Federal Reserve Chairman Jerome Powell today said that the crypto space needs to be monitored closely because it is full of turmoil—but innovation in the world’s biggest economy should not be stifled. Testifying on Capitol Hill in front of lawmakers Tuesday, Powell was asked about the cryptocurrency space. He said that the U.S. central bank had been “quite active” in that area, adding that the Fed does not want to stifle innovation. But he added that regulated financial institutions supervised by the Fed need to take “great care” in how they engage with the crypto space.

The crypto space was rocked by a number of high-profile bankruptcies and controversies last year. The most significant was the collapse of Sam Bankman-Fried’s digital asset exchange FTX, which blew up in November because of criminal mismanagement, U.S. prosecutors allege.

The main topic of the policy discussion today was inflation—which is sky high in the U.S. The Fed has been trying to get it down by raising interest rates: Last year, it started raising them by 75 basis points four times, and then slowed down by hiking them by only 50 basis points. This negatively impacted the price of Bitcoin—and the wider crypto market—because, like U.S. equities, it is a risk-on asset. When interest rates are high and there is financial uncertainty, investors tend to look for safer things to park their cash.

Most recently the central bank upped interest rates by 25 basis points. But today, Powell said that the Fed could lift interest rates higher and potentially faster than expected because inflation is still too high. “Core inflation has come down but nowhere near as far as we hoped and it has a long way to go,” he said. Stocks dipped on the news—and so did Bitcoin: the largest digital asset by market cap fell as low as $22,120 following the remarks. It has since climbed back up and stands at $22,250, according to CoinGecko.

This news means that the Federal Reserve is closely monitoring the crypto space due to the fraud, lack of transparency, and other risks that it poses. They are not trying to stifle innovation, but they want regulated financial institutions to be careful when engaging with the space. The news of higher interest rates has had a negative impact on the crypto market, as investors tend to look for safer places to put their money when interest rates are high and there is financial uncertainty. #Crypto #FederalReserve #Inflation #Bitcoin #Economy

You can read more about this topic here: Decrypt: Fed Chair Jerome Powell: Crypto ‘Turmoil, Fraud, Run Risk’ Is Being Monitored

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