Jerome Powell Claims Bitcoin is Not a Real Currency and Has No Intrinsic Value
The head of the United States Federal Reserve issued a warning to Congress earlier today regarding cryptocurrencies. Federal Reserve chair Jerome Powell, who took the position in February, said on Capitol Hill that bitcoin and other cryptocurrencies are dangerous to “unsophisticated investors” and should not be considered real currencies.
As “proof” that they’re not real currencies, Powell cited the fact that bitcoin has no intrinsic value. Powell also mentioned that many of these cryptocurrencies are fueled by hype, with investors buying cryptocurrencies purely because they assume it’s going to increase in price.
Powell’s statement to Congress was recorded by CNBC. Powell claims “relatively unsophisticated investors see the asset go up in price and they think: ‘This is great; I’ll buy this.’ In fact, there is no promise of that.”
“There are investor and consumer protection issues as well,” explained Powell, who later mentioned that cryptocurrencies should not be considered real currencies because they have no intrinsic value.
Powell’s critical stance of cryptocurrencies isn’t a surprise. Powell became Fed chair in February, taking over from fellow cryptocurrency critic Janet Yellen.
Powell’s statement comes after a largely positive start to the week for cryptocurrencies. Earlier this week, it was revealed that BlackRock, the world’s largest asset management company, confirmed it has established a cryptocurrency working group to explore the launch of crypto-related products. Other firms, including Goldman Sachs, Nasdaq, and Intercontinental Exchange (ICE), have revealed similar plans in recent weeks.
Powell has made headlines in the crypto community before. Last November, just as cryptocurrencies were experiencing their record-setting bull run, Powell mentioned that cryptocurrencies as an asset class had not yet become large enough to have a destabilizing effect on the economy. While Powell didn’t seem to be a big fan of crypto in November, he did praise blockchain technology at the time, describing it as a technology that could “have significant applications in the wholesale payments part of the economy.”
Other leaders of the United States Federal Reserve system have expressed similarly negative views on cryptocurrencies. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, for example, warned investors against investing in bitcoin and claimed that cryptocurrencies “are not currency.”
Neel Kashkari, the head of the Federal Reserve Bank of Minneapolis, compared cryptocurrencies to Beanie Babies, referencing the hype-driven craze that took place in the 1990s for the plush toys. Kashkari described the entire crypto ecosystem as a “farce” that, like Beanie Babies, would hold no long-term value over time.
Meanwhile, the Federal Reserve Bank of San Francisco released a report describing how the intrinsic value of bitcoin is $1,800, based on the value of mining a single coin. Today, bitcoin is trading at a price of around $7,500.
We did witness one instance where a prominent member of the Federal Reserve system said something positive about cryptocurrencies. The Federal Reserve Bank of St. Louis, for example, recently published a report claiming that bitcoin bears many similarities to cash. That bank has also publicly stated that it “welcomes anonymous cryptocurrencies” – a sharp departure from the stance of other members of the Federal Reserve.
In any case, the Federal Reserve is clearly paying attention to bitcoin and cryptocurrencies. If bitcoin has no intrinsic value in the eyes of the US Federal Reserve, then what type of intrinsic value is behind the US Dollar?