Fed to model bitcoin crash?

Routine stress tests for the economy could soon include a crypto component.

The US government may include the impact of a crypto crash in its economic stress testing models. While these kinds of stress tests are the norm, they typical include only ‘conventional’ risks, such as the collapse of the stock markets or housing markets.

The Federal Register states:

Several commenters strongly supported the inclusion of salient market risks in the scenarios in general to make the supervisory stress test sufficiently dynamic... The commenter recommended that the Board consider extraordinary shocks, such as a war with North Korea, the collapse of the Bitcoin market, or major losses caused by trader misconduct, in its scenarios.

Currently little more than a note in the Fed’s daily publication, the comment hints at a future where bitcoin ownership is more widespread, and the potential harm that could be done if the asset class crashes – presumably much like the impact of the sub-prime crisis, where investors were left with bad debts on their books after the value of the properties backing them plummeted.

The Federal Reserve has previously been highly skeptical of crypto. Former Chairman Ben Bernanke has stated his belief that governments will take steps to prevent bitcoin becoming a widespread alternative currency, and that its adoption so far has been a ‘mostly speculative venture’.

However, the suggestion that bitcoin might be included indicates something of the direction of travel expected for this new asset class by the Fed – even if it’s not one they want to see.

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