‘A Crypto-Asset Is Nothing More Than a Speculative Asset, Like a Baseball Card,’ Says Fed Board Member

Recently, Dr. Christopher J. Waller, who “took office as a member of the Board of Governors of the Federal Reserve System on December 18, 2020,” shared his thoughts on the crypto ecosystem.

Here is some information from the Fed about its Board of Governors:

The seven members of the Board of Governors of the Federal Reserve System are nominated by the President and confirmed by the Senate. A full term is fourteen years. One term begins every two years, on February 1 of even-numbered years. A member who serves a full term may not be reappointed. A member who completes an unexpired portion of a term may be reappointed. All terms end on their statutory date regardless of the date on which the member is sworn into office.

On 10 February 2023, Dr. Waller, who “prior to his appointment at the Board, Dr. Waller served as executive vice president and director of research at the Federal Reserve Bank of St. Louis since 2009,” gave a speech (titled “Thoughts on the Crypto Ecosystem”) at the “Global Interdependence Center Conference: Digital Money, Decentralized Finance, and the Puzzle of Crypto,” which was held in La Jolla, California.

With regard to distributed ledger technology, he said:

The technology is simply a database management protocol that has various permissions regarding who can write to the database and who can read the database. Although this technology is fundamental for the creation of crypto-assets, there is nothing in this technology that restricts it to being used solely in the crypto ecosystem. In fact, distributed ledger technology is being explored to potentially address a wide range of data management problems.

As for crypto-assets, he had this to say:

The question is, why would someone hold such an asset? What is the value proposition of such an asset? The answer isn’t new or unique, but rather is based on economic relationships that result in objects having value…

There are many intrinsically useless objects that still have value. Consider things like baseball cards and celebrity autographs, which are pieces of cardboard and paper with pictures or scribbles on them. Based on their fundamental properties, these things have little to no intrinsic value, yet can be in high demand and command staggering prices. What happens if one day, no one wants to collect baseball cards? As valuable as they are today, they wouldn’t be worth much, if anything…

To me, a crypto-asset is nothing more than a speculative asset, like a baseball card. If people believe others will buy it from them in the future at a positive price, then it will trade at a positive price today. If not, its price will go to zero. If people want to hold such an asset, then go for it. I wouldn’t do it, but I don’t collect baseball cards, either. However, if you buy crypto-assets and the price goes to zero at some point, please don’t be surprised and don’t expect taxpayers to socialize your losses…

While I don’t care if people take on risky investments or engage in risky business ventures, banks and other financial intermediaries must engage in any activity they do in a safe and sound manner… As with any customer in any industry, a bank engaging with crypto customers would have to be very clear about the customers’ business models, risk-management systems, and corporate governance structures to ensure that the bank is not left holding the bag if there is a crypto meltdown.

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