The Federal Reserve has entered the era of Powell 2.0, and this article reviews his views on the encryption market

In the early hours of this morning, the White House announced that Biden nominated Jerome Powell, appointed by former President Trump, to be re-elected as chairman of the Federal Reserve Board, which is equivalent to the central bank of the United States. Biden said that Powell played a key role in helping the United States recover its economy from the epidemic. At the same time, Lael Brainard, who was widely regarded as the best candidate to succeed Powell, was nominated as vice chairman. After the announcement, bank stocks such as Bank of America and JPMorgan Chase generally rose, while U.S. Treasury yields also rose and the dollar strengthened.

Under Powell, inflation has run well above the original 2% target. Moody's Analytics estimates that the $1 trillion [infrastructure bill] recently passed by Congress, combined with the nearly $2 trillion [social spending and climate bill], will increase U.S. inflation on average between 2022 and 2024 0.3 percentage points.

High inflation appears to have been at the heart of market transactions over the past year, with some scholars in the U.S. economy arguing that inflation has persisted for much longer than the Federal Reserve expected, due to a combination of increased consumer demand, supply chain disruptions and labor shortages effect. However, more people in the crypto community believe that inflation is mainly due to money printing.

However, high inflation, underemployment, how to restore the economy, and how to create a digital currency for the US central bank have also become thorny issues that the Fed needs to face. Claudia Sahm, a former Fed official, believes the Fed is facing the "toughest period in history" in its 25-year history.

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Bitcoin is "digital gold"

Powell first joined the Fed's board in 2012 after a long career in banking and government service. At that time, the price of Bitcoin was less than $100, and it existed mainly among cryptography enthusiasts and a few primitive exchanges. Powell did not comment on Bitcoin.

But when Powell was nominated as Fed chair in 2018, bitcoin was in a very different position, surging to a price of nearly $20,000 in December 2017.

In 2019, he called Bitcoin a "speculative store of value, like gold." In the past two years, his views have not changed. In March, when bitcoin hit $60,000 for the first time, he wasThe Bank for International Settlements Innovation Summit reiterated that Bitcoin can be seen as a substitute for gold, and he supported the view of some crypto market participants that Bitcoin is a new "digital gold." However, Powell also warned about the volatility of crypto assets.

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The need for a CBDC

In fact, more than 80% of countries around the world are exploring digital currencies. China's digital yuan is far ahead, while emerging market countries such as Cambodia, Venezuela and Ukraine are not far behind, and Europe is also moving forward.

China's digital renminbi has always been at the forefront. Since its internal testing in developed cities in 2020, many digital renminbi red envelopes have been distributed to citizens. Not only that, large companies such as JD.com and Meituan, as well as subways in some areas, are also in full swing pilot. As early as 2014, the People's Bank of China launched research on digital currency, established the Central Bank Digital Currency Research Institute in 2016, and completed top-level design, standard formulation, and joint debugging and testing at the end of 2019.

In 2019, in the United States on the other side of the ocean, a conference on "Digital Currency War: National Security Crisis Simulation" held by Harvard seemed to turn the conference room into a White House intelligence room. Faculty and invited former government officials from Harvard and MIT discussed what the future of the United States might look like if the dollar's economic dominance ends, and whether the United States should develop its own digital currency. At the meeting, Jennifer Fowler, then director of national intelligence of the United States, pointed out that the crisis of China's digital currency should be recognized, which will also be a challenge for the United States. The crisis simulation session showed that the issuance of China's digital currency would seriously weaken the US dollar's dominance in the global financial system.

On the same day as the mock crisis meeting, Powell wrote a letter to the U.S. Congress calling for an early launch of a U.S. digital currency in response to concerns about the U.S. central bank’s low competitiveness in CBDC. “We have assessed and will carefully analyze the costs and benefits of pursuing such a program in the United States, and are carefully monitoring the activities of other central banks to determine the potential benefits of developing digital currencies.”

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Stablecoins need regulation, but have no intention of banning crypto

Even though Powell doesn't think bitcoin poses a real threat to the dollar, that doesn't mean he's giving crypto assets a run for their money. He believes that encrypted stablecoins with low volatility are an improvement over encrypted assets such as Bitcoin, but they cannot replace the current global monetary system.

According to data from Coingecko, as of the time of writing, the total market value of global stablecoins is about 150 billion US dollars, of which USDT is far ahead, accounting for about 49% of the market share, followed by USDC with about 25%.

In July of this year, Powell talked about stablecoins in the "Monetary Policy Report for the First Half of 2021" submitted to Congress. Stablecoins, he argued, should be regulated “in a similar way” to bank deposits.

Currently, the stablecoin with the highest market capitalization is Tether’s USDT, which is also the stablecoin under the strictest scrutiny by regulators. Although the Tether company once claimed that each USDT was backed by real U.S. dollars and the funds were deposited in a bank, it later disclosed that most of its fund reserves were commercial paper or debt. While commercial paper is short-term overnight bonds of companies, most of the time they are investment and very liquid, but if the market starts to go down, that's when people want to get their money back. The economic activity of stablecoins is very similar to bank deposits, and they need to be subject to a similar regulatory approach.

Stablecoins remain a source of concern for Fed Chairman Powell, Securities and Exchange Commission Chairman Gensler, and Treasury Secretary Janet Janet, who formed a task force to launch a regulatory framework for dollar-pegged assets; To carry out more supervision, among which USDT, the stable currency with the leading market capitalization, may be most negatively affected.

In September, North Carolina Congressman Ted Bader asked Powell a question:

“You argued in July that if we had a U.S. digital currency, then there would be no need for cryptocurrencies. So Mr. Chairman, as a matter of policy, are you going to ban or restrict the use of cryptocurrencies like we’re seeing in China?”

Powell immediately clarified: "What is not needed are stablecoins and not cryptocurrencies."

According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Participate in any illegal financial practice.

risk warning:

According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Participate in any illegal financial practice.