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Powell: Crypto is a risk to investors, but not the economy

By Monte Stewart


Updated

A Bitcoin symbol lodged in a mining shot
Cryptocurrencies are a risk to investors, not the economy, Powell says - Photo: Shutterstock

Cryptocurrencies do not pose a risk to the American economy, but could be a risk to investors, the head of the US Federal Reserve said Wednesday.

“I don’t see them as a financial-stability concern,” said Jerome Powell during a news conference following the conclusion of the Fed’s two-day Federal Open Market Committee meeting at which the central bank announced plans to end its tapering programme.

“At the moment, I do think they are risky (for investors)," he added. "They’re not backed by anything. I think there are big issues for consumers who may or may not understand what they’re getting.”

Stablecoins can serve consumers

If stablecoins – cryptocurrencies pegged to traditional currencies – were associated with one of the “very large tech networks that exist, crypto payment systems and values could scale up,” Powell said.

“Stablecoins can certainly be a useful, efficient, consumer-serving part of the financial system if they’re properly regulated – and, right now, they aren’t,” Powell said. “You could have a payment network that was immediately systemically important.” 

Powell suggested that it will take time to develop a potential national digital coin and regulated cryptocurrency market.

BCH/USD

377.45 Price
+0.120% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.50

XRP/USD

0.53 Price
-3.300% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

ETH/USD

3,243.17 Price
+2.640% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

BTC/USD

60,811.55 Price
+3.850% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

“The public relies on the government and the Fed, in particular, to make sure that the payment system is safe and reliable as well as the dollar – and to provide a safe and reliable, trusted currency,” Powell said. “But I do think those are longer-term (issues).”

Bitcoin, other cryptos rise briefly

Bitcoin and most other crypto prices rose after Powell made his remarks, but were down in late afternoon trading in North America. Tether, which is pegged to the US dollar, was up marginally.

On the day, most major crypto prices were up, with Bitcoin trading above $48,900 (£36,863) in the late afternoon. Meanwhile, Ether and Binance were up 4.8% and 2.4% respectively.

Avalanche spiked 20% while Polygon was up about 10.5%.

Read More: US market close: Dow gains as market U-turns on Fed decision

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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