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| February 18, 2018

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Will the wild stock market cause the Federal Reserve to slow interest rate hikes? And should it?

February 13, 2018 |

Financial markets delivered an unwelcome gift for Jerome H. Powell when he was sworn in last week as chairman of the Federal Reserve — a nosedive.

Triggered by fears of rising inflation and interest rates, the Dow Jones industrial average’s record 1,175-point plunge on Feb. 5 kicked off the worst…

L.A. Times – Business

Wells Fargo shares hammered by investors after unprecedented punishment by Federal Reserve

February 6, 2018 |

On a day when the Dow experienced its biggest point loss in history, Wells Fargo & Co. did twice as bad.

The bank’s shares tumbled 9.2% on Monday — their biggest single-day drop since the financial crisis — reflecting just how much investors have lost faith in the San Francisco financial giant…

L.A. Times – Business

Jerome Powell sworn in as Federal Reserve chairman, vows to ‘remain vigilant’ about financial risks

February 5, 2018 |

Jerome H. Powell was formally sworn in Monday as chairman of the Federal Reserve and vowed to remain vigilant about risks to the financial system.

Powell, a Republican who succeeded Janet L. Yellen, also said he was committed to “explaining what we’re doing and why we are doing it” as the central…

L.A. Times – Business

Yellen to join Brookings Institution think tank after stepping down as Federal Reserve chief

February 4, 2018 |

Federal Reserve Chairwoman Janet L. Yellen won’t be joining the ranks of the unemployed she worked to try to reduce during her tenure leading the nation’s central bank..

Yellen, 71, whose term as Fed chief ends on Saturday, will start Monday as a distinguished fellow in residence in the economic…

L.A. Times – Business

Senate easily confirms Jerome Powell to be next Federal Reserve chairman

January 23, 2018 |

The Senate on Tuesday overwhelmingly voted to confirm Jerome H. Powell to be the next chairman of the Federal Reserve, allowing him to take over when Janet L. Yellen’s term expires early next month.

Powell, 64, a well-respected Republican who has served as a governor on the Fed board since 2012,…

L.A. Times – Business

St. Louis Federal Reserve Reps in Favor of Cryptocurrencies

January 17, 2018 |

Federal Reserve Reps of St. Louis in Favor of Cryptocurrencies

Aleksander Berentsen and Fabian Schär of the Federal Reserve Bank of St. Louis have recently published an article that emphasizes many of the benefits of cryptocurrencies. The article states “that cryptoassets are well suited to become an important asset class,” in addition to offering praise regarding a number of the major applications associated with cryptocurrencies.

Also Read: Classified Ads Site in South Africa Reports Increase in High-Ticket Bitcoin Listings

Reserve Bank Representatives Praise Bitcoin

Federal Reserve Reps of St. Louis in Favor of CryptocurrenciesThe piece opens by outlining many of the core motivations underpinning the development of bitcoin, stating that it was Satoshi Nakamoto’s intention to “develop a cash-like payment system that permitted electronic transactions but that also included many of the advantageous characteristics of physical cash.” The authors state that bitcoin was designed to comprise a monetary form that would allow the electronic transfer of value through the circulation of data files – allowing bitcoin to “retain the advantages of physical cash,” whilst being able to be distributed freely via “electronic networks.”

Berentsen and Schär state that “the true potential of blockchain technology will become apparent” only once distributed ledger technology attains general adoption, which the authors anticipate may take “many years, or possibly decades.” As such, the authors conclude that one cannot predict the industries in which bitcoin and blockchain technology will have the greatest impact – however, the article emphasizes the shift in economic dialectical relations may be borne through the innovations of colored coins and smart contracts.

