Bitcoin a “substitute for gold”, FED Chair Powell says

United States Federal Reserve Chair, Jerome Powell recently made some statements about Bitcoin that may have impacted the asset’s price shortly. According to Powell, the crypto asset may not be suitable to be a currency due to its volatility and the fact that Bitcoin is “backed by nothing.” Powell, however, stated that the crypto can be a “substitute for gold.”

Powell made his remark during the Bank for International Settlements (BIS) event this morning, when responding to a question where he was asked about his opinion on Bitcoin and cryptocurrency and if they pose a threat to financial stability. His remarks looked to have caused an immediate dive in Bitcoin’s price by $1,000.

Powell’s response to the question was:

“Crypto assets, we call them ‘crypto assets’, they’re highly volatile, see Bitcoin, and therefore not really useful as a store of value, and they’re not backed by anything.”

He added: 

“They’re [cryptocurrencies and Bitcoin are] more of an asset for speculation, so they’re not particularly in use as a means of payment. It’s more a speculative asset, it’s [Bitcoin is] essentially a substitute for gold rather than for the dollar.”

It is not uncommon to hear this about Bitcoin, and Powell is not entirely wrong about it. However, coming from the Chair of the FED, it is quite something and by no means negative. Even Bitcoin maximalist understand that Bitcoin’s strict scarcity makes it an excellent choice as a store of value, while there are currently some challenges that need to be overcome to make it a smooth means of payment and unit of account in the future.

The latest comments on cryptocurrencies come as central banks say that they are in no hurry to develop a global central bank digital currency (CBDC).

Powell also commented on CBDC and said that although the U.S. Central Bank is currently investigating it, there is no need to rush the process.

Powell acknowledged the importance of the US Dollar as a global reserve currency and therefore the leading role that comes with such a global reserve currency. He further said that there are some risks associated with CBDC that will have to addressed, such as cybersecurity and financial stability. He also noted that he is not even sure at this time if there is enough support from the public or governments for a CBDC.

“We don’t want to destabilize the two-tiered system between the central bank and private banks and private banks and the public,” Powell said.

Developing a CBDB in the U.S will pose a challenge when considering financial stability. Bitcoin’s adoption is growing while the government’s printing machine is running overtime.

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