Recently, Federal Reserve Chair Jerome Powell described Bitcoin as “digital gold,” a departure from his previous stance on the cryptocurrency that had been largely dismissive. He made the comments during a discussion at the New York Times DealBook Summit. According to this new comparison, the perspective about Bitcoin is changing in a slowly changing way among financial leaders.
According to Powell, Bitcoin is mostly used as a “speculative asset,” because people buy Bitcoin with the intention that the price will go up. He likened it to gold because everyone sees Bitcoin as something worth, i.e. as something that isn’t backed by any country or bank. But, Powell emphasized that Bitcoin is not yet a currency to substitute the U.S. dollar.
The one big reason for this is Bitcoin’s wildly volatile price. As such, it does not do much of a job as a form of payment or store of value (something gold and the dollar tend to do well). In addition, Powell pointed out that most people are not using Bitcoin to buy everyday things, such as groceries or gas.
Binance founder Changpeng Zhao (CZ) responded positively to Powell’s remarks. Meanwhile, he said Powell’s new view is “baby steps” to a more comprehensive understanding of Bitcoin. This is progress, explains the crypto world, as Powell was blockchain skeptic not long ago.
At the same time, inflation in the U.S. economy remains high. The Consumer Price Index (CPI) rose to 3% in January, and the Producer Price Index (PPI) hit 3.5%—the highest levels since February 2023. These numbers are not a sign that the cost of goods and services is decreasing, they indicate that inflation is still rising and the Federal Reserve is working hard to get inflation back down to 2%.
Powell also confirmed that to control inflation the Fed will continue its current strategy of Quantitative Tightening (QT) and reduce the amount of money in the economy. He said they will not return to Quantitative Easing (QE) that pumps more money into the economy unless the economy is in serious trouble.
In brief, Powell has softened his tone in his view on bitcoin, but the Fed’s attention lies in maintaining the strength of the dollar. While Bitcoin may be gaining fame as “digital gold,” it’s far from ready to compete with the world’s top currency.
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