KEY POINTS

  • The Fed confirms that it is looking into cryptocurrencies
  • Federal Reserve Chair Jerome Powell credits Facebook's Libra for sparking the conversation about cryptos
  • Bitcoin reenters $10,000 level after Powell's statement

When it seemed like this week would put on the breaks on Bitcoin's two-week rally and extend the profit-taking seen on Monday that dropped BTC back to $9,000 prices, the top crypto bounced back on Tuesday and re-entered $10,000.

Bulls surprised the market despite the fact that the chances of a pullback were heightened due to a cluster of bearish technical signals, including the TD Sequential "13" candle, a bearish engulfing pattern on the daily, a failure to close above $10,000 and the RSI crossing below the overbought level. Buyers coming back after a one-day break pushed prices to erase Monday's red candle and affix it at $10,300 as of press time.

The market wondered what's behind this surprise move and some point to Federal Reserve Chair Jerome Powell's statement in front of the U.S. House Financial Services Committee. Powell, who withstood hours of questioning, was also asked by Rep. Bill Foster, a Democrat from Illinois, for his take on cryptocurrencies.

And, Powell's carefully structured answer asserts the importance and the undiminished viability of the U.S. dollar in the financial system.

"Preserving the centrality of a central, widely accepted currency that is accepted and trusted is an enormously important thing," Powell said.

Nonetheless, he provided a general viewpoint for how the Fed could be digesting the emergent technology.

"Every major central bank is currently taking a deep look at that. We feel that's our obligation, technology has now made that possible. I think it's very much incumbent on us and other central banks to understand the costs and benefits and tradeoffs associated with a possible digital currency," said Powell.

Powell also credited Facebook's Libra for sparking the conversation about cryptocurrencies but cites several issues, including the possible knockback on a government-controlled ledger, which hinders the Fed from developing what in the crypto world calls us "Fedcoin."

"Frankly, Libra really lit a fire," Powell said, "and was a bit of a wakeup call that this is coming fast and could come in a way that is quite widespread and systemically important—fairly quickly if you use one of these big tech networks like Libra did."

What the market likely picked up from Powell's overall statement about cryptocurrencies is that there's a possibility that the Fed may issue a digital currency of its own in the future, which a lot in the crypto community deem positive for all cryptos.