The Fed has yet to change its stance on Bitcoin, with Chairman Jerome Powell recently stating that the institution is prohibited by law and does not like cryptocurrencies. During a press conference on Wednesday, Powell addressed the idea of ​​the Fed holding Bitcoin Reserve assets – a concept popular in political and financial circles. His response was as simple as day and night:

“We are not allowed to own Bitcoin. The Federal Reserve Act is clear about what we can own and we are not looking for a change in law. That is the kind of issue that Congress needs to look at but we are not looking for a change in law at the Fed.”

This simply means that the Fed must adhere to the rules in the Federal Reserve Act, limiting its asset holdings to U.S. government bonds and other very safe assets. Powell's comments came at a time when the U.S. cryptocurrency landscape is undergoing significant changes with new proposals, market volatility, and shifts in government policy.

The Federal Reserve Act specifies the types of assets that can be included on the balance sheet, focusing on financial stability and safety. For example, assets like Bitcoin are excluded from such holdings due to being speculative assets in a legal vacuum. Accordingly, he added that Bitcoin does not constitute a medium of exchange as in every respect, it is a speculative digital asset, its volatility negating its function as a store of value.

In 2021, he stated:

"Cryptocurrencies are not really a store of value and are not backed by anything tangible. Their volatility poses significant risks to the financial system and investors."

This only guides the cautious direction that the Fed is currently taking. This contrasts with the global emergence of integrating digital currencies into mainstream financial systems.

Legislative Efforts to Bring Bitcoin into the U.S. Financial System

On the other hand, some bills are being revised with the aim of bringing Bitcoin into the U.S. financial system, despite the Fed's stance. Senator Cynthia Lummis, a strong proponent of cryptocurrency, has introduced the Bitcoin Act to include Bitcoin in the national reserves. These proposals are facing strong opposition as cryptocurrency is being used for illegal transactions and lacks oversight.

Trump's announcement of the establishment of a national Bitcoin reserve fund has sparked much debate about bringing Bitcoin into the government's reserves. This plan would position the United States as the world's leading nation in the use and innovation of cryptocurrency.

The government is also reportedly set to purchase a significant amount of Bitcoin as part of the plan, using seized assets from crime as a starting point. Trump's appointment of David Sacks as the White House AI and cryptocurrency expert is seen as a move to integrate digital assets into national economic policy.

Market Impact and Investor Sentiment

The national Bitcoin reserve fund has impacted the market. After Trump's announcement, Bitcoin surpassed $100,000. Investors are hopeful for regulatory clarity and government approval.

According to market watchers, this could be a new era for cryptocurrency – the acceptance by institutions and the public. But Powell's comments illustrate how far the Fed is from the cryptocurrency market in general.

Central Bank Digital Currency: Their Appropriate Position

Although the Fed opposes holding Bitcoin reserves, they are more open to Central Bank Digital Currency or CBDC. Powell referred to CBDC as a safer and more closely regulated option compared to decentralized cryptocurrencies.

CBDC would exist within the current financial system, providing benefits with digital transactions but without the volatility and security risks associated with cryptocurrencies like BTC; for CBDC, the Fed's research is part of efforts to modernize the financial system while ensuring stability and oversight.

Conclusion

The decision to exclude Bitcoin from the Fed's reserves reflects their cautious approach to cryptocurrency. While legal and regulatory barriers are significant hurdles, the U.S. cryptocurrency landscape is rapidly evolving. Legislative proposals, market forces, and government initiatives will shape the future of domestic digital assets.

While the debate over Bitcoin in national reserves continues, the Fed is focusing on financial stability, safe investments, and researching regulated initiatives like CBDCs. This cautious approach highlights the challenges of integrating decentralized assets into traditional financial systems and offers balanced policies and regulations.

DYOR! #Write2Win #Write&Earn $BTC