Federal Reserve Chairman Jerome Powell said in a Senate hearing on Tuesday that the best thing he can offer is that he hopes there is something useful and innovative amidst the chaos of cryptocurrencies.
In his semi-annual testimony to the Senate Banking Committee, Powell stated, "We need to be open to the idea that somewhere there is a technology or an innovative product that could make people's lives better."
The Fed Chair affirmed, "We don't want to stifle innovation."
Powell fielded numerous questions on addressing cryptocurrency issues during his testimony, which will continue until Wednesday before the House Financial Services Committee.
He said, "We've seen a lot of notable events in the cryptocurrency space," noting there has been "a lot of turmoil" in the past year, with companies collapsing and massive fraud schemes exposed.
"We've seen a lot of things happen in the cryptocurrency world that all point to the idea that regulated financial institutions need to be very careful when thinking about engaging in or with cryptocurrency," Powell warned.
The Federal Reserve and other regulatory bodies in the United States have repeatedly issued policy statements and explanations that have served as a strong warning to banks that agencies are monitoring cryptocurrency movements closely.
In their latest warnings, regulators identified that banks that focus their operations in this sector may not meet safety and soundness standards, which are a fundamental requirement to be able to continue operating in the United States.
Silvergate Bank is a live and direct example of the risks of financial service providers, especially banks, focusing on cryptocurrencies, as it teeters on the brink of bankruptcy. After losing most of its customers from struggling cryptocurrency companies, the value of its assets representing digital cryptocurrencies has declined significantly.
Stable currency problems
The Federal Reserve Chairman has stated that Congress must intervene to provide a "practical legal framework" for digital encrypted assets in the United States. He also directly addressed stablecoins as an area that requires oversight.
He said, "When people deal with something that looks like a money market fund in the financial system, they will assume that it is subject to the same regulations as a money market fund or bank deposit" (but it is not).
He added, "So the area of stablecoins needs some attention in this regard."
Powell stated that there is a place for stablecoins in the financial sector. But only if they obtain the "proper regulation."
However, Powell also acknowledged that "there are real concerns about unlicensed blockchain networks and projects. This is because they have been the source of many fraud and money laundering operations and all of these things."
Reintroduction of the Cryptocurrency Tax Reform Bill in the United States:
Punchbowl News reported on Tuesday that legislators in the United States are planning to reintroduce a bill that would reform the way taxes are imposed on digital assets and cryptocurrencies. The amendment bill, known as the "Keep Innovation in America Act," was co-authored and introduced by US Representative Patrick McHenry (a Republican from North Carolina) and Richie Torres (a Democrat from New York).
According to the draft of the bill, there is a proposed change to the definition of a broker in digital currency trading operations. Anyone or entity engaged in selling digital assets would be required to comply with the reporting requirements when requested to do so by their clients (to execute trades).
Legislators want to move forward with this reform, as they believe that current reporting requirements for companies are stifling innovation in the cryptocurrency and blockchain technology sector.
The bill, which was first introduced in March 2021, stated that "current reporting and disclosure requirements under the law impose standards on digital asset market participants that are incompatible with the operation of this technology."
This could hinder efforts to develop digital assets and their underlying technology in the United States, leading to an exodus of these projects to other countries.