Unique Applications

Representative of Federal Reserve of St. Louis Write in Favor of CryptocurrenciesOf colored coins, the authors state that bitcoin “can be used to produce fingerprints for all kinds of data files and then store them in a blockchain.” The article states that “public blockchains [create] the potential to monitor data files,” which may have far-reaching implications with regards to “data integrity.” It is asserted that the employment of colored coins renders “any manipulation attempt […] apparent because any change to the data file will lead to a completely different hash value,” thus creating a decentralized, untamperable record of said data that is publically available to all.

Smart contracts are described as “self-executing contracts.” The authors state that the typical function of smart-contracts is “to stipulate that a Bitcoin payment will be executed only when a certain condition is met.” In addition to such, the authors state that smart-contracts can be used to host a variety of applications, including “e-voting systems, identity management and decentralized organization, and various forms of fundraising.”

Risks Associated With Cryptocurrencies

Representative of Federal Reserve of St. Louis Write in Favor of CryptocurrenciesDespite the authors’ optimism regarding cryptocurrencies, a number of risks are identified to be associated with crypto assets. Firstly, the article emphasizes that risks that forks may pose to specific cryptocurrencies, describing the emergence of Ethereum Classic and Bitcoin Cash as having occurred as a result of ideological dissent between conflicting factions within a given cryptocurrency community.

The perceived energy wastage that stems from proof-of-work mining and increasing mining difficulty is also cited as a significant risk pertaining to the cryptocurrency space. However, the authors contest the mainstream narrative surrounding such by emphasizing the energy costs associated with centralized payment systems, using the lack of research conducted into the electricity consumption required to operate a central bank as an example of such. Beyond bitcoin, the article also asserts that “many crypto assets use alternative consensus protocols, which do not (solely) rely on computational resources.”

The article also identifies the price volatility associated with cryptocurrencies as a risk which may pose a hurdle to the widespread adoption of virtual currencies. The authors state that “it is very likely that the Bitcoin unit will display much higher short-term price fluctuations than many government-run fiat currency units,” owing to the absence of a mechanism such as “the Federal Reserve System has been explicitly founded ‘to provide an elastic currency’ to mitigate the price fluctuations that arise from changes in the aggregate demand” for monetary instruments.

Promising Conclusions

Representative of Federal Reserve of St. Louis Write in Favor of CryptocurrenciesWhilst Berentsen and Schär state that “Price volatility and scaling issues frequently raise concerns about the suitability of Bitcoin as a payment instrument,” bitcoin is described as a “novel technology” that allows the “stor[age] and transfer [of] monetary unit[s] without the need for a central authority.”

Moving past the authors’ assessments of bitcoin as a means of payment, the article states that “As an asset, however, Bitcoin and alternative blockchain-based tokens should not be neglected,” emphasizing many unique applications made possible by cryptocurrency – such as the management and verification of the integrity of data, and the emergence of smart contracts. Said utilities, the authors write, comprise “Promising applications […] which may bring change to the world of finance and to many other sectors.”

What is your reaction to Berentsen and Schär’s apparent praise for bitcoin and cryptocurrency? Share your thoughts in the comments section below!

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Federal Reserve Chair: “Fed Doesn’t Really Play Any Regulatory Role” in Bitcoin

December 14, 2017 |

Federal Reserve Chair: “Fed Doesn’t Really Play Any Regulatory Role” in Bitcoin

Following her next-to-last Federal Open Market Committee (FOMC) meeting, outgoing Federal Reserve (Fed) Chairwoman Janet Yellen gave a final scheduled press conference 13 December 2017 in Washington, DC. In a growing sign of its influence, once again bitcoin was introduced as a topic for consideration at the highest levels of finance. No fewer than three times did cryptocurrencies make their way into the discussion: regulatory policy, prospects of a Fed Coin, and bitcoin’s threat to financial stability.

Also read: Only Big Broker Offering CME Bitcoin Futures Allows Whales to Short

Fed Chair Says Bitcoin Very Small

The first woman Chair of the globe’s most powerful central bank, Janet Yellen took what amounted to a gushing victory lap in her final scheduled press conference. Reporters paused in questions to thank her. Some even asked her about future efforts to diversify the field of economics to include more women and minorities. It’s good to go out on top, for sure.

