During an event titled the “Opportunities and Challenges of the Tokenisation of Finance” hosted by the Banque de France on September 27, US Fed Chairman Jerome Powell gave his candid comments about the crypto industry and DeFi, which, to the surprise of many market watchers, was actually a positive one.
Albeit coming with its own set of disclaimer calling for a need for appropriate regulation, Powell opined that he thinks the DeFi sector has a lot of room to grow despite the current crypto market downturn. Powell thinks DeFi will be the sector that can attract the most number of retail users into the crypto space due to its unique benefits that cannot be obtained from traditional finance. The Fed chief is of the view that appropriate regulations will be able to help crypto achieve a huge milestone of growth and is calling for such regulation to be put in place as soon as possible to help the sector realise its potential.
Even though there has been broad support among crypto firms for US President Biden’s latest crypto bill to establish a clear regulatory framework for cryptocurrencies, the process of reaching a consensus between regulators and crypto stakeholders has been slow and contentious.
Everyone would agree that a well-defined regulatory regime would provide much-needed clarity for investors and help the industry grow, hence, Powell’s comments cannot have come at a better time. Hopefully after Powell’s positive push, regulators and industry insiders will be more vehement about reaching a consensus to set the rules in place clearly and quickly.
While being bullish about crypto adoption, Powell does not think that DeFi nor crypto will compete with traditional finance as they both have different qualities, different purposes and serve different market segments.
However, the Fed Chairman did mention that a lot needs to be done in order to address a myriad of issues plaguing the DeFi space in its current form. Specifically, Powell is concerned about the lack of transparency around DeFi transactions, which he thinks could create significant risks for users. With that in mind, he is calling for appropriate regulation to protect users and put rules in place to prevent activities in crypto from affecting the stability of the traditional financial system.
While acknowledging that the size of crypto and the DeFi market is still too small to affect traditional finance even if a systematic risk event is to unfold, Powell cautioned the banking industry to be prepared for the potential challenges posed by the growing DeFi sector, calling for more engagement with the crypto sector, as well as more research to ensure that the banking industry can adapt and remain stable in the face of change. This comment seems to suggest that Powell thinks crypto could one day upend the banking industry, even as he insists that the two industries are separate and complementary to each other. Regardless of what he truly thinks, such an opinion is positive news for all crypto investors out there.
Powell Not the Only Influential Bull Out There
Powell was not the only high profile person to have given a verbal boost to crypto recently. Stanley Druckenmiller, the billionaire investor and hedge fund manager, also expressed optimism over cryptocurrencies during an interview with CNBC at its Delivering Alpha conference last Wednesday.
Druckenmiller, who was previously a managing director at Soros Fund Management, referenced the sudden quantitative easing made by the Bank of England and commented that these recent moves by central banks, should they become a trend in the upcoming years, will cause people to lose trust in central banks. The world economies will then shift to a new paradigm where they rebuild a new financial ecosystem based on crypto assets.
The legendary investor, who has never had a down year in the markets, went on further to opine that the Fed has made a policy mistake by tightening too late, making it having to do more to bring down inflation at this stage of the cycle, which could lead the US economy into deep trouble.
Druckermiller, who once managed George Soros’ Quantum Fund and was infamous for his $10 billion bet that broke the British pound in 1992, expects the US economy to be in a deep recession or worse by the end of next year, which will force the FED to do aggressive quantitative easing again to salvage the economy. According to him, this will be the straw that breaks the camel’s back for the people, who will turn against the central banks and build a new independent financial system. This will be the time when crypto assets will play a big role in the rebuilding of the new economies.
Putting the views of Powell and Druckermiller together makes for an interesting hypothesis. Could it be that central bankers like Powell already know that the end game is near and thus, are beginning to pave the way for a new financial system?