Why could Fed Chairman Jerome Powell be wrong in claiming that the digital dollar will compete with Bitcoin?

During a July 15 congressional hearing on the House Financial Services Committee, Fed chairman Jerome Powell offered a grim outlook for bitcoins and cryptocurrencies. He questioned the need for Bitcoin, Ether and Stablecoins if the US were to launch its own digital dollar.

Jerome Powell – Chairman of the Fed

In 2020, the Fed rejected the need for a digital dollar as the demand for cash was seen as high in the United States. Powell questioned the viability of Bitcoin and other cryptocurrencies as a payment mechanism at the time.

However, Powell has conceded that stablecoins like Tether (USDT) and USD Coin (USDC) could have the potential to improve the US payments infrastructure.

“You don’t need stablecoins, you don’t need cryptocurrency if you have US digital currency. I think that’s one of the stronger arguments for it. “

The Fed chairman has dismissed Bitcoin’s ability to replace the US dollar as a global reserve currency. He believes Bitcoin can replace gold.

Congressman Stephen Lynch asked Powell about the impact of the digital US dollar on investors, to which Powell responded by calling for a clear regulatory framework:

“We have a tradition in the United States that public money must be very safe assets. That doesn’t exist for stablecoins, and if they are to become an important part of the payment process, we need a proper regulatory framework, which we honestly don’t have. “

In the coming months, the Fed will publish a report on bitcoin, cryptocurrencies and digital assets. The event raised some expectations in the crypto market as many investors believe that US regulators and policymakers can take action against the industry.

Powell gets tough when asked about Bitcoin

In another hearing before the Senate Banking Committee held today (July 16), Powell said that a decision has not yet been made on a US-backed digital currency. If the institute decides to issue central bank digital currency (CBDC), Powell will seek approval from US Congress.

“We want broad support from both society and Congress, and ideally in the form of legislative approval.”

Wyoming Senator Cynthia Lummis, a Bitcoin advocate, took the opportunity to speak to Powell about Bitcoin and Ether as payment methods. Powell emphasized his point of view and made it clear that people who use cryptocurrencies for this use case are only looking for “anonymity”.

Data from research firm Messari shows that Powell failed to realize that Bitcoin and Ether alone processed trillions of dollars in transactions. Bitcoin is processing an estimated $ 5 billion per day as of the first quarter of 2021.

Source: Blockchain.com

Researcher Ryan Watkins recorded ether payments of $ 2.5 trillion in the second quarter of 2021. As the following chart shows, this corresponds to an increase of 65% compared to the previous quarter and an increase of 1.490% compared to the previous quarter. By the end of the year, the amount paid for Ether could be over $ 8 trillion.

Source: Messari

At the time of writing, Bitcoin is trading at $ 31,705, down 3.6% on the daily chart and down 6.5% on the 7-day chart. It has to regain the open at around $ 32,500 or it risks more downtrends in the short term.

Bitcoin price chart | Source: Tradingview

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