Yesterday, the customary Semi-Annual Monetary Policy Report of Federal Reserve (Fed) Governor Jerome Powell was held at the US Committee on Financial Services of the US Congress.
The hearing lasted more than three and a half hours, although for the most part this time was used by the Members who spoke to express their views.
Truth be told, in all that time Powell did not speak much, except during his initial introduction in which he basically expressed only known concepts.
The hearing was supposed to have as its topic the policy of raising interest rates, which are now very high, but Powell actually cut to the chase from the outset by saying that the Fed will probably be forced to raise them again, since its specific task is to bring inflation back to 2%.
Some policymakers took issue with this, pointing out that such high rates cause problems for those with fixed debts and salaries, and for small businesses.
However, Powell had no choice but to admit that his hands are tied, as inflation is still at 4% and needs to be brought back to 2%.
US: Jerome Powell’s pro-crypto statements
The most interesting part was when Powell had to answer questions from the politicians in the room.
In fact, some of the questions were more or less directly about the crypto sector.
For example, one of them was explicitly about stablecoins, and a possible regulation of them, and Powell in this regard explicitly admitted that the Fed sees stablecoins as a form of currency.
Of course he was referring to stablecoins fully collateralized in dollars, which are in fact a real alternative to dollars themselves with the same purchasing power.
These words of Powell’s seemed to many to be a kind of endorsement of the US central bank toward fully dollar-collateralized stablecoins.
However, the Fed governor added that the central bank would like to take part in their regulatory process, since they are in fact equivalent to the dollar in the markets.
However, it was another pro-crypto statement that made the most difference.
In fact, at one point he explicitly admitted that cryptocurrencies seem to have the potential to remain in the markets for a long time as a new asset class.
The issue of unregistered securities
The thing is, crypto markets have been suffering in recent weeks because of the SEC’s major attack on cryptocurrencies and crypto exchanges.
The SEC is precisely the US government agency that oversees the security market, and it claims that a large portion of cryptocurrencies are unregistered securities.
In the absence of specific regulation unequivocally declaring their nature, some cryptocurrencies are considered commodities (such as Bitcoin), while others may be considered securities.
For example, in the EU, where the specific MiCAr (Market in Crypto Asset regulation) was passed, they are actually accepted as a new asset class, removing the root of uncertainty about their nature.
It almost seemed as if Powell wanted to suggest that Congress imitate the EU’s choices in this regard.
US: the reaction of crypto markets to Powell’s words
About an hour before Powell began to speak, the price of Bitcoin had already begun to rise slightly.
It actually had already been going up for two days, since it had already risen from $26,400 to $28,900 on 19 June.
However, this rise yesterday seemed to have stopped overnight.
Yet, just before Powell began to speak, the price of Bitcoin had already surpassed $29,000.
As soon as he began speaking the price had fallen slightly, but after the first half hour it began a real run that within two hours took it as high as $30,800.
In other words, yesterday, in conjunction with Powell’s hearing, the price of Bitcoin rose 6.5% in a few hours, and then fell only slightly while still remaining around $30,000.
It had previously risen another 9% in the preceding days.
Right now it is not far from the annual highs of 2023.
The US dollar
It is worth noting that yesterday, in conjunction with Powell’s hearing, the Dollar Index (DXY) fell from 102.6 points to 102 in less than five hours.
Even though this is not an abnormal movement, it still remains quite rapid and extensive.
Not least because in late May it touched 104.7 points, and such a drop in three weeks is definitely significant.
Curiously, the US stock markets closed at a loss yesterday, so the capital outflow from the dollar did not end up in equities.
Some of it ended up in gold, which went from $1,920 to $1,937 an ounce in the same period, but it is possible that a good deal of it ended up in the crypto market, and in Bitcoin in particular.
The point is that mainstream finance is taking an interest in the crypto market, perhaps because it believes it can expand quite a bit more in the future. Powell’s words yesterday seem to have given more credence to this hypothesis, and the markets have reacted accordingly.