.

Q: Will hacks accelerate crypto regulation?

A: I believe hacks accelerate the need for progress and change. That’s what we saw this year, with the SEC requiring all exchanges to register as securities, as well as different technology platforms shutting down crypto advertising in an attempt to weed out the bad actors. We also have companies like Chainalysis which are focused on helping Bitcoin-based businesses detect fraud. 

Q: Will the feds issue their own cryptocurrency?

A: While there has been talk of other countries like China and Israel digitizing their fiat currencies, I don’t have any reason to believe the US Fed will digitize the US dollar anytime soon.

[Photo source,]


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Federal Reserve Bank of St. Louis Adds Crypto Price Tracking to Research Database

The Federal Reserve Bank of St. Louis will now be tracking the prices of four cryptocurrencies on their research database, according to a June 19 post on the bank’s website.

The database, called the Federal Reserve Economic Data (FRED), will now include the prices of Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), Litecoin (LTC) from as early as 2014 to the present. The prices will be updated daily with data obtained from U.S.-based cryptocurrency exchange and wallet Coinbase.

The Federal Reserve Bank of St. Louis has often been in the news for their research and statements about cryptocurrencies and blockchain. In January, a paper published by the bank gave an overall favorable assessment of crypto and blockchain use in the future. In mid-May, the president of the St. Louis Fed said in an interview that he didn’t rule out Bitcoin as a potential future threat to the dollar.

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St Louis Fed Now Tracks Crypto Prices on Its Research Database

The St. Louis division of the U.S. Federal Reserve Bank is now tracking the prices of four cryptocurrencies in its research database.

According to an announcement on Tuesday, Federal Reserve Economic Data (FRED), an extensive database maintained by the central bank’s St. Louis branch, is now offering data points for bitcoin, bitcoin cash, ethereum and litecoin.

The price data for the well-known and widely cited economic research database is being provided by the U.S. exchange Coinbase and is updated on a daily basis, according to the announcement. Furthermore, the database makes available the historical price data of the four assets back to as early as 2014.

The move to add crypto data is not, perhaps, entirely surprising, given that the St. Louis Federal Reserve – a center for local, national and global economic research – has never shied away from taking a focus on cryptocurrencies.

Most recently, speaking at CoinDesk’s Consensus 2018 conference in May, James Bullard, president of the St. Louis Fed, raised concerns that the sheer number of cryptocurrencies these days may bring the risk of a “chaos of exchange rates” that has been seen previously in U.S. history – especially during the civil war.

The St. Louis branch has had its eyes bitcoin since as early as 2014, when its vice president, David Andolfatto, hosted a seminar on the topic and notably commented at the time that the innovation is forcing traditional institutions to either “adapt or die.”

Federal Reserve image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Central Banks Will Jump-Start the Decentralization of Money

Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.

Whether bitcoin or its imitators eventually achieve global ubiquity, they have already achieved success in one fundamental way: forcing humans to rethink their relationship with money and banks.

Cryptocurrencies weren’t on the ballot during Switzerland’s “sovereign money” referendum last weekend, in which Swiss citizens rejected by a ratio of three to one a proposal to end fractional reserve banking and give sole money-creation authority to the Swiss National Bank. But they were the elephant in the room.

The very presence of the crypto alternative, I believe, will eventually force economies worldwide to disintermediate banks from money, yet the direct authors of that change won’t be activist voters wielding ill-conceived referenda or crypto enthusiasts voting with their wallets.

The first phase of a transition toward a true “money of the people” will be implemented by central banks themselves, striving and competing to remain relevant in a post-crisis, post-trust, digitally connected global economy.

That might disappoint adherents of the cypherpunk dream who birthed bitcoin. But the good news for those who want governments out of money altogether is that when currencies become digital – and enjoy all the bells and whistles of programmable money – they will foster more intense global competition among themselves.

When smart contracts can manage exchange rate volatility, for example, people and businesses involved in international trade will not need to rely solely on the dollar as the cross-border currency of choice. This more competitive environment will ultimately open the door to non-government digital alternatives such a bitcoin.

Backlash against CBDCs

To be sure, official enthusiasm for central bank-issued digital currency, or CBDC as it has become known, has waned somewhat as the old guard of central banking has dug in its heels.

At the Bank of England, which spearheaded research into the idea three years ago, Governor Mark Carney has lately warned of financial instability if his institution were to directly provide digital wallets to ordinary citizens — a change that would, in effect, give everyone the same right to hold reserves at the central bank as regulated commercial banks.

The Bank of International Settlements – a kind of international club for central banks – has echoed Carney’s concerns, as have other officials.

This backlash, which suggests that the bank supervisory teams within central bank bureaucracies have regained ascendancy over technologists and innovators in their internal debates over CBDC, stems from a well-founded expectation: bank runs would be a real possibility.

