Powell stated that cryptocurrencies don’t have any intrinsic value and the sector is not big enough to create financial instability. The Fed Chair also opined that cryptocurrencies present severe risk to investors.
While giving testimony, Powell voiced his concerns over mindless buying into cryptocurrencies. He said
“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.”
Powell also explained why he doesn’t consider crypto as a currency
“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.”
The Fed Chairman stated that currencies must function as a medium of payment and a store of value. However, according to Powell, cryptocurrencies lack both qualities. He argues that ultimately, cryptos are converted into dollars while paying for goods. Furthermore, the volatility does not make them ideal as store of value.
Furthermore, Powell said in front of the House Financial Services Committee “There are investor and consumer protection issues as well.”
He also believes that cryptocurrencies are basically used by anti-social elements for illegal activities. Powell is of the opinion that cryptocurrencies are the suitable to hide or launder money.
“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.”
Powell also clarified that the US Federal Reserve is not looking at the possibility of issuing its own digital currency. Furthermore, he also cleared the air by saying that the central bank has no regulatory authority over cryptocurrencies.
Powell has testified against cryptocurrencies in the past. Last November, Powell said a drop in the value of cryptocurrencies will not affect financial stability.
Powell, however, finished the statement with a note of caution. He said
“in the long, long run, cryptocurrencies and things of that nature could matter,” adding that blockchain — bitcoin’s underlying technology — could be something that “may have significant applications in the wholesale payments part of the economy.”
Notably, the US lawmakers have labeled digital currencies “the future of money.”