The Federal Reserve is closely monitoring the extreme volatility seen in some cryptocurrencies, Governor Lael Brainard said recently.

Speaking at the Center for Global Economy and Business, Stern School of Business, New York University, New York, on April 03, Brainard noted the splurge in bitcoin price last year and underscored the issues relating to investor and consumer protection.

“One area that the Federal Reserve is monitoring is the extreme volatility evidenced by some cryptocurrencies. For instance, Bitcoin rose over 1,000 percent in 2017 and has fallen sharply in recent months. These markets may raise important investor and consumer protection issues, and some appear especially vulnerable to money-laundering (BSA/AML, or Bank Secrecy Act/anti-money laundering) concerns,” Brainard said.

She urged investors to understand the possible pitfalls of cryptocurrency-based investments and the potential for losses.

However, Brainard said that it remains uncertain at the moment as to how cryptocurrencies could post a threat to financial stability.

“[I]t is less clear how the valuations of cryptocurrencies currently could pose a threat to financial stability. For instance, it is hard to see evidence of substantial leverage used in the purchase of the cryptocurrencies, or a material degree of use in payments, although our assessment of these markets is limited by their opacity. Nonetheless, we will continue to study them,” she added.