The Federal Reserve Chairman Jerome Powell today said that the crypto space ought to be watched cautiously, as it is packed with tumult—however development in the world’s biggest economy should not be choked.
Testifying on Capitol Hill Tuesday before lawmakers, Powell was asked about the digital currency market. He stated that the U.S. central bank had been “rather dynamic” and further specified that the Fed does not desire to impede innovation.
But he added that financial organizations that are regulated by the authorities will be supervised by them. The Fed is taking “great care” when engaging in crypto-space conversations.
“Like everyone else we’ve been observing what’s been going on in the crypto space and what we see is quite a lot of turmoil, we see fraud, we see a lack of transparency, we see run risk, we see lots of things like that,” Powell said. “What we’ve been doing is making sure that the regulated financial institutions that we supervise and regulate are careful and taking great care in the ways they engage with the whole crypto space.”
The crypto space was struck hard by high-profile bankruptcies last year. The most prominent was the failure of Sam Bankman-Fried’s digital asset exchange FTX, which blew up in November and U.S. prosecutors accused it of being criminal mismanagement.
The main focus of the policy discussion today was inflation—which is high in the U.S.
The Fed tries to decrease it by increasing interest rates. Last year, it raised them by 75 basis point four times. Then it slowed down and increased them by 50 basis points.
This affects the price of Bitcoin—and the wider crypto market—because, like U.S. equities, it is a risk-on asset. When interest rates are high, investors usually look for safer places to store their cash.
Most recently, the central bank raised interest rates by 25 basis point. But today, Powell said that the Fed could raise interest rates higher and possibly faster than expected because inflation is still too high.
“Core inflation has come down but nowhere near as far as we hoped and it has a long way to go,” he stated.
Stocks dipped on the news—and so did Bitcoin: The market cap of the largest digital assets fell to $22,120 after the remarks. However, according to CoinGecko, the price has risen and now stands at $22,250. The asset has dropped 1.2% in 24 hours, and 5.4% in one week.
