In his semiannual appearance Wednesday before the U.S. House Financial Services Committee, Fed Chair Jerome Powell said that cryptocurrencies “are great if you are trying to hide money or if you are trying to launder money,” but they have no “intrinsic value.”
Nor are they a particular problem for the Fed yet because they are inconsequential in value compared with the money supply. The money supply (M1), comprised of all circulating cash and checking account deposits, totaled around $3.658 trillion in June.
The value of 1,649 cryptocurrencies is less than $300 billion, according to CoinMarketCap. Daily trading volume for bitcoin, the most liquid of the cryptocurrencies, reached about $5.8 billion on Wednesday, while average daily foreign exchange volumes hit an average of $1.84 trillion in London alone in the first half of this year. Globally the total daily dollar volume of the forex market is something like $5 trillion.
What Powell worries about is not the size of the market, but the risks to small investors:
I think there are significant investor risks. Investors, relatively unsophisticated investors, see the asset going up in price and they think “this is great I’ll buy this.”’ In fact, there is no promise behind that…. So I think there are investor and consumer protection issues as well.
Powell does not see cryptocurrencies as real fiat money:
It’s not really a currency, it doesn’t really have any intrinsic value… Mainly I have concerns. If you think about what currencies do, they’re supposed to be a means of payment and a store of value basically and cryptocurrencies are not used very much in payment… and in terms of the store of value, if you look at the volatility (or lack thereof), it’s just not there.
None of what Powell said is likely to deter interest and investment in cryptocurrencies. But it is instructive to note that the Fed is keeping an eye on them, even though Powell does not believe that they fall under any Fed regulatory control, nor, he says, is the Fed interested in providing any oversight of cryptocurrencies.
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