CNBC’s Steve Liesman posed the expected, wanting to know the Chair’s thoughts on equity valuations at historic highs. Before he allowed her to answer, he asked: “Maybe as a sign as to what’s been going on with valuations, this cryptocurrency called bitcoin keeps going up every day, um, what is the policy of the central bank of the United States, of the introduction, use, and incredible rise in popularity of bitcoin?”

Ms. Yellen was appointed by President Obama in 2013, and was generally considered to be more concerned with unemployment rather than inflation, a position known as dovish.

Federal Reserve Chair: “Fed Doesn’t Really Play Any Regulatory Role” in Bitcoin

After answering the first question, she began, “And then you asked about bitcoin, and there I would simply say that bitcoin, at this time, plays a very small role in the payment system,” she said, looking down for brief moments at what appeared to be prepared notes.

“It is not a stable store of value,” Ms. Yellen continued, “and it doesn’t constitute legal tender. It is a highly speculative asset, and the Fed doesn’t really play any role, any regulatory role, with respect to bitcoin other than ensuring banking organizations that we do supervise are attentive… that they’re appropriately managing any interactions they have with participants in that market, and appropriately monitoring Anti-Money Laundering, Bank Secrecy Act, you know, responsibilities that they have,” she elaborated.

Mr. Liesman then quickly followed, “Has there been a directive about bitcoin to banks and their dealings with bitcoin from the Federal Reserve?”

“I don’t believe there’s been anything specific about that,” she said, “just generally banks have Bank Secrecy Act, Anti-Money Laundering responsibilities, and this applies to bitcoin as it does in every other realm.”

Doubtful Fed Will Create State Backed Crypto Coin

At a lull, Justine Underhill of Yahoo Finance was called upon. She referenced recent speculation by a Fed governor, suggesting the central bank was considering its own cryptocurrency. Ms. Underhill asked if this is true.

Federal Reserve Chair: “Fed Doesn’t Really Play Any Regulatory Role” in Bitcoin

“I want to distinguish carefully between digital currency and cryptocurrency,” Ms. Yellen answered. “There is a discussion going on among central bankers about the potential merits of a central bank itself adopting a digital currency, and there might even be a central banker or two around the globe who might go in that direction,” she said, probably referring to Russia and Venezuela.

Ms. Yellen pointed her right hand for emphasis, “I really want to caution that this is not something the Federal Reserve is seriously considering doing at this stage. While we’re looking at research on this topic, there are, I think, to my mind, limited benefits for introducing it, limited need for it, and some substantial concerns, and so I would really doubt that the Federal Reserve would soon go in that direction. But it is something central banks are looking at to see if there could be benefits from doing it,” she stressed.

Fox Business Worries Bitcoin is Threat to Financial Stability

Adam Shapiro of Fox Business wondered if maybe Ms. Yellen and the Fed were in fact missing bitcoin’s threat to financial stability, referencing the 2008 financial crisis. 

Federal Reserve Chair: “Fed Doesn’t Really Play Any Regulatory Role” in Bitcoin

The outgoing Chair said, “I certainly agree it’s important for the Fed to attempt to understand the emerging risks to financial stability, and to be looking not just in the banking system but outside it for developments that could pose financial risks,” she prefaced.

“Now, when you ask about bitcoin,” Ms. Yellen concluded, “I still see the financial stability risks from it as limited. Often risks threaten financial stability when there’s exposure of the banking system to fluctuating asset valuations, and I really don’t see any significant [problems or] threats from bitcoin if its value were to fluctuate. I don’t see a threat to our core financial institutions. Undoubtedly there are individuals who could lose a lot of money if bitcoin were to fall in price, but I really don’t see that as creating a full-blown financial stability risk,” she repeated.

