After an opening statement in which Chairman Jerome Powell sent stocks lower by saying that the Fed could accelerate and increase future interest rate hikes, he touched on crypto, telling senators that he sees some risks when it comes to digital assets.
“What we’re seeing is, you know, a lot of turmoil,” Powell said Tuesday before the Senate Committee on Banking, Housing, and Urban Affairs. “We see fraud, we see lack of transparency, we see open risks, lots and lots of things like that.”
So, the Fed has told regulated U.S. financial institutions to be vigilant, Powell added, and “be very careful about how they do things … with the whole crypto space.”
Following Powell’s comments, Bitcoin fell 0.84% to $22,200, while Ether fell 0.7% to around $1,500, according to CoinMarketCap.
Powell’s comments echoed a January joint statement issued by the Fed’s board of governors, along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency warning banking organizations about the risks of engaging in crypto assets. The statement said that organizations with a business model focused on crypto-related activities or with a high amount of exposure to crypto assets “raise significant safety and health concerns.”
Still, Powell said regulators should not interfere with technological progress and that Congress should create a legal framework for digital assets.
“We don’t want the law to stifle innovation in a way that only favors incumbents and that kind of thing,” he said.
A January statement in which the Fed’s board of governors participated stated that stablecoins, or cryptocurrencies tied to the price of fiat currencies like the US dollar, are vulnerable to “open risk,” or the risk of excessive withdrawals. However, on Tuesday, Powell said that stablecoins could find a place in the financial services sector if properly regulated.
He emphasized that regulations for crypto and stablecoins should mimic regulations for the traditional financial world, although he called for more customized rules from the crypto industry.
“People will assume when they deal with something that looks like a money market fund that has the same regulations as a money market fund or a bank deposit,” he said.
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