The prices of both cryptocurrencies are in the red this week.
The bitcoin price fell below $40,000, and is now 15% down from its March highs. Ethereum’s price dropped 7.8%, BNB 3.6%, terra 20%, solana 13.8%, cardano 12.9%, and XRP 0.7%, and dogecoin 2.12%.
Meanwhile, last week Treasury Secretary Janet Yellen gave her first speech about cryptocurrencies and their regulation.
There’s an important lesson to learn from Bernanke and Yellen:
“Consumers should be protected from fraud regardless of whether assets are stored on a balance sheet or distributed ledger…. Money-laundering and other illicit activity should be deemed illegal, and it doesn’t matter whether you’re using checks, wires or cryptocurrency,” she said.
There are a few subtle remarks made by Yellen that may hint at how regulators will guide the policy in the future.
[Ed note: Investing in crypto is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
The Digital Dollar
The benefits of the world’s reserve currency have been enjoyed by the dollar for much of the past century. Regulators should be focused on retaining this privilege in their approach to digital assets, according to Yellen.
“The development of our currency to its current form has been a dynamic process that took place over centuries. Today, monetary sovereignty and uniform currency have brought clear benefits for economic growth and stability. Our approach to digital assets must be guided by the appreciation of those benefits,” she said.
While the government should push for financial innovation that ensures competitiveness and growth, it should also pursue its national security interests.
“… a CBDC could be the next evolution in our currency. A recent report by the Federal Reserve opened a public dialogue about CBDCs and the potential benefits and risks that could be associated with issuing one in the U.S.”
She made an explicit remark that clarified her position. She said thatign money is the core of a well-functioning financial system.
The Rise of CBDCs
Governments all over the world are showing more and more interest in CBDCs.
As I wrote recently, “87 countries (which make up over 90% of the world’s GDP) are considering launching their own digital currencies, according to Atlantic Council. 14 are on a test run, including China, and nine have already launched, with Nigeria introducing last.”
The country of the U.S. is on the bandwagon as well. Last month, Biden issued an executive order calling on government agencies to research and design a digital dollar prototype as a way to reinforce America’s financial leadership.
“My Administration places the highest urgency on research and development efforts into the potential design and deployment options of a United States CBDC….These efforts should include assessments of possible benefits and risks for consumers, investors, and businesses; financial stability and systemic risk; payment systems; national security; the ability to exercise human rights; financial inclusion and equity; and the actions required to launch a United States CBDC if doing so is deemed to be in the national interest,” the executive order said.
CBDCs could be the end of both private and centralized cryptocurrencies. Fed Chair Jerome Powell, at a congressional hearing in July, said a digital dollar would be more secure than paper money, because it couldn’t be stolen or destroyed.
“This is not about currency, it is about anonymity and privacy and if it becomes centralized it will be run by the state,” said Joseph Carson, CEO of Chain and host of the event.
And that the adoption of CBDCs will have the opposite effect: it will motivate more people to move their money out of the bank system and into decentralized stores of value.
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