Incoming Federal Reserve Chairman Jerome Powell said the cryptocurrency market is not big enough to make a critical difference to the mainstream economy yet, but said the agency is monitoring cryptocurrencies “very carefully.”
During his Senate testimony Tuesday, Powell said watching bitcoin’s recent price volatility was “something that’s actually enjoyable and interesting to do.” But he suggested that bitcoin enthusiasts do not have much to worry about from the agency in the short-term. In this respect, Powell’s approach is similar to that of outgoing Fed chair Janet Yellen, who asked representatives from 90 central banks to study financial innovation, especially bitcoin and blockchain. (See also: Can Government Regulation Affect Bitcoin Prices?)
“In the long, long run [cryptocurrencies] could matter,” said Powell. But he added that they don’t have enough volume to matter today. As of this morning, the total valuation of the cryptocurrency market was $309 billion. That amount is a fraction of the total valuation for gold, which is estimated to be $7.8 trillion.
Bitcoin has had a meteoric rise from fringe cryptocurrency to a mainstream phenomenon this year. Its price has risen by approximately 900 percent since the start of this year on the back of media and online chatter as well as increased awareness about blockchain, the technology underlying bitcoin. Powell alluded to the technology in his testimony.
“We actually look at blockchain as something that may have significant applications in the wholesale payments part of the economy, something we pay close attention to,” Powell told Senate members.
Federal agencies have already begun testing the applications of blockchain to their industries. For example, the Centers for Disease Control and Prevention has a pilot project to better track healthcare data in conjunction with IBM Corp. (IBM). (See also: CDC Is Testing Blockchain Projects To Manage Pandemics.)
Regulatory agencies around the world are tightening screws on bitcoin trading, and the Fed could make a similar move to bring the cryptocurrency under its purview at some point.