What do you think about Janet Yellen’s answers? Tell us in the comments below.

Images via Pixabay, Wiki Commons.

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Trump and the Federal Reserve Are ‘Keeping an Eye on Bitcoin’

December 1, 2017 |

Trump and the Federal Reserve Are 'Keeping an Eye on Bitcoin'

The U.S. government is very aware of cryptocurrencies and the rise of bitcoin. This week American authorities from multiple agencies such as the IRS, the Federal Reserve, and President Trump’s press secretary all explained they are monitoring cryptocurrencies and bitcoin’s recent popularity.

Also read: It’s Official – CME Group to Launch Bitcoin Futures December 18

U.S. Government Agencies Are Paying Attention to the Rise of Bitcoin

Trump and the Federal Reserve Are 'Keeping an Eye on Bitcoin'Bitcoiners from the U.S. may have some more stringent battles to fight ahead as multiple government agencies are looking into the use of cryptocurrencies and some officials seem somewhat cynical. For instance, the country’s Internal Revenue Service has been granted permission by a federal judge to review Coinbase accounts for people who transacted with $ 20,000 or more from 2013-2016. Then a couple of days later the Federal Reserve revealed it was contemplating its own digital currency, but launching the idea is a different story. The president of the Fed’s New York branch, William Dudley, explained he believes bitcoin and cryptocurrencies are “more of a speculative activity.”

Bitcoin Is Being ‘Monitored’ by Our Team

Following the statements from the New York Fed executive on November 30, president Trump’s press secretary, Sarah Sanders discussed bitcoin briefly at the White House press briefing. A reporter asked Sanders whether or not the president was following cryptocurrencies “specifically the major run-up with bitcoin,” explains the journalist.

“Does he have an opinion on it, and does he feel it is now something that needs to be regulated?” asks the reporter. The press secretary Sanders explains the government is watching bitcoin stating;       

The [Bitcoin situation] is something that is being ‘monitored’ by our team — Homeland Security is involved. I know it’s something that he’s [Trump] keeping an eye on — And we’ll keep you posted when we have anything further on it.

Trump and the Federal Reserve Are 'Keeping an Eye on Bitcoin'
Trump’s press secretary, Sarah Sanders.

Members of the Federal Reserve Are Concerned About Cryptocurrency Spillover Effects

Trump and the Federal Reserve Are 'Keeping an Eye on Bitcoin'
U.S. Federal Reserve vice chairman, Randal Quarles.

In addition to the White House press secretary’s comments the U.S. Federal Reserve vice chairman, Randal Quarles stated on the same day that the rise of cryptocurrencies poses a threat to “financial stability.” Discussing the subject at the 2017 Financial Stability and Fintech event, Quarles said retail investors and regulators need to watch out for threatening “spillover effects” tethered to the popularity of digital assets. The reason Quarles is concerned is because decentralized currencies are not backed by traditional reserves, and suffer from significant price swings.

“Risk management can act as a mitigant, but if the central asset in a payment system cannot be predictably redeemed for the U.S. dollar at a stable exchange rate in times of adversity, the resulting price risk and potential liquidity and credit risk pose a large challenge for the system,” explains Quarles during the Fed’s conference.

Like many U.S. officials and agencies, Quarles says research is needed and testing these cryptocurrencies to see if they can handle financial stress. “It is not clear whether the payment system would be able to function, in times of stress,” Quarles emphasizes.

What do you think about the U.S. government’s statements towards bitcoin and cryptocurrencies? Do these issues concern you? Let us know in the comments below.

Images via Pixabay, the White House, the Federal Reserve logo and Bloomberg.

