Cryptoverse Cheered on Powell’s Remarks but Missed Warnings
Jerome Powell at the House Financial Services Committee on Tuesday. Source: a video screenshot, Youtube, Washington Post.
Some crypto market participants believe it’s the remarks by Federal Reserve (Fed) Chairman Jerome Powell on China’s digital fiat that sent bitcoin (BTC) to 5-month highs yesterday. However, his comments on the world’s largest economy might leave the market with a mixed feeling.
The remarks made before the U.S. House Financial Services Committee regarding U.S. work on a digital currency and privacy issues gave hope to Bitcoin faithful that the government was moving toward adoption.
Of particular note, Powell told representatives that, “A ledger where you know everybody’s payments is not something that would be particularly attractive in the context of the U.S.” He then stated that such anti-privacy measures might work in China, but not in the U.S. democratic climate.
The Cryptoverse erupted with commentary, as many of the Bitcoin early adopters came out in favor of the comments, suggesting substantial upside. For example, Anthony Pompliano, Co-founder of Morgan Creek Digital said, simply, “Game on.”
BREAKING: Fed Chairman Jerome Powell just came out in favor of private transactions for digital currencies.— Pomp 🌪 (@APompliano) February 11, 2020
He specifically said "A ledger where you know everybody's payments is not something that would be particularly attractive in the context of the US."
Game on 🙏🏽
Long term concerns
However, in spite of speculations about potential growth in BTC, should the U.S. government move toward greater adoption openness, Powell’s remarks have also sent a mixed message.
He made it clear that the economy is currently in a “very good place” and has remained “resilient” to numerous recent punches. Also, Powell estimates that the economic growth will remain solid, while his concerns for the economy are more long term.
However, he stressed that after three consecutive rate cuts last year, the Fed is running out of tools to stave off recession, should it occur. Additionally, with the ever-burgeoning national debt, which is expected to top USD 1 trillion this year, little remains to protect the economy from the next major recessionary cycle.
“Putting the federal budget on a sustainable path when the economy is strong would help ensure that policymakers have the space to use fiscal policy to assist in stabilizing the economy during a downturn,” Powell said.
Also, the chairman expressed concern that the coronavirus epidemic is still a major unknown for the U.S. economy. He said, “What will be the effects on the U.S. economy? Will they be persistent? Will they be material? That’s really the question…We know there will likely be some effects on the United States.”
However, he urged “to resist the temptation to speculate on this” as “it’s just too early to say,” and stressed that the Fed is “closely monitoring” the situation for possible “disruptions in China that spill over to the rest of the global economy.”
Despite the S&P 500 and Nasdaq stock market indexes notched record closes on Tuesday, and the Dow Jones finished virtually unchanged, the market corrected its gains following the remarks by the Fed’s chief.
“With fundamentals strong, a robust employment situation, and inflation on track, Powell’s cautiously optimistic stance isn’t too surprising, especially since coronavirus fears and trade tensions are at bay,” Mike Loewengart, vice president of investment strategy at E-Trade, was quoted by Marketwatch. “What remains to be seen is the lasting effect of the coronavirus on global growth, which is already tepid.”
In either case, even as the real potential for a recession is not clear, bitcoin has never seen an economic downturn, and no-one knows how the most popular cryptocurrency will perform.
Some have pushed the still somewhat speculative narrative that Bitcoin could function as ‘digital gold’, acting as a safe haven for asset protection.
Current trends during the early impacts of the coronavirus seem to indicate this could be the case. For example, Holger Zschaepitz, author of ‘Schulden ohne Sühne?’, a book on national debt, mentioned that gold and bitcoin appear linked in this cycle.
Global stocks slipped after Fri’s drop on Wall St as investors sentiment remains jittery w/Coronavirus deaths exceeded SARS total. Losses contained as China authorities lifted some virus-related restrictions on work. Bonds steady w/US 10y at 1.58%. Gold at 1571, Bitcoin at $9.9k. pic.twitter.com/7Ywv04ldWl— Holger Zschaepitz (@Schuldensuehner) February 10, 2020
Even so, while some people expect this to make certain cryptocurrencies more attractive as safe havens, some experts note that usually stable assets – even gold – are sold down during serious recessions.