Federal Reserve Governor: We’re Monitoring ‘Extreme Volatility’ of Cryptocurrencies

Federal Reserve Governor Lael Brainard said the central bank is monitoring the “extreme volatility” of cryptocurrency prices, particularly bitcoin, but does not believe virtual currencies pose a current threat to U.S. financial stability.

Brainard made the remarks April 3 during a speech at the Stern School of Business in New York, where she warned investors to be cautious about “highly speculative” asset classes such as cryptocurrencies, and said the Fed will continue to study them.

“One area that the Federal Reserve is monitoring is the extreme volatility evidenced by some cryptocurrencies,” Brainard noted. “For instance, Bitcoin rose over 1,000 percent in 2017 and has fallen sharply in recent months. These markets may raise important investor and consumer protection issues, and some appear especially vulnerable to money-laundering concerns.”

Brainard continued: “As in other highly speculative markets, individual investors should be careful to understand the possible pitfalls of these investments and the potential for losses. But it is less clear how the valuations of cryptocurrencies currently could pose a threat to financial stability. Nonetheless, we will continue to study them.”

Separately, Brainard said the risks associated with the banking sector and with traditional asset classes such as stocks and bonds are “moderate” by historical standards due to the reforms instituted since the 2008 financial crisis.

“Credit growth is robust, and banks are registering strong profitability relative to their international peers,” she said.

Lael Brainard’s stance on cryptocurrencies echoed the sentiments of her boss, Federal Reserve chairman Jerome Powell, who urged caution, but is not an avowed bitcoin bear, CNBC reported.

“[I have] nothing against bitcoin,” Powell said in November 2017. “We generally look at some of the risks of cryptocurrencies associated with money-laundering and those sorts of issues, but we’re not broadly opposed or supportive of alternative currencies.”