Bitcoin Keeping the Fed Up at Night? No, Not Really

A rumor is circulating that the Fed concerned Bitcoin will “eviscerate” big banks. Let's investigate the claim.

Here is the line that caught my attention: "St. Louis Fed President James Bullard admitted to Reuters in a recent interview what the real concern was: '(We could) wake up one day and most of the big banks have been eviscerated and most of that activity has moved elsewhere.'"

I tracked that that claim back to the Reuters article Bubble or breakthrough? Bitcoin keeps central bankers on edge by Francesco Canepa.

Canepa made the same statement but did not provide a link.

Business Insider Interview

On October 13, Business Insider interviewed Bullard. BI reported The rise of a new kind of finance is setting off alarm bells at the Fed.

The article did not contain the quote.

James Bullard, St. Louis Fed President, is the latest old banker to ring an alarm bell of sorts stating in a fairly emotionally charged use of words that new inventions, such as blockchain technology, cryptocurrencies and ICOs, might “eviscerate” big banks if regulators do not do something about it.Bullard said regulators, by which perhaps he might mean banks so being from the Federal Reserve Bank (Fed), might: “Wake up one day and most of the big banks have been eviscerated and most of that activity has moved elsewhere.”

TrustNodes linked to BusinessInsider, but as noted above, the BI interview did not contain the quote.

What Did Bullard Really Say?

So far, we have lots of claims (and there are now dozens more quoting ZeroHedge), with still no reference to the true source of the claim.

Growing competition from fintech players has become the “number one issue” for large financial firms and regulators are “fighting the last war” by focusing on tweaks to post-crisis financial rules, Bullard told Reuters in an interview.Many deep-pocketed banks including Goldman, Citi and Morgan Stanley have been scooping up fintech assets through direct investments and acquisitions, while national bank regulator the Comptroller of the Currency has proposed directly regulating fintech firms.Bullard warned that if regulators were not more aggressive, however, they could “wake up one day and most of the big banks have been eviscerated and most of that activity has moved elsewhere,” adding this could create the risk of a financial crisis because regulators had lost sight of the activity.“I think a lot more should happen to help these smaller banks,” said Bullard. “To have Dodd-Frank rain down on these smaller banks has been a tragedy of the whole legislation.”

Words Bullard Did Not Use

1) Bitcoin

2) Cryptocurrencies

3) ICO

Spotlight on Fintech

This is what Bullard said to Business Insider:

"The new issue now for the next 10 years is going to be fintech, and how fintech is going to affect financial intermediation in the US. And if you go out to Silicon Valley, all the discussion is all about how can we strip the profits from the big firms."

Fintech Description

Wikipedia has the following discussion on Financial Technology.

After reviewing more than 200 scientific papers citing the term "fintech," the most comprehensive scientific study on the definition of fintech concludes that "fintech is a new financial industry that applies technology to improve financial activities."Financial technology has been used to automate insurance, trading, and risk management.The services may originate from various independent service providers including at least one licensed bank or insurer. The interconnection is enabled through open APIs and open banking and supported by regulations such as the European Payment Services Directive.Global investment in financial technology increased more than twelvefold from $930 million in 2008 to more than $12 billion in 2014.[6] The nascent financial technology industry has seen rapid growth over the last few years, according to the office of the Mayor of London. Forty percent of the City of London's workforce is employed in financial and technology services.

In Context

In context, Bullard appears to be concerned about Fintech, which does include blockchain. That's a lot different than "Bitcoin keeping central bankers up at night."

Philly Fed Position

On September 30, CoinDesk posted this image.

Federal Reserve Bank of Philadelphia president Patrick Harker made some pretty silly statements about fiat currencies. Regardless, neither Bullard nor Harker seems overly concerned about Bitcoin itself.

Jerome Powell's Views

Jerome Powell is Trump's nominee to replace Fed Chair Janet Yellen, who steps down in February.

His view is far more important than either Bullard's or Harker's.

Here is a snip from the CNBC article New Fed chief isn't likely to embrace digital currencies, written November 2.

