IMF says crypto can no longer exist in a vacuum

The International Monetary Fund (IMF) has issued a warning to governments across the world about a possible “contamination risk” due to the spillovers between crypto and equity markets.

The institution argued that the interconnectedness of these two classes has grown to the point where it could destabilize markets.

This conclusion was delivered by economists Adrian Tobias, Tara Iyer and Mahvash S. Qureshi on the IMF’s blog in which they shared their concerns about the future.

Because of this risk of “contamination”, the economists said that cryptocurrencies such as Bitcoin (BTC) could also no longer be seen as a hedge against inflation.

The correlation between crypto and FIAT market movements is not just limited to the US equities markets, warned the economists, who predicted that this new phenomenon would have an impact on developing economies as well.

This comes at a particularly trying time for many nations as they struggle with ways to best address the crypto industry.

The arrival of NFTs, stablecoins and decentralized finance has created new opportunities beyond private cryptocurrencies, it has also introduced a slew of problems, argued the economists.

However, the blog is also acknowledgement of the increasingly important role cryptocurrencies are going to play in day-to-day operations.

“Our analysis suggests that crypto assets are no longer on the fringe of the financial system”, wrote the economists.

Moving forward, they believe that all governments and regulators should create explicit rules on crypto and specifically how commercial banks are exposed to such products and assets.

The IMF reiterated its position from back when El Salvador introduced BTC as a public tender.

Crypto “could soon pose risks to financial stability especially in countries with widespread crypto adoption”, they said.

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Updated: 01/14/2022 — 02:00