Fed Chairman Jerome Powell: Crypto ‘Turmoil, Fraud, Run Risk’ Being Watched

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Federal Reserve Chairman Jerome Powell said today that the crypto space needs to be watched closely as it is full of turmoil, but innovation in the world’s largest economy should not be stifled.

Testifying on Capitol Hill to lawmakers on Tuesday, Powell was asked about the cryptocurrency space. He said the US central bank had been very active in this area, adding that the Fed did not want to stifle innovation.

But he added that regulated financial institutions overseen by the Fed need to be very careful about how they interact with the crypto space.

Like everyone else, we’ve been watching what’s going on in the crypto space and what we’re seeing is a lot of turmoil, we’re seeing fraud, we’re seeing a lack of transparency, we’re seeing risk taking, we see a lot of things like that,” Powell said. “What we have done is ensure that the regulated financial institutions that we oversee and regulate are prudent and take great care in how they interact with the broader crypto space.”

The crypto space has been rocked by a number of high-profile bankruptcies and controversies over the past year. The biggest was the collapse of digital asset exchange Sam Bankman-Frieds FTX, which exploded in November due to criminal mismanagement, according to US prosecutors.

The main topic of today’s political discussion was inflation, which is skyrocketing in the United States

The Fed has tried to bring it down by raising interest rates: last year it started raising them by 75 basis points on four occasions, then slowed down by raising them by only 50 basis points.

This had a negative impact on the price of Bitcoin and the broader crypto market because, like US stocks, it is a risky asset. When interest rates are high and there is financial uncertainty, investors tend to look for safer places to park their money.

More recently, the central bank raised interest rates by 25 basis points. But today, Powell said the Fed could raise interest rates higher and potentially faster than expected because inflation is still too high.

Core inflation has come down, but nowhere near as far as we had hoped and there is still a long way to go, he said.

Stocks fell on the news, as did Bitcoin: the largest digital asset by market capitalization fell to $22,120 following the remarks. It has since rallied and stands at $22,250, according to CoinGecko.

The asset is down 1.2% in the past 24 hours and 5.4% in the past week.

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