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Trump’s Federal Reserve Nominee: Cryptos “Don’t Really Matter Today”

November 30, 2017 |

Trump's Federal Reserve Nominee Under Oath: Cryptos "Don't Really Matter Today," "Not Big Enough"

President Donald Trump’s nominee for Chair of the Federal Reserve, current Board Governor Jerome “Jay” Hayden Powell, participated in the constitutionally mandated US Senate confirmation process by way of a hearing on 28 November 2017. Bitcoin and “cryptocurrencies are something we monitor very carefully,” Mr. Powell answered in direct questioning about current and future Fed policy toward decentralized currencies.   

Also read: After Mugabe, Zimbabwe Pushes Bitcoin to $ 17,875

Trump's Federal Reserve Nominee Under Oath: Cryptos "Don't Really Matter Today," "Not Big Enough"

Federal Reserve Under Oath about Bitcoin

Incredible valuations. Historic price rise. Mass adoption numbers. The Year of Bitcoin has achieved yet another official milestone: it is now a formal policy consideration by regulators of the world’s largest economy.

Tuesday afternoon in Washington, DC, Jay Powell sat before a sparsely attended, mostly pro-forma senate hearing. A current Fed governor nominated by President Obama to serve a 14 year term, Mr. Powell is widely considered to ease through to confirmation in the Republican-controlled upper body.

Georgia Senator, Republican David Alfred Perdue, Jr took asked the nominee a series of questions. Completely switching topics, he ended his line of thought with queries at the 1 hour and 35 minute mark about a subject sweeping professional finance circles: bitcoin.

Senator Perdue began, “We have another bubble that is some 4 to 5 times the size of the dot com bubble in the late 1990s, and that has to do with the cryptocurrencies like bitcoin,” he said.

Trump's Federal Reserve Nominee Under Oath: Cryptos "Don't Really Matter Today," "Not Big Enough"

Junior Georgia Senator Asks about Bitcoin

Mr. Perdue is junior senator from the Peach state, having been elected in 2014 to a six year office. His background include heading many businesses.

“Bitcoin’s market value now is bigger than all but 29 of the S&P 500 corporations in America,” he continued. “Assuming that this continues, and talking about that bubble, and the size and the growth of these cryptocurrencies, if that continues to grow … to what extent does that effect your ability to effect results from your typical monetary policy options that you typically have as a central bank?”

Nominee Powell answered, “You know, in the long, long run things cryptocurrencies of that nature could matter,” he said. When confirmed, Mr. Powell will be the 16th person to assume chairmanship of the Fed in its 103 year history.

“They don’t really matter today,” Mr. Powell said dismissively. “They’re just not big enough. They’re just not anywhere near close to enough in volume for it to matter for us.”

Senator Perdue then again made parallels between the 1990s dot com boom and bitcoin, implying Mr. Powell should see the same.

Bubble Fear

“There’s no question the valuations have gone up quite a lot in the last year or so. I don’t have a view on the appropriate level of the valuation, of course,” Mr. Powell explained.

Trump's Federal Reserve Nominee Under Oath: Cryptos "Don't Really Matter Today," "Not Big Enough"
Jay Powell

The price of bitcoin, as of this writing, has reached 10,000 USD on global exchanges, skyrocketing hundreds of percent in eleven months.

“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,” Mr. Powell expanded in his answer.

“It’s something we pay close attention to,” the Board Governor noted.

The Senator from Georgia then asked if the Fed were watching technologies used around the world and in companies such as Alibaba with regard to blockchain and cryptocurrencies.

“We are watching all of those technologies. It’s something we have to do, I think. It’s actually something that is kind of enjoyable and interesting,” Mr. Powell smiled.

What do you think of incoming Fed Chair’s comments? Tell us in the comments below!

Images courtesy of: Pixabay, imagur, Wiki Commons.  

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Federal Reserve Chair Submits Resignation

November 21, 2017 |

Janet Yellen submitted her resignation from the Federal Reserve board to President Trump on Monday, announcing that she will leave when her successor is sworn in as Fed chairman. In a letter to the president, Yellen said she would her do her”utmost” to ensure a smooth transition to Jerome Powell,…