During his testimony in front of the Senate Banking Committee, Fed Chairman Jerome Powell was not diplomatic on crypto. Among other recommendations to the financial sector, he called on banks to be cautious when engaging with cryptocurrencies.
As expected, the top chief of the US central bank would not show much sympathy towards a sector that challenges the foundation of that institution. The philosophy of digital currencies contemplates that they make money obsolete as it is known up to now. For an entity like the Fed, in charge precisely of issuing traditional money, this is something unacceptable.
In his words, the official cited the problems that the crypto market went through in 2022 and concluded that it is a “disaster.” It should be remembered that last year the winter in the digital currency sector wreaked havoc among investors. Likewise, other problems such as fraud, bankruptcy, scams and hacking made the matter worse.
“Banks must be cautious with cryptocurrencies”
Until some time ago, banks were openly hostile to anything to do with virtual currencies. Now, although they maintain some rejection, customer demand for these assets is forcing them to adapt. In that sense, Powell asked them to be cautious when getting involved with cryptocurrencies.
“We see a lot of things in crypto activity that suggest that regulated financial institutions should be quite cautious about doing things in the crypto space.“, he remarked. During his presentation he was invited several times to speak on the subject of virtual currencies.
Alerts against banks that offer services based on digital currencies are common within the United States. Both regulators and the Federal Reserve itself have made it clear that institutions could move into the category of high-risk, low-security companies.
As explained by the CoinDesk portal, one of the most recent warnings from regulators expresses a strong message. “Banks that focus their business in that sector will probably not meet the safety and soundness standards, which are the basis for continuing to operate in the US..”, points out the medium.
Thus, Powell’s message to banks to be cautious with cryptocurrencies should be interpreted as yet another warning. In any case, not all the official’s words can be interpreted as hostility, but there were also some positive points.
The positive words for the crypto market
In addition to calling the crypto market a “disaster” and a highly dangerous sector, Powell also highlighted the advantages of cryptocurrencies. He said that one of the positive aspects has to do with the technological base behind these financial assets. Consequently, he assured that the Fed’s desire is not to trip up innovation.
“We have to be open to the idea that, somewhere, there is technology that can be presented in productive innovation that improves people’s lives,” expressed on purpose. In fact, one of the main accusations by virtual currency and blockchain enthusiasts against harsh regulations is that they stifle innovation.
In the recent episode of the attacks on the platforms that offer the staking service, the accusations against the authorities surfaced again. “We don’t want to stifle innovation,” Powell insisted. Thus, although companies and banks should be cautious with cryptocurrencies, it can be interpreted that the sector can be approached as a high risk one, but without actually prohibiting it.
With this, the official suggests that work should be done on “a viable legal framework” for the sector. At the same time, he warned about the rise of stablecoins and said that this particular sector needs monitoring. In that case, he also recommends vigilant regulation, since that area lends itself to fraud and scams.
“There are real concerns about public permissible blockchains, and the reason is that they have been susceptible to fraud, money laundering and all that stuff.“, he stressed.
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