For the first time, the US Fed calls crypto prices a national financial risk

The U.S. Federal Reserve singled out a surge in the price of cryptocurrencies for the first time in its overall assessment of the stability of the financial system. According to Bloomberg, the regulator noted the rise reflected the increased risk appetite by investors.

The brief comment about “the surge in the prices of a variety of crypto-assets” in the Fed’s semi-annual Monetary Policy Report to Congress released Friday is the clear sign that policymakers are paying growing attention to what used to be a tiny part of the financial system.

In the semi-annual Monetary Policy Report, the U.S. central bank said to Congress that “the surge in the prices of a variety of crypto-assets” reflects investors’ increased risk appetite. Although officials of the Fed have discussed crypto before, the institution itself has not used the asset class as a benchmark to consider wider market conditions.

According to Fed Chair Jerome Powell’s monthly diary, on May 11, he met with the head of Coinbase cryptocurrency exchange and crypto advocate Christopher Giancarlo the next day. Spokesmen of the Fed and Coinbase declined to comment on the terms of discussion, although, 30 minutes in-person meetings took place amid intense volatility for cryptocurrencies, including Bitcoin, which fell steeply on that day.

The latest report shows a small shift of the Fed view giving crypto a closer look. In recent months, top officials have met with key crypto industry figures as they prepare to tackle more systemic crypto-adjacent questions, such as regarding a digital dollar project.

Powell has previously said that he wants the Fed to play “a leading role” in the development of international standards for digital currency. The central bank plans to issue a discussion paper this summer highlighting the risks and benefits of digital payments.

In the Monetary Policy Report, the Fed said that some parts of the financial system had grown more vulnerable to potential instability since its last account to Congress in February, but that the core of the system remained resilient.

“The surge in the prices of a variety of crypto assets also reflects in part increased risk appetite,” it added.

The Fed also issued a warning about the general level of asset prices.

“Asset prices may be vulnerable to significant declines should investor risk appetite fall, interest rates rise unexpectedly, or the recovery stall,” the report said.

Source: https://fortune.com/2021/07/09/fed-flags-crypto-prices-national-financial-risk/