The chair of the US Federal Reserve, Jerome Powell, has called for close monitoring of the cryptocurrency industry because of its highly volatile nature.
However, he also opined that innovation in the crypto space should not be stifled.
Fed Chair says crypto should be monitored
Powell was speaking before the US Congress, where he was asked to provide remarks about the crypto space.
He noted that the Federal Reserve was “quite active” in cryptocurrency, adding that the institution was not advocating for suppressing innovation in the sector.
He noted that the Fed had observed the turmoil witnessed in cryptocurrency, the risk of fraud, and the lack of transparency.
Therefore, he called for regulated financial institutions interacting with the sector to take caution. Powell said:
“What we’ve been doing is making sure that the regulated financial institutions that we supervise and regulate are careful and taking great care in the ways they engage with the whole crypto space.”
His remarks come after a turbulent 12 months for the cryptocurrency industry, with high-profile crypto projects such as LUNA and top firms like FTX and Celsius filing for bankruptcy in 2012.
The most high-profile case involves the former CEO of FTX, Sam Bankman-Fried, facing eight counts of fraud and conspiracy.
Since FTX’s demise, the US Securities and Exchange Commission (SEC) has been taking measures to protect investors – the regulator has sued several crypto firms such as Genesis, Gemini, and Paxos.
Additionally, the SEC Chair reiterated that all crypto assets other than Bitcoin are securities.
Fed Chair hints at more interest rate hikes
The Federal Reserve Chairman has also hinted at the possibility of the US central bank maintaining a hawkish monetary policy as inflation levels remain significantly above target.
In the recent testimony at Capitol Hill, most of Powell’s discussion was on inflation.
Over the past year, the Fed has been pushing inflation down by hiking interest rates and last year, the institution hiked rates by 75 basis points four times before slowing down the hikes and raised by 50 basis points.
In the recent Federal Open Market Committee (FOMC) meeting, the rates were hiked by only 25 basis points.
The aggressive interest rate hikes by the Federal Reserve negatively affected the price of cryptocurrencies and other risk assets.
When the Fed raises interest rates, it triggers financial uncertainty, leading to investors looking for less risky financial assets that they can invest in.
Powell has triggered more anxiety after his recent appearance in Congress, saying that the rates could be increased higher and at a faster rate because inflation was yet to be tamed.
He noted that while the core inflation level had dropped, it remained higher than the Fed had hoped, adding that there was still a long way to go.
Bitcoin and most cryptocurrencies dropped shortly after Powell’s testimony, with a similar drop seen in the stock market.
At the time of writing, Bitcoin was trading at $22,086, down by 1.3% in the last 24 hours.