Fed’s Powell says main cryptocurrency risk is to investors

Federal Reserve chairman Jerome Powell said that while cryptocurrencies were not yet big enough to pose a threat to financial stability, he was concerned about the risks they posed to “unsophisticated” investors.

Fed chair Jerome Powell at the Congressional hearing

Speaking in Congress in front of the House Financial Services Committee, the Fed chair said the cryptocurrency market – with a total market capitalisation of $295bn – was too small to pose a threat, and that the central bank did not intend to regulate it.

While the Fed has said it is monitoring the market, Powell iterated that regulatory bodies such as the Securities and Exchanges Commission (SEC) and Commodity Futures Trading Commission (CFTC) along with individual state lawmakers already provided adequate oversight of the sector.

Unsophisticated investors

Powell added, however, that the digital asset market posed financial risks to investors, saying there were “consumer protection issues” that concerned him.

He said: “Relatively unsophisticated investors see the asset go up in price, and they think: ‘This is great. I’ll buy this.’ In fact, there is no promise of that.”

The Fed chairman went on to warn that cryptocurrencies had no intrinsic value – being backed by nothing but speculative fervour – therefore prices in the asset class remained volatile.

He also reminded the Committee of the continued use of digital in criminal activity, saying cryptocurrencies were “challenging” and that lawmakers and regulators had to be conscious of their use in money laundering.