Bitcoin is becoming increasingly popular with investors, which is reflected in a strong price increase since the beginning of the year. However, the largest cryptocurrency and its smaller relatives are still not so popular with the US Federal Reserve. Fed Chairman Jerome Powell therefore once again found words of warning about Bitcoin and other cryptocurrencies at the beginning of the week.
While the love of investors for Bitcoin currently apparently knows no bounds and the cryptocurrency is rising to ever new heights, voices are once again being raised in US politics warning of the dangers of digital money. After U.S. Treasury Secretary Janet Yellen recently described Bitcoin as a “highly speculative asset” and “extremely volatile,” Jerome Powell, her successor at the helm of the U.S. central bank, has now also expressed skepticism about cyber money. For him, Bitcoin and Co. are purely speculative investments that have little in common with a real currency.
That’s why Bitcoin and Co. are no good as money substitutes
At a virtual conference last Monday organized by the Bank for International Settlements (BIS), Powell made it clear that he would prefer to call cryptocurrencies “crypto-assets” because their high volatility undermines their ability to store value, which is, however, one of the basic functions of a currency, according to news outlet “Al Jazeera.” “Crypto assets are highly volatile – see Bitcoin – and therefore not really useful as store of value,” the Fed chief is quoted as saying by “MarketWatch.” Cryptos are therefore “more of a speculative asset that is basically a substitute for gold rather than the dollar,” Powell added.
Indeed, wild price swings and some instability cannot be denied in bitcoin. Currently, the largest cryptocurrency is hovering in the $52,470 range, having gained more than 80 percent since the beginning of the year, when one Bitcoin cost only about $29,000. In mid-March, the digital currency even rose to an all-time high of more than 61,000 U.S. dollars – only to drop again a few days later to just over 53,000 U.S. dollars.
These sharp price fluctuations disqualify digital currencies such as Bitcoin as an alternative to conventional money in Powell’s eyes. According to the Fed chief, this is also shown by the fact that Bitcoin & Co. are not particularly used in the area of payments due to their volatility. “The public needs to understand the risks [of crypto assets],” Powell warned strongly in this context. “The fundamental thing is that volatility exists. There’s also the outsized energy requirements in mining and the fact that they’re not backed by anything,” the Federal Reserve chief said.
Stablecoins only slightly better for Powell
Powell also doesn’t give stablecoins, whose value is pegged to another asset such as a national currency or a basket of currencies, a very good report card. According to Business Insider, while he called them an “improvement” over other cryptocurrencies at the BIS conference and said they “could play a role” in the digitization of the dollar, at the same time he expressed skepticism that they will form the basis of a global monetary system. “Stablecoins could play a role with proper regulations, but that role will not be to form the basis for a new global monetary system. They will not be a substitute for a sound monetary system that has its basis in central bank money,” “Newsweek” quoted the Fed chairman as saying.
Fed in no hurry for its own digital currency
However, the Federal Reserve wants to take its time with the creation of its own digital currency. “Because we have the world’s leading reserve currency, we don’t need to rush on this project,” Powell said. However, initial investigations into the potential of digital central bank money are already underway, according to “CNBC.” For example, in August 2020, the Boston Fed launched a joint study with MIT to better understand digital currencies. However, the study, which is expected to take two to three years to complete, focuses on hypothetical facts rather than an actual implementation of cryptocurrency by the central bank.
You can expect us to proceed with great caution and transparency with respect to the development of a central bank-backed digital currency, Powell therefore also said, according to “CNBC.” He also pointed out that a central bank digital currency would ultimately need the blessing of Congress and the government, as well as broad sections of the public, as it moves forward – and this is still very much in the early stages at the moment.
Investment professionals expect this price development
Cryptocurrencies like Bitcoin are booming, and investment advisors are also reporting increasing interest from their clients. CNBC International anonymously asked 20 market strategists and advisors where they see bitcoin in twelve months. A consistent picture rarely emerged from the responses. If you want to learn more about BTC trading, check out www.marginbull.com.
- The majority of survey participants expect the bitcoin price to continue to rise over the next year. Nine of the 20 analysts forecast a price range of $50,000 to $70,000 in March 2022. Three expect BTC (www.bitcoin.org) to be worth between $75,000 and $100,000, and one participant in the survey expects the cryptocurrency to be above the $100,000 mark.
- They are contrasted by four investment professionals who see bitcoin in a year, in some cases well below its current value of just under $55,750. Thus, two of the analysts interviewed by www.cnbc.com expect a value between 50,000 and 40,000 dollars, one with 40,000 and 30,000 dollars and one investment advisor even predicts a crash to below 20,000 dollars.
- There was widespread agreement, however, on the question of the investment approach. According to the participants of the survey, this should be conservative. Of the 20 analysts, 14 advised a Bitcoin portfolio share of between zero and two percent. Five named a target of two to five percent, and only one participant considered an allocation of five to ten percent to be appropriate.