With all the talk that surrounds crypto’s nature on a daily basis, the most recent term to be associated with it is “extremely volatile.” On Tuesday, the digital currency got called out for their extreme volatility by one of the members of the Federal Reserve’s board of governors.
Owing to the sudden rise of bitcoin of over 1000 percent in 2017 and then the sharp drop in recent months, the Federal Reserve is closely monitoring the extreme volatility of this digital currency. The comments come from an interview with Lael Brainard, who also sits on the central bank’s powerful rate-setting committee.The governor further added that the new asset class is of no threat to the economy of the United States and would not cause harm to its stability.
According to her, cryptocurrencies may be subjected to various investor and consumer protection issues, and most of the alternate currency is vulnerable to money-laundering concerns. She also warned individual investors to keep a tab on the possible pitfalls of these investments and the potential for losses.
Furthermore, she also put forward the fact that cryptos were not likely to act as a threat to the financial stability as the assets are not the conventional modes of payment and there’s not much proof that the investors have borrowed large sums to invest in alternate currency.
Only A Few People Borrow Money To Invest In Cryptocurrencies
Of all the investors of crypto, only 19 percent have borrowed funds to invest – according to the “State of the Blockchain 2018” report. It also mentions that more than half who had borrowed, have already repaid the debt.
Not completely refuting cryptocurrencies, Brainard said:
“A statement regarding the study of the crypto market said that the assessment of this digital market is limited by their opacity. Regardless, there will be a continuous effort to study them.”
Brainard then allocated the majority of her remarks to traditional asset classes that deal mainly in stocks and bonds, wherein she informed that these prices might be “particularly susceptible to an unexpected development.” She however categorized overall risks to financial stability as being ‘moderate’ owing to the great financial reforms that were put into effect post the 2008 crisis.