Fed: Bitcoin Could Threaten Financial Stability

Fed: Bitcoin Could Threaten Financial Stability

Fed: Bitcoin Could Threaten Financial Stability

$BTCUSD, $CME, $CBOE

Currently Bitcoin is trading at 10,716.3203+1,175.87 (+12.33%) As of 9:06PM GMT. Market open.

Cryptocurrencies could pose a threat to financial stability as they gain wider use, a chief Fed banking oversight official said.

The remarks from newly-installed Fed Vice Chairman for Supervision Randal Quarles came as Bitcoin’s price took a dive Thursday after skyrocketing earlier in the week to more than 10X its value at the start of the year.

Wall Street is plans to offer trading in the currency’s futures, which is drawing interest and some concern from regulators.

Vice Chairman Quarles raised concerns about how cryptocurrencies would behave in a crisis.

In a speech on the payments system he said that in times of crisis, demand for liquidity among bank depositors often shoots up, putting major financial institutions under strain.

But it is not clear how digital currencies would perform in similar situations, he cautioned.

Decentralized virtual currencies like Bitcoin operate as a payments system with no central bank and are exchanged using encryption.

“The ‘currency’ or asset at the center of some of these systems is not backed by other secure assets, has no intrinsic value, is not the liability of a regulated banking institution, and in leading cases, is not the liability of any institution at all,” Mr. Quarles said in prepared remarks.

“While these digital currencies may not pose major concerns at their current levels of use, more serious financial stability issues may result if they achieve wide-scale usage.”

That could create “a large challenge to the system,” if digital currencies could not be predictably exchanged for the USD at a stable exchange rate in “times of adversity,” he warned.

Bitcoin’s price rebounded on Friday to hit the day’s highs above $10,500, recovering from an earlier dip below $9,500, after the US  derivatives regulator said it would allow CME Group and CBOE Global Markets to list Bitcoin futures.

The announcement by the Commodity Futures Trading Commission (CFTC) paves the way for CME and CBOE to become the 1st traditional US regulated exchanges to launch trading in Bitcoin-related financial contracts, a watershed moment for the cryptocurrency that could lead to greater regulatory scrutiny.

Bitcoin, which had been trading at around $10,150 on the Luxembourg-based Bitstamp exchange before the news, jumped to as high as $10,513 in the 20 mins that followed, leaving it up more than 5% on the day.

It has been a volatile week for the biggest and best-known cryptocurrency.

Wednesday, Bitcoin smashed through $10,000 before running past $11,000 less than 12 hours later to an all time-high of $11,395, and then plunging around 20% in the hours that followed.

Amid the turbulent price fluctuations, the White House said Homeland Security Advisor Tom Bossert was monitoring the situation and had discussed it in a meeting this week.

“I know that’s something he’s keeping an eye on,” press secretary Sarah Sanders said, referring to Sec. Bossert.

Nasdaq President and CEO Adena Friedman tamped down news reports that her exchange is planning to launch Bitcoin futures trading next year. She said Thursday that the tech-heavy New York exchange was still considering its next move.

“We actually haven’t announced anything,” she said. “I would just say that we have been having active dialogue with a lot of clients and with partners about what might be possible over time.”

Have a terrific weekend.

 

 

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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