Why Did Fed Chair Powell Reject Bitcoin Reserves?

The Fed has not changed its stance on Bitcoin, with Chairman Jerome Powell recently stating that the organization is legally prohibited and does not like cryptocurrency. In a press conference on Wednesday, Powell addressed the idea of the Fed holding Bitcoin reserves - a concept popular in the political and financial world. His answer was simple as day and night: "We are not allowed to own Bitcoin. The Federal Reserve Act specifies what we can own and we are not seeking a change in the law. That's the kind of issue that Congress needs to look at but we're not seeking a change in the law at the Fed." This simply means that the Fed must comply with the rules of the Federal Reserve Act, limiting its holdings of US government bonds and other very safe assets. Powell's comments come amid major changes in the US cryptocurrency landscape with new proposals, market volatility, and changes in government policy. Legal Constraints and Historical Position The Federal Reserve Act specifies the types of assets that can be included in the balance sheet, focusing on financial stability and safety. For example, assets such as Bitcoin are excluded from such holdings because they are speculative assets in a legal vacuum. He further stated that Bitcoin does not constitute a medium of exchange because, in every respect, it is a speculative digital asset, and its volatility denies its function as a store of value. In 2021, he made a statement: "Cryptocurrency is not actually a store of value and is not backed by anything tangible. Their volatility poses significant risks to the financial system and investors." This only guides the caution that the Fed is currently exercising. This contrasts with the global trend of integrating digital currency into mainstream financial systems. Legislative Efforts to Bring Bitcoin Into the US Financial System On the other hand, some bills are being amended to bring Bitcoin into the US financial system, despite the opinion of Fed Senator Cynthia Lummis, a strong supporter of cryptocurrency, who has introduced the Bitcoin Law to include Bitcoin in the national reserve. These proposals are facing strong opposition as cryptocurrencies are being used for illegal transactions and lack supervision. Trump's announcement of the establishment of a national Bitcoin reserve fund has sparked a debate about incorporating Bitcoin into the government's reserve. This plan will make the United States a global leader in the use and innovation of cryptocurrency. The government is also expected to buy a lot of Bitcoin as part of the plan, using confiscated assets from criminals as a starting point. Trump's appointment of David Sacks as White House AI and cryptocurrency expert is seen as a move to incorporate digital assets into national economic policy. Market Impact and Investor Psychology The national Bitcoin reserve fund has impacted the market. After Trump's announcement, Bitcoin surpassed the $100,000 mark. Investors are hopeful for regulatory clarity and government approval. According to market observers, this could be a new era for cryptocurrencies - the acceptance by institutions and the public acceptance. But Powell's comments indicate how far the Fed is from the cryptocurrency market in general. Digital Currency of the Central Bank: Their Appropriate Position Despite the Fed's opposition to holding Bitcoin reserves, they are more open to Central Bank Digital Currency or CBDC. Powell called CBDC a safer and more tightly controlled option than decentralized digital currency.

CBDC will exist within the current financial system, bringing benefits to digital transactions without the risks of volatility and security related to cryptocurrencies like BTC; for CBDC, the Fed's research is part of the effort to modernize the financial system while ensuring stability and supervision. Conclusion The decision to exclude Bitcoin from the Fed's reserves shows their cautious approach to cryptocurrencies. While legal and regulatory barriers are significant obstacles, the U.S. cryptocurrency landscape is rapidly evolving. Legislative proposals, market forces, and government initiatives will shape the future of digital assets domestically. While the debate over Bitcoin as a national reserve continues, the Fed focuses on financial stability, safe investments, and exploring controlled initiatives like CBDC. This cautious approach highlights the challenges of integrating decentralized assets into traditional financial systems and formulating balanced policies and regulations. DYOR! #Write2Win #Write&Earn $BTC {spot}(BTCUSDT)