While Bitcoin (BTC) is too volatile to be money and is "backed by nothing," it could be a "substitute for gold," said the chair of the United States Federal Reserve.
Speaking at an event hosted by the Bank for International Settlements, or BIS, on Monday, Jerome Powell delivered frank comments in response to a question on cryptocurrency.
Powell takes issue with Bitcoin's backing
When asked whether he thought Bitcoin and other cryptocurrencies posed a threat to financial stability, Powell wheeled out familiar arguments that have long come from legacy finance figures.
"Crypto assets — we call them 'crypto assets' — they're highly volatile — see Bitcoin — and therefore not really useful as a store of value, and they're not backed by anything," he said.
"They're more of an asset for speculation, so they're not particularly in use as a means of payment. It's more a speculative asset. It's essentially a substitute for gold rather than for the dollar."
Powell's words provide some of the most direct Fed opinions on Bitcoin to go public in recent times and build on a perspective offered in 2019. They also come weeks after incoming Treasury Secretary Janet Yellen made clear her misgivings about decentralized cryptocurrencies.
As with Yellen, Powell appeared to spark a burst of negative market sentiment, with BTC/USD dropping almost $1,000 following his response.
For all their disagreements, however, both Powell and Bitcoin's biggest proponents thus agree on the cryptocurrency's status as a new form of gold.
The verdict could hit home hard for gold bugs hostile to Bitcoin, notably Peter Schiff, who continues to claim that fate is on his side when it comes to generational stores of value.
Fiat has "public benefit in mind"
Together with BIS general manager Augustin Carstens and Jens Weidmann, president of the German Federal Bank, Powell also looked at stablecoins as they relate to the ongoing trend of central bank digital currencies, CBDCs.
Here, the talk was less unsual, with the speakers repeating known stances involving the separation of private stablecoins and bank-operated CBDCs.
"To the extent a stablecoin is backed by sovereign currencies of leading nations, that's certainly an improvement over crypto assets, I would say," Powell continued.
"But nonetheless, where's the credibility come from? It comes from that sovereign currency that is the backstop."
Fiat currencies, he said, are "issued with the benefit of the public in mind," while emphasizing that stablecoins will not serve as the basis for the global financial system in the future.