It is well known that Chairman of the Federal Reserve, Jerome Powell, believes cryptocurrencies are an unreliable store of value. This sentiment is not limited to cryptos like Bitcoin or Ethereum, but also “stablecoins”. A stablecoin would be a cryptocurrency that, according to Investopedia, attempts to offer price stability and is backed by a reserve asset. Stablecoins seek to offer the best of both worlds—the instant processing and security of cryptocurrencies, and the volatility-free stable valuations of fiat currencies. That may sound great at first, however, downsides from the Fed’s perspective include losing monetary control. Moreover, stablecoins present themselves as if they are pegged to fiat currency, when they aren’t backed by the sovereign, but instead by financial assets.
But regardless of how the feds feel, it seems stablecoins are here to say. This comes as data from The Block shows nearly $110 billion in total stablecoin supply, which remains on a swift incline. But it’s not that the feds are against anything digital, in fact they do endorse a different form of currency called CBDCs which Powell believes are a rival to stablecoins. The main difference between them is that while stablecoins aren’t, CBDCs are regulated under a central authority, and backed by the central bank. However, critiques of the idea point out that CBDCs miss the larger point of why cryptocurrencies are popular – not simply because they are digital, but because they’re independent of the government, politicians, and bankers. What do you think about Stablecoins and CBDCs, and do you prefer one over the other?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.