Who is mr. Jerome Powell and why does he make a crucial impact on the crypto market?
Jerome Powell, who is currently holding the position of the Federal Reserve (Fed) chairman, is on the list of the most influential figures in the world’s finance. After he was appointed in 2018, the decisions he made and speeches he gave have had a massive impact on financial markets. He has been able to impact even the world of crypto, even without intending to.
Being the head of the central bank of the largest economy in the world, Powell can make markets move making those moves ricochet at the volatile and fast-moving cryptocurrency space.
Fed’s Powell’s Impact During Covid-19 when Bitcoin Thrived
Powell can influence the crypto market through Fed Reserve’s control over the US monetary policy. In particular, through raising and cutting interest rates and facilitating quantitative easing. These are Fed’s major tools for managing and changing the course of the US economy: setting the interest rates and holding control over the circulating money supply. When the Fed raises or lowers interest rates, Powell either encourages borrowing money and investing it (thanks to low rates) or slows down the inflation (by lifting rates). Investors watch Powell’s speeches carefully since they influence the flow of money that goes into risky assets, such as Bitcoin and Ethereum – the two largest cryptocurrencies in the market.
When in 2020 the Covid-19 pandemic washed over the world’s economies, the Fed Reserve implemented policies which were seen as tailwinds for crypto prices. Back then, rates were low and the Fed flooded the market with aggressive quantitative easing (QE), which brought a lot of liquidity. It was easy and cheap for investors to borrow money and invest it into speculative assets, such as crypto. When this happened, many investors considered Bitcoin a hedge against inflation amid the constant money printing initiated by the US government.
Many feared that those money prints would devalue the US dollar. Traders then closely watched Powell’s comments to see if the Fed eventually planned to turn to a more hawkish market stance.
In 2020-2021, Bitcoin was going up rapidly. In early 2021, Tesla announced the purchase of $1.5 billion worth of BTC and by October the largest cryptocurrency spiked to an all-time high of $69,000 largely thanks to Fed’s money printer working almost non-stop. At that time, inflation in the US kept going up at an alarming rate and Powell hinted that the Fed Reserve would eventually stop the QE and would start raising interest rates.
After those comments, investors massively began to pull back from crypto and other risky assets, moving into more traditional investments such as stocks and bonds.
Powell Statements on Crypto Regulation and CBDCs
The crypto world is also very much sensitive to Powell’s position on crypto regulation. While the Fed Reserve does not regulate the crypto industry directly, its stance on cryptocurrencies, stablecoins, and CBDCs (central bank digital currencies) is important for the future of crypto.
Over the past years, Powell has been frequently mentioning the necessity for a proper regulatory framework for stablecoins, insisting that if those are to function as a new digital form of money, they need to be regulated in the similar way as traditional fiat currencies. However, his urging for a heavy regulation raises concerns among those who favor decentralization in the crypto world.
As for CBDCs, Powell’s stance on them also makes crypto investors watch his speeches closely. Despite the fact that the Fed is not officially issuing a digital US dollar, Powell has several times made it clear that the bank is actively studying this issue. Powell said that any no matter what the Fed decision on the CBDC would be, it would definitely require significant input from both Congress and the public, thus making it clear that the Fed alone is being cautious about moving too quickly here. Still, the fact that the Fed is looking into making a CBDC may have big consequences for Bitcoin, which was initially created as a decentralized alternative to money issued by central banks, no matter whether this fiat is paper or digital.
Powell and Fed’s Recent Impact on Bitcoin Price
In September, during the scheduled FOMC meeting, Jerome Powell announced that the Fed Reserve was going to slash the interest rate by a massive 50 basis points for the first time in the last four years. This brought joy to the cryptocurrency community as they expected Bitcoin and other cryptos to surge sharply after that announcement.
However, Bitcoin reacted quite calmly to that but then eventually the price increased from $53,000 to $65,000 in September. In early October, Bitcoin traded close to the $66,000 level, while now it is sitting above $67,000.
After the September meeting, the Fed hinted that there are likely to be several more interest rate decreases until the end of this year, which is expected to have a bullish effect on Bitcoin and the whole cryptocurrency market.