I have "nothing against bitcoin, nothing against, you know, private currencies," Powell said in June at the Economic Club of New York. They are "associated with money laundering and those sorts of issues, but we're not broadly opposed or supportive of alternative currencies.""I think from a Fed standpoint, I would say I am very cautious of the idea of a Fed digital currency," Powell said.


1) St Louis Fed president James Bullard is concerned about Fintech, not Bitcoin per se.

2) Philadelphia Fed president Patrick Harker seems oblivious to everything.

3) Incoming Fed Chair Jerome Powell has "nothing against Bitcoin".

Claims vs Reality

Claims that Bitcoin keeps "The Fed" up at night or "The Fed" is overly concerned about the price of Bitcoin are false.

By the way, why should the Fed be concerned?

There is not much if any lending in Bitcoin, at least yet. That is in stark contrast to the housing bubble. It's not like we are going to have a mountain of Bitcoin debt that will be defaulted on.

Moreover, given the Fed does want higher inflation and more consumer spending, one can make a case that the wealth effect from Bitcoin will help.

Logically speaking, the Fed might want a rising Bitcoin.

Mike "Mish" Shedlock

No. 1-25

So what if they got wiped out. The horse and buggy got eliminated by the car. If we don't need them, we don't need them.


Why should Bulltard (or the Fed in general) be concerned by crypto currencies? Wouldn't they be outlawed if things got too "out of hand"? Much like FDR made gold illegal in the 30's?


Can you imagine if there were 300+ different US currencies? The sad thing is that the only reason Bitcoin is worth $9,000 is the same reason there is a housing, stock and bond bubble. The world is flush with cash thanks to its twin debt. When it all collapses do you honestly think people are going to rush to Bitcoin? How many people who own Bitcoin have used it to buy goods? 1%? At the rate Bitcoin is increasing in value it's like the Weimar hyperinflation in reverse and so no one is spending it. It is a victim of its own "success" and when it implodes it will be fast and fascinating to watch.


A crypto currency does not need to be debased by a “hard fork.” The currently hyped hard fork in Bitcoin, doesn’t debase the currency. Having a culture open to hard forks, does technically open for debasement down the road, but doesn’t mandate it. In any case, debasement by hard forking the entire world’s payment system, is most certainly much more difficult for a would-be debaser, than just making up some nonsensical pseudonomics supposedly calling for QE, then printing up fortunes for himself and his buddies down the Street.

Bitcoin itself is not anonymous. Bitcoin is also a first attempt at a crypto currency. Less than a decade old. There are already several different provably anonymous extensions to the Bitcoin protocol. With the first big publicized snafu stemming from Bitcoin’s lack of anonymity, they’ll grow in prominence. Just as they will continue to evolve towards increased user friendliness. And grow in familiarity. As long as anonymity is a mathematically possible feature of distributed blockchain currencies, and anonymity is a desirable property, some anonymous blockchain currency will grow in availability and utilization.

Bitcoins can be exchanged cheaply because the underlying protocol provides it. Which is what the “hard fork” you mentioned is all about extending. The need for such a kludge, is again due to Bitcoin’s youth, immaturity and first mover disadvantage. It has nothing to do with the “value” ascribed to a given Bitcoin. It was cheaper to exchange Bitcoins back when they were priced under a buck, than it is now. More anonymous currencies, and even currencies less open to manipulation by gigantic miners; are intrinsically more expensive to exchange, as the math is more complex. But, with anonymity, the need to keep every conceivable single penny exchange “on chain” lessens dramatically as well. And debiting and crediting anonymously funded, traditional ledgers, are real cheap, being devoid of “know your customer” spying nonsense; as well as the plethora of restrictions currently in place to maintain the privileged status of banks.


"They can be exchanged cheaply, they can’t be debased at will by anyone, and they are anonymous" I disagree. Bitcoin is debased every time there is a hard fork and it is easily manipulated (debased) through fake liquidity by larger entities. Bitcoin is not anonymous - it can't be - you cannot prove ownership without a Bitcoin "address" and you can be tracked by that address. Lastly, bitcoins can only be exchanged cheaply because someone somewhere is providing the facility to do the exchange. Right now the increase in value of Bitcoins is paying for that cheap exchange service, wait until it drop in value.