Fed Isn’t Out To Stifle Crypto Innovation – US Federal Reserve Chair
The chairman of the US Federal Reserve, Jerome Powell, has recently clarified that the financial watchdog is not out to stifle innovation in the digital asset industry. However, Powell warns that the crypto industry is full of frauds and risks targeted at unsuspecting users.
Not Against Crypto
In an appearance before the US Senate Banking Committee in Capitol Hill, the Fed chair talked about the crypto ecosystem adding that the central bank has long been actively involved in this area. During his speech, Powell acknowledged that blockchain technology has practical applications in the real world.
According to him, the Fed is open to the idea that blockchain technology can be significantly utilized in innovative enterprises to improve people’s lives. Part of Powell’s address to the senate committee read:
“The Fed is not out to impose regulations that would stifle innovation in the crypto space. Like everyone else, the central bank is watching what is happening in the digital asset market. There is a lot of turmoil, fraud, and a lack of transparency. Hence, the Fed has seen the risks.”
Furthermore, Powell warned that banks and other financial institutions must apply caution in their exposure to cryptocurrency. According to him, the Federal Reserve has seen a lot to suggest that the involvement of regulated financial institutions with crypto assets should be minimal.
At the hearing, the Fed chair added that he would be glad if Congress stepped in to implement a new legislative framework for the crypto industry. He conceded that while regulators may focus on how banks get involved with cryptocurrency, such assets should have a place in the financial system if they are well-regulated.
Last year was a challenging period in the history of crypto following a series of high-profile shutdowns, including that of FTX in November. Since then, US regulators have taken an increasingly aggressive stance in enforcing regulations in the crypto space.
The US Securities and Exchange Commission (SEC) has been cracking down on crypto trading companies. Kraken and Paxos have come under the hammer from the SEC in the past few weeks.
Will Crypto Contagion Affect TradFi?
The increasing focus on traditional financial (TradFi) institutions’ exposure to cryptocurrency heightened last week after Silvergate, the crypto-friendly bank, reportedly faced possible insolvency due to the crypto market meltdown. Per reports last week, the bank announced that it could not complete its 10-K financial information to the SEC on time.
Silvergate was among the crypto firms hit hardest by the FTX debacle in November 2022, as it reportedly suffered a bank run after the fallout. As a result, the bank was forced to sell off $5.2 billion of the debt securities it held on its balance sheet at a loss.
Meanwhile, Silvergate’s recent struggles might set a precedent for other TradFi players’ interest in crypto.
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