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The Fed Highlights Problems With Cryptocurrencies In Latest Statement

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Problems With Cryptocurrencies

The views of financial institutions about cryptocurrencies, such as the Federal Reserve, are always of interest to investors. On Wednesday, Fed head, James Powell, shared his views about the cryptocurrency market with Congress, highlighting a number of issues.

According to Powell, unsophisticated investors make buying decisions on the basis of price hikes and without fully understanding what they are doing.

“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,” he said. Powell also mentioned the presence of user protection issues with the digital asset.

The real value of cryptocurrencies has been a much-debated topic ever since their inception. Powell told the House Financial Services Committee that cryptocurrencies cannot be considered real because they don’t possess any intrinsic value.

Interesting Timing For Fed Comments

These statements from the top Fed representative come at an interesting time for the cryptocurrency market. Bitcoin has increased in value in the past few days. Yesterday was a particularly impressive day for the cryptocurrency as it increased in value by 10% in a matter of minutes. Other coins such as Ethereum and Bitcoin Cash had also shown impressive gains. After Powell’s statement, however, the bulls have given way to the bears. Most of the big players have declined in value in the past 24 hours. Bitcoin is down 0.91%, Ethereum 5.86%, and XRP 6.48%.

Powell previously commented on cryptocurrencies at his confirmation hearing for the job last year. He told the Senate Banking Committee that cryptocurrencies were still too small to matter. He did, however, recognize that there is a place of cryptocurrencies, saying that “in the long, long run, cryptocurrencies and things of that nature could matter.”

The concerns expressed by Powell about the current state of the cryptocurrency market are valid. The market lacks sophistication when it’s comes to investors. Firstly, the market is open to everyone and easy to access, which makes investing a breeze but also invites investments that aren’t backed by a sound knowledge of the financial markets.

Secondly, the market itself experienced huge gains in the value of some assets in a very short time duration compared to other assets. This makes the cryptocurrency market even more susceptible to believe-the-hype investors.

Source: https://www.cnbc.com/2018/07/18/fed-chairman-rips-into-cryptocurrencies-cites-big-risk-to-investors.html

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