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Fed Chairman: ‘No One Uses It’ — Bitcoin a Speculative Asset Like Gold

Fed Chairman Powell has said that a globally prevalent cryptocurrency could conceivably remove the need for reserve currencies.

The Chairman of the United States Federal Reserve has said that a globally adopted cryptocurrency system could conceivably remove the need for reserve currencies. 

Testifying before the Senate Banking Committee on July 11, Fed Chairman Jerome Powell gave his analysis of whether a cryptocurrency system with global prevalence could diminish — or even go so far as to remove the need for — so-called anchor currencies. 

With the U.S. dollar de facto the world’s dominant reserve currency, Powell acknowledged the possibility of a preeminent cryptocurrency redrawing the current financial landscape — yet noted that as of yet, this has stopped short of becoming a reality. The Fed chairman said: 

“I think things like that [the obsolescence of today’s reserve currencies] are possible but we really […] haven’t seen widespread adoption. Bitcoin is a good example, almost no one uses it for payments […] it’s a speculative store of value like gold.”

Powell’s comparison is noteworthy given the Federal Reserve Bank of New York’s role as a custodian for the gold held by entities such as the U.S. and foreign governments, other central banks, and official international organizations. 

Powell acknowledged that the prospect of cryptocurrencies coming to replace reserve currencies has been implied since their inception and that its realization could see the global financial system — and specifically the Federal Reserve System — profoundly transformed. He noted: 

“People have been talking about this since cryptocurrencies emerged, but we haven’t seen it. That’s not to say we won’t — and if we do, then yes, you could see a return to an era in the United States where we had many different currencies, in the so-called national banking era.”

As reported, Powell had testified before the House Financial Services Committee earlier this week and acknowledged that the impact of Facebook’s forthcoming stablecoin Libra could be of a “potentially systemic scale” for the global financial and regulatory landscape.

In China, central banking veterans have characterized the widespread anticipation of Libra as being “inseparable from the global dollarization trend,” and stressed that Beijing should respond with precautions and rigorous policy research to seek to maintain a strong monetary status.

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Fed Chair Says Facebook Needs to Satisfy Regulatory Concerns Regarding Libra

Federal Reserve chair says time is needed to address concerns about Libra, and that the project cannot move forward until there is broad satisfaction on regulatory policies.

Federal Reserve Chair Jerome Powell said there needs to be broad satisfaction with the way Facebook is handling regulatory concerns regarding its forthcoming stablecoin Libra. Powell gave his comments in a hearing before the House Financial Services Committee on July 10.

Rep. Steve Stivers asked Powell during the meeting, “if Facebook can’t sufficiently answer your questions about anti-money laundering, Know Your Customer, what would your message be to the banks that provide banking to Facebook, and what would your advice to Facebook be?” Powell replied:

“ … I just think it cannot go forward without there being broad satisfaction with the way the company has addressed money laundering, all of those things. The number of concerns that I list at the beginning, data protection, consumer privacy, all of those things will need to be addressed very thoroughly and carefully.”

Powell also discussed how the project falls outside traditional regulatory bounds, highlighting the scale of the proposed cryptocurrency project:

“I think it’s something that doesn’t fit nearly or easily within our regulatory scheme. It does have potentially systemic scale.”

Chairwoman Maxine Waters also questioned Powell on whether the Fed has concerns about monetary policy with respect to Libra. Powell answered similarly, saying:

“Libra raises many serious concerns regarding privacy, money laundering, consumer protection, and financial stability. These are concerns that should be thoroughly and publicly addressed before proceeding.”

Powell previously testified on Libra in a press conference on June 19. When asked about the Fed’s role in regulating Libra, Powell suggested that they would not have direct authority, but would nonetheless be influential:

“… we don’t have plenary authority over cryptocurrencies as such. They play into our world through consumer protection and money laundering and things like that. But, I would say that … through international forums … we have significant input into the payment system and, as you know, play an important role in the payment system here in the United States.”

As previously reported by Cointelegraph, Maxine Waters, members of the House of Representatives Committee on Financial Services and a number of advocacy groups have called for a moratorium on Libra’s development.

David Marcus, the head Libra’s corresponding digital wallet service Calibra, has now replied both via a public Facebook post and in a letter to Waters and the committee to assuage their concerns and promise cooperation.

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Deutsche Bank: ‘Aggressive’ Central Banks Making Bitcoin More Attractive

Deutsche Bank lead strategist predicted that interest rate cut by the Fed will make cryptos more attractive as opposed to fiat.

The potential interest rate cut by the United States central bank is apparently one of the reasons for the recent surge of bitcoin (BTC), Deutsche Bank exec Jim Reid said in an interview with CNBC on June 26.

Reid, the head of global fundamental credit strategy at Deutsche Bank, stated:

“if central banks are gonna be this aggressive, then alternative currencies do start to become a bit more attractive.”

Reid referenced a recent speech by Fed’s chairman Jerome Powell, who said yesterday that the central bank is considering a cut of interest rates amidst the current economic uncertainty and inflation risks. As such, the U.S. dollar (USD) dropped versus major fiat currencies yesterday, recording a three-month low against euro (EUR), which was allegedly triggered by expectations of multiple interest rates decreases by the Fed.

Meanwhile, bitcoin has continued to hit new 2019 records of above $12,000, while its market cap surged above $220 billion with a dominance rate reached more than 60% for the first time since April 2017, as reported earlier today.

Reid also noted that the recent spike of crypto prices is partly caused by Facebook’s upcoming crypto project Libra, which white paper was released earlier on June 18. Since then, bitcoin has risen more than 30% from around $9,000 to $12,616 at press time, according to data from Coin360.

In the interview, Reid has reiterated his negative stance towards easing practices by central banks after previously claiming that the existing fiat-based currency system was unstable and nearing its end. Providing his remarks back in November 2017, in the wake of the bitcoin’s all-time high record of $20,000 in December 2017, Reid criticized continuous printing of money by banks, warning that this could lead to the end of paper money.

But the United States isn’t alone. In recent weeks, the European Central Bank President Mario Draghi also hinted at new interest rate cuts.

“Add in the May 2020 Bitcoin halving and you have the perfect storm,” tweeted Morgan Creek founder, Anthony Pompliano,” earlier this month. 

“Cut rates.

Print money.

Make BTC more scarce.”

Ironically, Deutsche Bank itself could be partially blamed for a weakening economy. The bank’s stock has been dropping to record lows over the past year.

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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, news.bitcoin.com]

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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.