Bitcoin and other cryptocurrencies were rallying on Friday after Federal Reserve Chairman Jerome Powell gave the industry a nod of approval.
Asked at a Congressional hearing on Thursday if he would ban or limit cryptos—similar to China’s recent moves—Powell said no, he had “no intention to ban them.”
Stablecoins—tokens designed to maintain a stable $1 value—look ripe for regulation, however. Powell compared them to money-market funds and bank deposits. “They’re to some extent outside the regulatory perimeter,” he said, “and it’s appropriate that they be regulated. Same activity, same regulation.”
The positive tone from Powell contrasts sharply with that of Gary Gensler, chairman of the Securities and Exchange Commission, who has been talking tough on crypto for months. Gensler has said repeatedly that many of the tokens being offered or sold would qualify as securities for regulatory purposes and should be overseen by the SEC. And he has indicated that automated trading platforms like Uniswap should be brought under SEC control.
Read more: This Is How Much Crypto to Hold in Your Portfolio
Bitcoin and other cryptos have also been under pressure for weeks. China warned citizens last week not to trade or transact in digital currencies—essentially banning commercial transactions in crypto in mainland China. The Evergrande debt crisis also raised concerns about spillover effects into crypto markets.
Moreover, international financing organizations are warning that cryptos pose risks to financial stability. “As crypto assets take hold, regulators need to step up,” said the International Monetary Fund in a post on Friday. Many crypto platforms “lack strong operational, governance and risk practices,” the IMF said.
“Cryptoization can reduce the ability of central banks to effectively implement monetary policy,” the IMF added. It also highlighted the environmental toll of crypto mining on carbon emissions, and pointed out that stablecoins could have “knock-on effects to the financial system” if issuers have to sell cash-proxy reserves to meet a wave of redemption requests.
Nonetheless, Powell’s remarks appear to have touched off a relief rally. Bitcoin was up 9% to $47,000 on volume of $39.3 billion in the past 24 hours, according to CoinMarketCap. It is now back to mid-September levels, after dipping down to around $40,000 last week. And it’s rebounded sharply from its mid-July lows around $29,800.
Other cryptos were also rallying, including Ethereum, up 7.8% to around $3,200, Cardano, up 5.7% to $2.21, and Binance Coin, ahead 9% to $410.
Crypto stocks were getting a Bitcoin bump as well: Coinbase Global (ticker: COIN) was up 1.9% to $231. The Bitwise 10 Crypto Index fund (BITW), trading over the counter, was ahead 10%. Grayscale Bitcoin Trust (GBTC), which tracks the price of Bitcoin, was up 9.2%.
Bitcoin has “decisively broke out” from rangebound trading between $39,700 and $45,000 over the past week, according to crypto-research firm Fundstrat. More than 35 million short futures positions have been liquidated as the price spiked, the firm says. The dynamic may have contributed to demand as traders covered their positions, buying the coin or derivatives.
Powell’s comments may reflect the fact that financial companies are digging deeper into crypto—making it tougher for regulators to ban or limit transactions.
Visa (V), for instance, said on Thursday that it’s developing a “Universal Payment Channel” so that one crypto can instantly be converted into another or exchanged for a currency issued by a central bank. “Think of it as a ‘universal adapter’ among blockchains, allowing central banks, businesses, and consumers to seamlessly exchange value, no matter the form factor of the currency,” Visa says.
Many blockchain-based tokens now exist in digital walled gardens, though DeFi exchanges and applications are developing technology to more easily swap tokens across blockchains.
Powell also clarified on Thursday that he doesn’t see a central bank digital currency, known as a CBDC, replacing cryptos, though they could perform some similar functions, he said.
We may soon hear much more from the Fed on digital currencies. The central bank is expected to issue a much-anticipated report within the next few days, outlining its views on CBDCs and other digital formats of money. Cryptos are likely to be part of the conversation, too.
Write to Daren Fonda at [email protected]
