Powell says Fed cannot hold Bitcoin, not seeking to change that

NEW YORK – US Federal Reserve chair Jerome Powell on Dec 18 said the US central bank has no desire to be involved in any government effort to stockpile large amounts of Bitcoin.

“We’re not allowed to own Bitcoin,” Mr Powell said at a press conference following the Fed’s latest two-day policy meeting, in which policymakers cut rates as expected while signalling fewer reductions in 2025.

In terms of the legal issues around holding Bitcoin, “that’s the kind of thing for Congress to consider, but we are not looking for a law change at the Fed”, Mr Powell said.

The Fed chief was addressing the prospect of central bank involvement in the idea of the government building a so-called Strategic Bitcoin Reserve once US President-elect Donald Trump takes office.

Bitcoin had soared more than 50 per cent since Trump’s victory in the Nov 5 election on the prospect of a more hands-off government approach to a class of assets that rarely functions as actual money, but is instead largely used as a vehicle for speculation.

On Dec 19, Bitcoin sank below US$100,000 as part of a wider retreat in speculative investments after the Federal Reserve signalled greater caution about the scope for future interest rate reductions.

The digital asset fell about 1 per cent to US$99,800 as of 10am in Singapore. That followed a 5.1 per cent drop on Dec 18, the biggest retreat since September. Tokens such as Ether, XRP and meme-crowd favorite Dogecoin also struggled.

Trump has suggested he will create a US Bitcoin strategic reserve.

But the incoming president has not provided details on what such a reserve would entail, beyond saying its initial holdings could include Bitcoin seized from criminals, a stockpile of about 200,000 tokens worth about US$21 billion (S$28.6 billion) at current prices.

Bitcoin has more than doubled in 2024 to more than US$100,000 on optimism over Trump’s pro-crypto stance. The asset has proven volatile in its 15 years of existence, which analysts say reduces its utility as a store of value or a unit of exchange, key attributes of a reserve currency.

Republican Senator Cynthia Lummis has introduced a Bill to create such a reserve, under which the US Treasury would buy 200,000 bitcoins annually until the stockpile reaches one million tokens. The purchases would be funded by Fed bank deposits and gold holdings.

Funding a strategic Bitcoin reserve would likely require the approval of Congress and the issuance of new Treasury debt, according to an analysis published this week by Barclays. Given the likely ways such a reserve could be created, “we suspect such a plan would face stiff resistance from the Fed”, Barclays analysts said.

More broadly, Fed officials have been sceptical of securities like Bitcoin as they have also backed away from their own efforts to create a fully digital dollar in favour of allowing the private sector to innovate payments technologies.

The Fed’s main role regarding cryptocurrencies appears to centre on how those assets might affect consumer and banking sector safety.

“We regulate and supervise banks and we would want the interaction between the crypto business and the banks... not to threaten the health and well-being of the banks,” Mr Powell said on Dec 4. But he also noted at that time that when it comes to crypto assets, “we don’t regulate it directly”.

Trump plans to appoint former PayPal executive David Sacks to the newly created position of White House AI and crypto czar, and pro-crypto consultant Paul Atkins to lead the Securities and Exchange Commission, whose primary focus is to enforce laws against market manipulation. BLOOMBERG