Why hold your money at risky, friction-laden institutions paying near-zero interest when you can store at zero risk with the central bank itself and trade it automatically with other fiat digital wallet holders?

But why, also, should we care what happens to banks?

Banks are the problem

The only reason to promote digital fiat currencies is precisely to bypass the banks. Whether the currency is fiat or decentralized, banks are the problem. The technical, social and regulatory infrastructure upon which they operate is decades old and fraught with unnecessary compliance costs.

Banks maintain centralized, non-interoperable databases on outdated, clunky COBOL mainframes. They rely on multiple intermediaries to process payments, each managing their own, siloed ledgers that must be reconciled against each other through time-consuming fraud-prevention mechanisms.

All these inefficient systems, instituted to address the problem of trust, merely add to the cost of trust in the system.

“Why, in a digital age, can’t we move money around 24/7? Because we have bad middleware, and that bad middleware is existing financial infrastructure,” says Charles Cascarilla, CEO of Paxos, which is building blockchain-based trading infrastructure for the financial system.

In addition, there’s the massive political risk that comes with banks’ involvement in our payments system.

The reason why it was deemed necessary for governments to bail out the world’s banks to the tune of trillions of dollars in 2008 was that not doing so would have thrust our highly complex payments systems into chaos. The global economy would have had a cardiac arrest. It’s that threat of bringing us all down with them that gives “too-big-to-fail” banks a hold over policymaking.

Many central bankers, still smarting from the fallout from that crisis, know this is the problem. Many see real benefits in removing banks from payments and recognize that digital currencies can help. The question is how to get there without fomenting chaos.

Gradual solutions

One solution: a phased approach over time. You don’t provide CBDC to everyone at first; you start with large non-bank financial institutions, follow it up with a certain class of large corporations, then move to smaller businesses, and only make it available to individuals as a last step.

Another solution: the introduction of a unique, central bank-determined CBDC interest rate. This would be an addition to the central bank toolkit for managing money supply, which currently hinges on a combination of a policy rate imposed on banks’ reserves and interventions in the two-way market for buying and selling government securities with banks.

A separate CBDC interest rate would provide a means to calibrate the flow of money between banks and digital fiat wallets, potentially within a long-term plan to gradually shift it from the former to the latter without overly disrupting the system.

As Sheila Bair, the former Chair of the Federal Deposit Insurance Corp., argued in a recent op-ed, this new interest rate tool could enhance monetary policy, as central banks could use it to either stimulate or cool the economy. By directly affecting the rate at which people’s currency holdings grow, incentives to save or spend could be directly implemented.

Still, I don’t see developed-world central banks rushing to do this. Their relationships to commercial banks are too entrenched. And, for now at least, it’s hard for many in that system to even conceive of a monetary system that doesn’t revolve around them.

But it’s different for developing-world central banks. For too long those countries’ monetary policy has been driven by the policies of the world’s biggest central bank, the Federal Reserve. If the Fed cuts rates, foreign, inflationary money floods into their bank-centric financial systems; if it hikes rates, they face deflationary risks. In theory, a fiat digital currency could allow them to offset those forces.

Now, of course, all of this could go wrong. A new tool for profligate governments to debase their citizens’ money does not look desirable. For proof, look no further than the rogue state of Venezuela and its new, centrally controlled digital currency, the petro.

Yet that may also be what ultimately gives bitcoin, or some other viable altcoin, a chance to shine, especially as Layer 2 solutions start to help with scalability and liquidity. Central banks can’t put the cryptocurrency genie back in the bottle. Their potential embrace of digital fiat currencies will happen in an era when their citizens have a choice – they can shift to these new decentralized solutions, with increasing ease.

Whether they take over the world or not, the power of the market in a more open system of currency choice will mean that cryptocurrencies will hopefully play a vital role in forcing these politicized, centralized institutions to better manage their people’s money.

Federal Reserve image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Ripple’s (XRP) Exec Elected To A Federal Reserve Taskforce

News reaching Ethereum World News indicate that Ripple is making major strides with their Head of Research on the Business Development team, Ryan Zagone, being elected to the Federal Reserve’s Faster Payments Task Force Steering Committee. The Steering committee is a 16 member team to represent the working group’s numerous stakeholders.

This task force by the Federal Reserve, was launched back in 2015. It has focused on identifying goals and attributes of effective faster payment systems; proposing solutions and assessing their capability to achieve those goals; and championing the payment industry to take steps toward implementation and adoption of faster payments capabilities. Its core vision is to call upon the different stakeholders to come together to realize the vision of a payment system in the US that is faster, ubiquitous, broadly inclusive, safe, highly secure, and efficient by 2020.

The task-force has already met 252 times through regular meetings ad teleconferences and spent over 120,000 hours doing so. The current participants number 321. This is why Ryan Zagone’s election as a member of the steering committee, is a huge step forward for not only Ripple, but for the payment system envision by the Taskforce. Zagone will be a voice of the technology and non-bank service provider sector.

