The current trading week started with a bang – Janet Yellen, the U.S. Treasury Secretary, held a speech on Monday, and she expressed concerns about the cryptocurrency market. It is not the first time she has done so since taking the top job at the Treasury, but she was not as vocal this week.
She mainly focused on Bitcoin and argued that it is used for illicit transactions and consumes vast amounts of energy. No other use whatsoever, and thus it is a bubble, she warned. As a consequence, Bitcoin declined abruptly, from $58k over the weekend to $45k yesterday by the time the U.S. cash markets were about to open.
To think of Yellen’s speech was secondary in importance when compared to the current Fed’s Chair, Jerome Powell. Powell started its semiannual testimony yesterday with the first round in front of the Senate Banking Committee. His remarks were waited by market participants in the hope that they will reverse the move lower in Nasdaq that followed Yellen’s speech; Powell delivered.
What Did Powell Say?
From the moment Powell’s testimony began, the equity market indices bottomed. The Dow Jones reversed the initial losses, in a move seen all week last week – selloff at the opening and bounce in the second half of the trading session. Even Nasdaq recovered most of the lost ground, while the S&P500 turned green on the day an hour before the end of the session.
Powell said that the Fed expects volatile inflation in the year ahead, but the Fed is not that worried about it now. Also, he discounted any intention by the Fed to taper the asset purchases and, if it was the case, the Fed would announce it properly way ahead.
Digital currencies came into question, and Powell said that the Fed is looking into a digital dollar backed by the central bank. He even said that this is a top priority, but with the dollar’s reserve status, the sense of emergency is not acute.
Markets loved the fact that Powell did not suggest anything related to a possible tapering of the quantitative easing program, so the stage was set for a bounce. However, the stock market, especially the tech sector, looks weak here. Some public companies have invested massively in Bitcoin lately, and the underperformance of the cryptocurrency may affect the bottom line. If Bitcoin decline continues, the tech sector will have a hard time bouncing back at the highs.