Bitcoin is More of a Gold Substitute than the Dollar, Fed Chair Powell Says
The Chair of the US Federal Reserve argues that while Bitcoin (BTC) is too volatile to be considered money and is “backed by nothing,” it could be a substitute for gold. He also recently made a statement on Bitcoin, which has affected the asset’s price seeing it drop by $1,000.
Powell’s View on Cryptocurrencies
In response to a cryptocurrency question, Jerome Powell gave frank comments at an event hosted by the Bank for International Settlements, or BIS, on Monday.
Asked if Bitcoin and other cryptocurrencies posed a threat to financial stability, Powell made known arguments that have long been based on legacy finance figures.
He argued that crypto assets, such as Bitcoin, are highly volatile and therefore not usable as a value store and are not backed by anything. They are more of speculative assets and are therefore not primarily used as a payment method. He then concluded that it is simply a substitute for gold, not the regular dollar.
Words from Powell provide some of the Fed’s most direct views about Bitcoin in recent times to go public and build on a perspective offered in 2019. Weeks ago, Treasury Secretary Janet Yellen also made clear her concerns about decentralized cryptocurrencies.
Powell, like Yellen, seemed to spark an explosion of negative market feeling, and following his answer, BTC/USD fell almost 1000 dollars. However, Powell’s foremost proponents agree on the cryptocurrency status as a new gold for all their disagreements.
The decision could hit hard for Bitcoin-hostile gold bugs, particularly Peter Schiff, who keeps claiming that fate is on his side regarding generational store value.
One of the concerns Powell raised is that American citizens would hold digital dollar during any crisis, which will lead to the failure of potential banks. “The only way we can reap the potential benefits while also handling the potential risks is to think tremendously,” said Powell.
The Stablecoin Issue
Switching to stablecoins, Augustin Carstens, General Manager of BIS, claimed stablecoins import value from sovereign currencies. Together with Powell and Jens Weidmann, President of the German Federal Bank, he examined the stepped-up trend of central bank digital currencies, the CBDCs, with stablecoins.
The discussion was less unusual here, with the speakers reiterating known positions concerning the separation between private stablecoins and bank-operated CBDCs.
Meantime, Powell said stablecoins increase the credibility of cryptocurrencies based on sovereign money.
He mentioned that stablecoins could play a role in regulating, but that role is not to form a new global monetary system. Private stablecoins would not be a suitable replacement for a sound central bank money financial system.