At Ripple, Ryan Zagone works with financial institutions, regulators and the central banks the company has partnered with to date. This then makes Ryan the best candidate to relay his experience with respect to improving banking infrastructure as well as accelerating the adoption of faster payment settlements globally.

Ryan had this to say about his election:

It’s a privilege to be selected. I look forward to leveraging Ripple’s global experience as the task force assess ways to increase speed, efficiency, access to, and competition in payments.

I will continue Ripple Labs’ constructive approach in working with peers, bank partners, and the broader financial industry—including NACHA, IPFA, and the W3C.

Above all, I am committed to being an open and inclusive presence on the task force, representing the priorities and concerns of fellow non-bank service providers.

Congratulations to Ryan Zagone and the entire Ripple company on this new achievement and milestone.

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Ex-FDIC Chair: Current Monetary Tools ‘Inadequate’, Fed Should Consider Digital Currency

The former Chair of the U.S. Federal Deposit Insurance Corporation (FDIC) said that she thinks the Federal Reserve (Fed) needs to seriously consider issuing a central bank-issued digital currency (CBDC) in a June 8 op-ed published on Yahoo! Finance.

In her op-ed, the former FDIC Chair Sheila Bair noted that “the past 10 years are proof positive that current monetary tools are woefully inadequate to stimulate broad-based economic growth,” adding:

“The super rich have gotten a lot richer, while the middle class has struggled.”

Bair first crosses out cryptocurrencies like Bitcoin (BTC) as a way to improve current monetary tools, noting that “unfortunately for M. Nakamoto [sic, anonymous creator of BTC], bitcoin has failed miserably as a method of payment.”

Bair then goes on to describe a hypothetical digital currency, FedCoin, that would be issued and backed by the Federal Reserve. Since FedCoin would be printed by the Fed, it would solve the problems of bank runs in times of financial stress, as “by definition, it [the Fed] can always make good on financial obligations.” According to Bair, the FedCoin could eliminate the need for checking accounts, and thus the costs of maintaining them, as well as reduce interchange fees charged by banks and credit cards for small firms.

However, Bair notes that a “wholesale shift from bank accounts to CBDC could have severely negative consequences for credit availability given banks’ reliance on deposits to fund loans.”

Explaining further, Bair writes that retailers could be so attracted by the lower cost of using CBDC’s that they could “prompt a different kind of run on banks, as fiat money quickly migrated out of deposit accounts into digital coins.”

Nevertheless, Bair writes that even though this new kind of bank run would be “very bad for the banking system, but also the Fed,” whose currency-issuing monopoly would be threatened, the Fed still “needs to get serious now about evaluating the relative merits of issuing its own digital currency”:

“If it does not stay ahead of this technology, not only could banking be disrupted — but the Fed itself could also be at risk.”

Countries around the world have begun looking into CBDCs as well: at the end of May, the Bank of England issued a working paper on central bank-issued digital currencies, and last week, Thailand’s central bank revealed it was considering issuing its own cryptocurrency.

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Fed Governor Says 'No Compelling Need' for US Central Bank Crypto

Lael Brainard, member of the board of governors at the U.S. Federal Reserve, does not see a “compelling demonstrated need” for a Fed-issued digital currency.

Speaking at the Decoding Digital Currency Conference yesterday in San Francisco, Brainard said that, while central bank digital currencies may seem to address a number of challenges associated with cryptocurrencies, they “may not withstand closer scrutiny.”

Further, with people finding easier ways to exchange digital payments directly through mobile applications and other means, American consumers are likely to receive multiple mechanisms for making electronic payments in real-time.

She noted:

“Finally, there is no compelling demonstrated need for a Fed-issued digital currency.”

Elsewhere in the speech, Brainard once again made it clear that she believes that cryptocurrencies not pose a threat to financial stability.

She noted that the central bank is actively monitoring developments in cryptocurrencies in areas such as payments policy, supervision and regulation, financial stability, monetary policy and more.

Discussing security concerns with respect to cryptocurrencies, including breaches and fraudulent activities, Brainard said:

“However, the still relatively small scale of cryptocurrencies in relation to our broader financial system and relatively limited connections to our banking sector suggest that they do not currently pose a threat to financial stability.”

The governor continued to say that adverse developments and shifts in the cryptocurrency market might lead to extreme price fluctuations, trading difficulties or even market breakdowns. In order to prevent such activities, Brainard stressed that Fed Reserve “will continue to monitor cryptocurrencies as they evolve, with particular vigilance for any signs of growing materiality to the broader financial system.”

As noted, this not the first time the Fed governor has spoken on the subject of cryptocurrencies. In April of this year, Brainard cautioned individual investors to be aware of the “possible pitfalls of these investments and the potential for losses.” She said at the time that Fed “is monitoring is the extreme volatility evidenced by some cryptocurrencies.”

Lael Brainard image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.