On November 28, 2017, President Trump’s nominee for chair of the Federal Reserve, Jerome Powell, testified before the Senate Banking Committee. If confirmed by the Senate, Powell, who has served as a member of the Board of Governors of the Federal Reserve System since 2012, would assume the place of current chair Janet Yellen, the first woman to lead the Fed. Yellen’s term ends February 3, 2018.
After inquiring about how Powell hopes to restructure the nation’s balance sheet, Senator David Perdue (R-GA) switched gears to discuss blockchain technology and cryptocurrency.
“It’s a little bit off the wall, but I’m beginning to be very concerned that we have another bubble that is some four or five times the size of the dotcom bubble in the late 90s. And that has to do with the cryptocurrencies, like bitcoin,” said Senator Perdue. “Bitcoin’s market value now is bigger than all but 29 of the S&P 500 corporations in America,” he added, before asking how the continued growth and usage of cryptocurrency could impact the efficacy and tools of the Fed’s monetary policy.
A measured Powell answered, “In the long, long run, things – cryptocurrencies – of that nature could matter. They don't really matter today. They're just not big enough. There isn't anywhere near close to enough volume for it to matter.”
Indeed, it’s difficult to ascertain exactly how much capital has flowed into the cryptocurrency world. When one examines exchanges without transaction fees, it’s quite possible that volumes are artificially inflated. For now, the greatest concentration of wealth is easily in bitcoin ($168 billion) and Ethereum ($45 billion). Together, they account for nearly 70 percent of the entire cryptocurrency market cap ($312 billion).
“That was the problem with dotcom bubble, too, on a different level,” interjected Senator Perdue. “There were so few entities and there was so much money interested in chasing it and that’s what happening now in the bitcoin area,” he said, possibly in reference to the 21 million unit issuance cap on bitcoin. “The growth of [the dotcom bubble] was much, much faster than anybody thought at that time, too, in the late 90s,” Senator Perdue added.
Powell replied carefully. “Yes, there’s no question the valuations have really gone up quite a lot in the last year or so. I don’t have a view on the appropriate level of valuation, of course. Again, from our standpoint, cryptocurrencies are something we monitor very carefully. We actually look at blockchain as something that may have significant applications in the wholesale payments part of the economy, something we pay close attention to.”
Perdue queried, “So you’re watching what Alibaba’s doing in Asia today, relative to blockchain technology?”
Powell said, “We’re watching all of those technologies. It’s something we have to do, I think. And it’s something that’s actually kind of enjoyable and interesting to do.”
With regard to conventional monetary policy, Powell said he expects the Fed will continue to gradually increase interest rates.