Cryptocurrencies like Bitcoin have matured from an ambiguous asset class with few users to an integral part of the digital asset revolution, raising concerns about financial stability.
Given the relatively high volatility and valuations, the IMF’s research shows that increased cryptocurrency movements can quickly pose a risk to financial stability, especially in countries where cryptocurrencies are widely adopted.
Therefore, it is time to adopt a comprehensive and coordinated global regulatory framework to guide national regulation and oversight and mitigate the financial stability risks posed by the crypto ecosystem.
Such frameworks need to include regulations tailored to the primary uses of crypto assets, and regulated financial institutions need to establish exposures to these assets and clear requirements related to their exposure. In addition, monitoring and understanding the rapid development of the crypto ecosystem and the risks associated with it requires rapid closing of the data gaps created by the anonymity of such assets and limited global standards, must be swiftly filled, IMF said.
The rise and significant concomitant movements and ripples between cryptocurrencies and stock markets indicate a growing relationship between the two asset classes that allows for the transmission of shocks that can destabilise financial markets.
Our analysis suggests that crypto assets are no longer around the financial system, IMF said.
The market value of these new assets, despite high volatility, increased from $620 billion in 2017 to nearly $3 trillion in November, driven by a surge in popularity among retail and institutional investors. Total market cap this week fell to around $2 trillion, a figure that’s still nearly quadrupled since 2017.
