Suppose the crypto industry sought a silver lining in Federal Reserve Chairman Jerome Powell’s testimony before the Senate Banking Committee on Tuesday. In that case, he could only say that he hopes something good and new will come out of the chaos in the crypto market.
During his twice-yearly journey to Capitol Hill, Powell told committee members to testify, “We have to be open to the idea that – somewhere in there – there is technology that can be featured in productive innovation that makes people’s lives better.” “We don’t want to stifle innovation.”
Several times during his testimony, which will continue on Wednesday before the House Financial Services Committee, Powell was asked about cryptocurrency issues.
“We’ve seen just a remarkable set of events in the crypto space,” including the collapse of companies and the exposure of high-profile fraud, he said. Because of many things about crypto activity, regulated financial institutions should be cautious in the crypto space.
The Federal Reserve and other U.S. banking regulators have warned banks, often through statements and policy interpretations, that the agencies are closely watching what the banks do with crypto. In the most recent warnings, regulators specified that banks specialising in this sector are unlikely to meet safety and soundness standards, a prerequisite for continuing to operate in the United States.
Most of Silvergate Bank’s crypto users have taken out their deposits, showing how dangerous having much crypto in a bank can be.
Concerns about stablecoins
Powell, who indicated that Congress must intervene to establish a “workable legal framework” for digital assets in the United States, also explicitly addressed stablecoins as an area requiring oversight.
“People are going to assume when they deal with something that looks like a money market fund that has the same regulation as a money market fund or a bank deposit,” he said. “So stablecoins need some attention in that respect.”
Powell stated that stablecoins have a role in the financial sector if they receive appropriate regulation. Still, he argued that “there are genuine concerns about permissionless public blockchains because they’ve been so susceptible to fraud, money laundering, and so on.”
However, Powell’s broader views on the economy had the most immediate impact on the cryptocurrency market. Bitcoin (BTC), regarded as a speculative asset that suffers when interest rates rise, fell approximately 1.6% to below $22,000 following his remarks on inflationary pressures being higher than anticipated. Since then, however, the price has increased slightly, trading recently at $22,319.