Bitcoin

Federal Reserve Bank To Analyze The ‘Collapse Of The Bitcoin Market’

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Federal Reserve is used to conduct studies that look into the events that caused major shifts in the US economy. When it does so, it is guaranteed that an out-of-the-box event like the collapse in the Bitcoin market will be studied.

In fact, the U.S. central bank identifies Bitcoin as a possible risk factor for the market

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Prior to the 2009 Great Recession, there has been a consistent effort by the Federal Reserve to pinpoint the next biggest threat to the economy that could create a similar slump in the economy. Obama Administration and Congress passed the Dodd-Frank Act, which necessitated the Federal Reserve to carry on these efforts to run the stress tests.

 Major Risks

Based on a new policy of the Federal Reserve, it is not enough to analyze the historical patterns to identify the potential threat. Instead, important events like war with North Korea or the collapse of Bitcoin are the indicators of the next possible shock in the economy.

In the words of the Board of Governors of the Federal Reserve System’s latest Final Rule:

“Similarly, a commenter expressed support for the incorporation in the stress test of shocks unlike those already experienced, since firms should be prepared to withstand events beyond those already endured. The commenter recommended that the Board consider extraordinary shocks, such as a war with North Korea, the collapse of the Bitcoin market, or major losses caused by trader misconduct, in its scenarios.

….

The current policy statement states that it may be appropriate to augment scenarios with salient risks, as approaches that only look to past recessions or rely on historical relationships between variables may not always capture current risks to the economic environment.

Where appropriate, the Board intends to continue augmenting the scenarios with risks it considers to be salient.”

In one of the amendments to its policy, the major reserve bank of the country has expressed its interest in looking at more important events other than the historical data alone.

By considering the Bitcoin market in their assessment, they have openly admitted the relevance and scope of cryptocurrency.

Ever since the start of the stress tests, the Federal Reserve has studied the probability of collapse of the corporate sector, a deceleration of China’s economy, drastic shift in the oil prices, and huge economic changes in the Euro area, and financial stress in the upcoming heavyweights of the global economy,

Once the Federal Reserve starts to observe Bitcoin more keenly, there wouldn’t be much haste in the U.S. central bank’s involvement in the markets.

After all, Congress has the authority to issue the currency as the Federal Reserve was brought into existence by the former.

Trevor Holman

Trevor Holman follows crypto industry since 2011. He joined CryptoNewsZ as a news writer and he provides technical analysis pieces and current market data. He is also an avid trader. In his free time, he loves to explore unexplored places.

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