For years, cryptocurrencies have been intermittently dragged down by the Fed and US Regulators running the groundhog day playbook with regulation. “Powell saw his shadow, another year of uncertainty.” Last year, we finally started to see politicians make moves to change this situation, and many major crypto figures like Sam Bankman-Fried (founder of FTX, Alameda Research) think this will be the year wherein we finally get some clear guidance from the government.
There are already a few signs of this becoming a reality. On Tuesday, Federal Reserve Chairman Jerome Powell went before the Senate for his confirmation hearing for his second term in the role. During this interaction, Powell confirmed that an official report on digital currencies would be coming in the next few weeks, and reversed his stance on stablecoins. Previously, Powell had stated that stablecoins would be made obsolete by the creation of a Central Bank Digital Currency (CBDC), essentially a stablecoin backed and controlled by the Fed. In this hearing, he said that CBDC’s and stablecoins could co-exist, giving much needed reassurance to the crypto markets and subsequently spurring a rally after weeks of depressed asset prices.
At the same time, there is pushback against the creation of a CBDC altogether. On Wednesday, US House Representative Tom Emmer introduced legislation banning the Fed from issuing a CBDC directly to consumers, stating that the surveillance capabilities of a CBDC infringes too greatly on individual privacy, and effectively puts the Fed in a position to compete with retail banks.
This turmoil is simultaneously set against the backdrop of significant inflation rates within the US, as well as the Fed attempting to decrease their involvement in stabilizing the market. A recent report for December put the yearly inflation rate at 7%, the highest since 1982.