Last month, the Chairman of the US Federal Reserve, Jerome Powell, ruffled feathers across the crypto community when he claimed crypto wasn’t “big enough” to pose a threat. Powell also described crypto investors as being “unsophisticated”.
Our friends at CryptoMode took particular exception to Powell’s statements. They took so much exception, in fact, that they wrote a blog post titled “3 Reasons the Federal Reserve Has Gotten It Wrong.” In that post, CryptoMode writer Christina Comben lists three crucial reasons why the US Federal Reserve is taking the wrong stance towards cryptocurrency. The post was written in partnership with TradingView CTO Constantine Ivanov.
“For a market which has a growth projection of over $1 trillion by the end of this year,” explains Comben,
“the closed-mindedness of an archaic institution such as the Federal Reserve shows a deep lack of foresight. Or understanding.”
3 Reasons The Federal Reserve Is Wrong To Criticize
With that in mind, here are three reasons why the US Federal Reserve may be getting it wrong with cryptocurrency:
Reason 1) Cryptocurrencies Aren’t Going Away Anytime Soon
The US Federal Reserve seems to believe cryptocurrencies are a passing fad. They seem to believe that in ten years, nobody will be using crypto. We’ll look back at the days of bitcoin and laugh that anyone paid $19,000 for a piece of digital code.
This doesn’t seem to be the case. Since emerging in 2009, crypto has gotten bigger every year. There’s certainly a possibility that crypto is a passing fad, but that possibility decreases in likelihood with every passing year. Bitcoin seemed like it could be a bad in 2011, for example, but it seems much more likely bitcoin is here to stay in 2018.
Cryptocurrencies are undoubtedly going through growing pains. They’re unstable and fluctuate wildly. While cryptocurrency is seen as being unstable, however, it’s unlikely to disappear in the foreseeable future. Regulatory bodies are starting to build regulations around crypto, and the world’s first bitcoin ETF may be approved in the near future.
For all of these reasons, it seems irresponsible for the Federal Reserve to treat cryptocurrencies like a passing fad.
Reason 2) Cryptocurrencies Should Be Regulated
If you acknowledge that cryptocurrencies aren’t going away anytime soon, then you also need to acknowledge that they need to be regulated.
Crypto, at its height, was a nearly $1 trillion market. Today, in the midst of a bear market, it’s still a $300 billion market. It may only be a fraction of the value on traditional stock exchanges, but it’s an amount that’s too large to ignore.
Despite the size of the crypto market, US Federal Reserve Chairman Jerome Powell claims the institution will not regulate crypto in any way. The organization does not wish to provide insight or guidelines into the management of crypto assets.
The reason the Federal Reserve wants to avoid crypto is simple: they see crypto markets as being linked to illegal activities like drug dealing, money laundering, and tax evasion.
This is missing the point: with stronger regulations, these problems could very well disappear. The anonymity offered by crypto will decrease, making it less favorable for criminal activity.
With the right regulation, crypto could become a more respected asset class – even to sophisticated investors.
Reason 3) The Public Should Not Be Kept In The Dark
Organizations like the SEC are attempting to educate investors about crypto. However, with unclear regulations and a constantly-changing ecosystem, it’s hard to create standardized regulations across the industry.
Regulating cryptocurrencies will open the door for more institutions to get involved. It will encourage legitimacy within the industry, allowing the public to be better-informed about their investment decisions.
By ignoring or even belittling the crypto industry, the Federal Reserve is choosing to keep the public in the dark. One of the most influential financial organizations in the world is choosing to ignore crypto, leaving consumers confused about how to make the right investment decisions.
Federal Reserve On Cryptocurrency Conclusion
Ultimately, the main job of the United States Federal Reserve is to manage the supply of money and credit in the United States. However, the Fed is also responsible for regulating and supervising financial institutions, supplying payment services to the public, and serving as a bank for the US government. At least some of these services could potentially involve cryptocurrency. That’s why – in the eyes of Christina Comben and Constantine Ivanov, at least – the Federal Reserve is taking the wrong approach to cryptocurrency.