“The Federal Reserve simply does not have authority to supervise or regulate Bitcoin in any way,” Yellen said on Thursday, February 27, in testimony given before the Senate Banking Committee. “This is a payment innovation that is taking place entirely outside the banking industry and to the best of my knowledge there is no intersection at all” between bitcoin and banks that the Fed can oversee.
Yellen’s comments come just days after the virtual “crypto currency” Suffered its biggest setback yet in its only five-year history, when the website Mt. Gox, a Bitcoin currency exchange, shut down earlier in the week. The exchange’s abrupt closure underscored the risks surrounding the new form of virtual currency.
When a U.S. bank fails, deposits are insured by the government. With Bitcoin, however, “there may be little recourse for people whose money is locked up in the shuttered exchange,” the WSJ explained.
Bitcoin prices recently fell 1% to $571.29, according to the CoinDesk price index that tracks two virtual-currency exchanges. That’s down from about $700 at the beginning of the year and more than $1,100 in early December.
With the estimated value of Bitcoin fluctuating daily, Yellen said “it certainly would be appropriate, I think, for Congress to ask questions to what the right legal structure would be” for overseeing the new currency. But she said the issue could pose challenges for lawmakers.
“It’s not so easy to regulate bitcoin because there is no central issuer or network operator to regulate,” she said in response to questions posed by Democratic Senator Joe Manchin of West Virginia, who had previously called on U.S. regulators to impose restrictions on the Bitcoin currency.
In a letter released Wednesday to regulators and Treasury Secretary Jacob Lew, Manchin wrote: “I am most concerned that as Bitcoin is inevitably banned in other countries, Americans will be left holding the bag on a valueless currency.”
Wall Street analysts have also raised concerns about Bitcoin, the WSJ noted. In a note to clients on Wednesday, Citigroup currency strategist Steven Englander said Bitcoin has become “even more speculative” following the Mt. Gox shutdown. “One question is whether the decentralized structure, which is the attraction to many, makes it too cumbersome to enact essential fixes.”