Federal Reserve Chair Jerome Powell has explicitly stated that the U.S. central bank will not participate in any government initiative to amass large quantities of Bitcoin (BTTC-USD). During a press conference following the Fed’s recent policy meeting where interest rates were cut by a quarter percentage point, the third consecutive reduction, Powell clarified that the Federal Reserve is legally barred from owning Bitcoin. He emphasized that any legislative adjustments regarding the holding of Bitcoin would be a matter for Congress, not something the Federal Reserve is seeking to change.
This statement came in response to discussions about establishing a “Strategic Bitcoin Reserve” following comments by President-elect Donald Trump. Trump has expressed intentions to form such a reserve, potentially starting with Bitcoin confiscated from criminal activities, which at current valuations would be worth around $21 billion for approximately 200,000 tokens. However, specifics on how this reserve would operate remain unclear.
The market reaction to Powell’s comments was immediate, with Bitcoin’s value dropping from around $103,700 to as low as $100,041.54 in less than an hour. This was particularly poignant given the cryptocurrency’s significant price surge to over $100K this year, fueled by expectations of a more lenient regulatory environment under Trump’s administration. Despite this rally, Bitcoin’s history of volatility has led many to question its suitability as a stable store of value or medium of exchange, crucial for any asset considered for a national reserve.
Adding to the legislative landscape, Republican Senator Cynthia Lummis has proposed legislation that would see the U.S. Treasury acquire 200,000 Bitcoins each year until it holds one million tokens. “Bitcoin is transforming not only our country but the world and becoming the first developed nation to use Bitcoin as a savings technology secures our position as a global leader in financial innovation. This is our Louisiana Purchase moment that will help us reach the next financial frontier,” Lummis has stated.
This initiative would involve using Federal Reserve bank deposits and gold reserves to fund these purchases, though such a plan would likely require Congressional approval and could lead to the issuance of new Treasury debt. Barclays analysts have suggested that this proposal might meet significant resistance from the Federal Reserve due to its implications and the complexities involved in managing such assets.
The Federal Reserve’s approach to cryptocurrencies has generally been one of caution, focusing more on the impact of these assets on the banking and consumer sectors rather than direct regulation. Powell has reiterated that while the Fed oversees banks, ensuring their interactions with cryptocurrencies do not jeopardize financial stability is paramount. However, he has also clarified that direct regulation of crypto assets falls outside the Fed’s current remit.
Trump’s administration seems set to take a more proactive stance on cryptocurrency. Plans include appointing David Sacks, a former PayPal (PYPL) executive, to oversee AI and crypto policies in a new White House role, and Paul Atkins, a pro-crypto advocate, to head the Securities and Exchange Commission, signaling a potential shift towards more supportive policies for digital assets.
These developments highlight the tension between traditional financial systems and the burgeoning world of digital currencies, with significant implications for policy, market stability, and the integration of cryptocurrencies into broader economic frameworks.
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