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US Congress Talks China Digital Currency Plan as Bitcoin Sits Above $10,000

China’s economy and its proposed digital currency were talking points on Tuesday Feb. 11 as the chair of the US Federal Reserve testified before the Congress to start a two-day questions and answers session about the health of the US economy. Jerome Powell was quizzed on US preparedness and ability to respond to the competitive digital currency trend which he said they are looking into.

“As you know, every major central bank is currently taking a deep look at that (digital currency). We feel that it’s our obligation,” he says. “Technology has now made this possible. The private sector is innovating , they are doing it. So I think it’s very much incumbent on us and other central banks to understand the cost and benefit and trade-offs associated with a possible digital currency.”

Bitcoin price reportedly hit its highest since September 2019 – up to $10,489 – following the testimony. The Fed chair’s response to whether they have visibility on what the Chinese are doing concerning the proposed digital currency launch including the rollout plan and working level contact was particularly profound for the crypto space. Powell responded in the affirmative but stressed it’s in a completely different institutional context.

“For example, the idea of having a ledger where you know everybody’s payment, that’s not something that will be particularly attractive in the United States’ context,” he said. “It’s not a problem with China.”

Characterizing the state of US progress against other countries like Sweden and China which are already pivoting towards large scale mobile payment and likely to transition easily to digital currencies, he clears that the US is not having the same problem facing these less-cash societies. Rather, the amount of cash in the US economy continues to grow hence their careful approach to issuing a digital currency though Facebook’s proposed Libra had been a wake up call that signaled how things could change very fast. He adds:

“We have not decided to do this though. I think there are many questions to be answered around a digital currency for the United States including cyber issues, privacy issues, many many operational alternatives present themselves. We’re going to be working through all that…”

Powell’s testimony comes as the US Fed Governor Lael Brainard recently highlighted the role of digital currency and how they have been looking into it. She said the Fed is, “conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC (central bank digital currency).”

The Fed chair’s comment got linked to the price spike, so are other external factors that supposedly contributed in sending Bitcoin above $10,000 this week. They include global uncertainty around the Coronavirus outbreak which originated in Wuhan, China. Coronavirus, officially named Covid-19, has claimed over a thousand lives with more than 44,000 cases reported, is considered a factor in Bitcoin’s latest surge as investors seek safe haven for fears over the outbreak’s economic impact.

Another main driver identified in the short-term is the upcoming Bitcoin block reward halving in May. How the community manages the expectation of what the halving would bring is not consistent. While it may not change anything for some, others think its impact may not be immediately felt on the price. In June 2016 when the last block reward halved, no major impact was felt in the price of Bitcoin until more than a year later – around December of 2017 as it hits its current all time high record.

That the overall 24-hour Bitcoin trading volume when at all time high (about $5 bln in Dec. 2017) is nearly a tenth of today’s volume (~$48 bln) even as Bitcoin’s price is currently about half what it was then, points that the cryptocurrency’s usage has increased. Adoption will benefit from greater usage even as transaction fees continue to drop due to SegWit and Lightning Network uptake.

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