San Francisco Fed President Daly: Cryptocurrencies Are a Separate Asset Class, Not 'Digital Gold'

San Francisco Fed President Daly: Cryptocurrencies Are a Separate Asset Class, Not 'Digital Gold'Mary Daly, president of the Federal Reserve Bank of San Francisco, recently stated unequivocally that cryptocurrencies should be viewed as a distinct asset class, not as an equivalent to gold as many believe. She emphasized that simply equating cryptocurrencies with gold is a misunderstanding requiring more nuanced interpretation

San Francisco Fed President Daly: Cryptocurrencies Are a Separate Asset Class, Not 'Digital Gold'

Mary Daly, president of the Federal Reserve Bank of San Francisco, recently stated unequivocally that cryptocurrencies should be viewed as a distinct asset class, not as an equivalent to gold as many believe. She emphasized that simply equating cryptocurrencies with gold is a misunderstanding requiring more nuanced interpretation. Daly articulated her perspective in a recent podcast interview, arguing that the complexity of cryptocurrencies demands a deeper understanding for accurate definition and classification.

"I think cryptocurrency is a complicated thing," Daly said. "The service we need to provide everybody is to really unpack what it means, and then call it cryptocurrency once we've done that. It can be a currency; it can be a medium of exchange...It can also be a stockan asset that holds its value or sometimes depreciates. We just need to define these terms." She explicitly stated, "So I don't think it's gold. It just sometimes has attributes like gold, but I don't think [they are the same asset]."

Daly's view differs slightly from that of Federal Reserve Chairman Jerome Powell. Powell's earlier comments on Bitcoin, which once spurred a positive reaction in the cryptocurrency market, stated: "People are holding Bitcoin as a speculative asset. But I think it's like gold, only it's virtual, it's digital. People aren't using it as a payment mechanism or a store of value. Its very volatile. Its not a competitor to the dollar, but it is a competitor to gold."

Daly largely agrees with Powell's assessment that cryptocurrencies aren't yet ready to function as currency. She further explained: "The property it needs is that it has to grow with the economy. So its value doesn't change because people want it. Just like when more people want a dollar bill, the dollar bill doesn't appreciate. What causes the dollar to fluctuate is the economy and how fast we're growing relative to other countries. So to be a currency, it has to perfect that property."

Daly's argument for the independence of cryptocurrencies highlights the fundamental distinction between them and gold. While gold has a long history as a store of value, prized for its scarcity and stability, cryptocurrencies exhibit far greater volatility than gold. Their value is largely influenced by market speculation and technological factors. Gold's value is more closely tied to global economic conditions and geopolitical stability, whereas cryptocurrency value is subject to the complex interplay of cybersecurity, regulatory policy, technological advancements, and market sentiment. Therefore, simply equating the two ignores fundamental differences in value composition, stability, and their relationship to the macroeconomy.

Despite this, Daly acknowledges that cryptocurrencies possess some gold-like attributes, such as serving as a store of value to some extent. However, this similarity isn't sufficient to classify them under the same asset category. Cryptocurrency value is often heavily influenced by market sentiment, leading to sharp price fluctuations, while gold's value is relatively stable with less volatility. This difference is crucial for distinguishing them in investment strategies and risk management.

Daly's perspective also provides a new lens for cryptocurrency regulation and future development. Globally, cryptocurrency regulation is still in its exploratory phase, with governments striving to find suitable regulatory frameworks that balance innovation and risk control. Daly's argument underscores the importance of independent assessment and classification of cryptocurrencies, which can help regulators formulate more precise strategies, better protect investor interests, and promote the healthy development of the cryptocurrency market.

While cryptocurrencies appear to have a long way to go before Congressional recognition as currency, this hasn't stopped the momentum behind bullish trades in various digital assets. Since the US presidential election, Bitcoin, the most popular cryptocurrency, has seen continuous price increases, surpassing $100,000 for the first time on December 4th. Bitcoin's price is up 38% since election day and 106% year-to-date. Furthermore, cryptocurrency-related stocks, such as Coinbase and Robinhood, have surged 45% and 204% year-to-date, respectively.

Mark Palmer, an analyst at investment bank Benchmark Company, analyzed this phenomenon, suggesting that increased US focus on cryptocurrencies, Bitcoin mining, and other related fields has brought significant change. "Just the fact that there's a focus on making the United States a leader in cryptocurrency, in Bitcoin mining, and in other areas that President Trump talked about, that's a huge change," Palmer said. "We're seeing more and more institutional adoption of Bitcoin, which is key." He predicts Bitcoin will reach $225,000 by the end of 2026.

Palmer's forecast, while optimistic, reflects market expectations for the future development of cryptocurrencies. More and more institutional investors are entering the cryptocurrency field, indicating that cryptocurrencies are gradually gaining wider acceptance. However, it's crucial to acknowledge that the cryptocurrency market remains highly risky and uncertain, and investors should proceed cautiously, avoiding blind chasing of price increases.

While Daly and Powell hold slightly differing views on cryptocurrencies, both emphasize the importance of a thorough understanding and accurate classification. Considering cryptocurrencies as a separate asset class, rather than simply equating them with gold, helps investors rationally assess their risks and returns, and aids regulators in formulating more effective policies. The future development of the cryptocurrency market remains uncertain, but its existence as an independent asset class is undeniable. Continued market monitoring and in-depth research are crucial for both investors and regulators. Sustained attention will also drive technological advancements and the creation of more robust regulatory frameworks. This will help reduce market volatility and increase investor confidence in cryptocurrencies, ultimately allowing them to better fulfill their potential as a new store of value and medium of exchange. However, overcoming numerous challenges including technological upgrades, regulatory improvements, and market education remains essential on the path to this goal.

In conclusion, the future trajectory of cryptocurrencies is both promising and challenging. Daly and Powell's perspectives offer valuable insights into understanding and evaluating this emerging asset class, guiding the future direction of the cryptocurrency market. Continuous monitoring and in-depth research will help us better grasp the market's pulse and make more informed investment decisions. It's also crucial to continually monitor regulatory policy changes to promptly address potential risks.