We don’t want to strangle crypto innovation, but the industry is a mess

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If the crypto industry was looking for a silver lining in the testimony of Federal Reserve Chairman Jerome Powells during a hearing before the Senate Banking Committee on Tuesday, the best he could offer was that he hoped that there was something useful and innovative amidst the crypto chaos.

“We have to be open to the idea that somewhere in there is technology that can be showcased in productive innovation that improves people’s lives,” Powell told committee members during his biannual trip. to testify on Capitol Hill.

We don’t want to stifle innovation, he said.

Powell has been repeatedly asked to address cryptocurrency issues during his testimony, which will continue before the House Financial Services Committee on Wednesday.

“We’ve only seen a remarkable set of events in the crypto space,” he said, noting that there’s been a lot of turmoil over the past year, with the collapse and the exposure of high-profile fraud. We see a lot of things in crypto activity that suggest regulated financial institutions should be very careful when doing things in the crypto space.”

The Fed and other US banking regulators have repeatedly issued policy statements and interpretations that all amount to a stern warning to banks that agencies are watching their crypto movements closely. In the most recent warnings, regulators have clarified that banks that focus their activities in this sector are unlikely to meet the security and soundness standards, which are a basis for continuing to operate in the United States.

Silvergate Bank offered a real-time example of the dangers of crypto concentration in banking, as most of its crypto customers withdrew their deposits from the troubled institution.

Problems with stablecoins

Powell, who suggested that Congress needs to step in to provide a workable legal framework for digital assets in the United States, also directly addressed stablecoins as an area in need of oversight.

The story continues

People are going to assume, when dealing with something that looks like a money market fund, that it’s subject to the same regulation as a money market fund or a bank deposit, he said. So stablecoins need attention in this regard.

Powell said there was a place for stablecoins in the financial industry if they got proper regulation, but Powell argued there were real concerns about permissionless public blockchains, and the reason is that they have been so susceptible to fraud and money laundering and everything. these things.

Yet it was Powell’s broader views on the economy that had the most immediate effect on the crypto sector. After his comments on Tuesday that inflationary pressures are higher than expected, bitcoin (BTC), which is considered a riskier asset that suffers when interest rates rise, fell around 1.6% to less of $22,000. The price, however, has bounced back a bit since then, recently trading at $22,319.

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