IMF Expresses Concern About the Growing Correlation Between Cryptocurrency and Financial Markets

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Key Takeaways:

  • IMF expresses concern about the growing correlation between cryptocurrency and financial markets.
  • According to the report, this might destabilise financial markets.
  • The number of younger individuals who invest in cryptocurrency is only expected to rise, which will irritate institutions like the IMF.
Imf Expresses Concern About The Growing Correlation Between Cryptocurrency And Financial Markets
IMF Expresses Concern About the Growing Correlation Between Cryptocurrency and Financial Markets

According to a new IMF analysis, the crypto market is becoming more correlated with stock markets. This tendency is described as a threat that could impact global financial markets.

The article has a solid anti-crypto stance, using terminology like “contagion” to describe the cryptocurrency asset class. “Crypto-assets are no longer on the outskirts of the financial system,” it claims. According to the report, the correlation with stock markets has risen dramatically, which “reduces their perceived risk diversification benefits and escalates the danger of contagion across financial markets.”

The International Monetary Fund (IMF) is not known for being friendly to cryptocurrency, having previously stated that it could threaten economic stability. In addition, it has made statements opposing El Salvador’s adoption of bitcoin as legal tender, claiming that it poses legal and macroeconomic risks.

Bitcoin and other crypto-assets have been tracking stock indices more closely in recent years. Since 2020, the market has exhibited similar ups and downs to other asset classes, leading some to think there is a significant spillover.

According to the IMF, this new correlation might destabilise financial markets, particularly in nations where crypto usage is widespread. However, proponents of cryptocurrencies would point out that many economies are already suffering financial difficulties due to poor financial and general governance. Despite increased correlation, they see crypto as a hedge against inflationary trends.

Bitcoin has plummeted below $50,000 and is now trading at just over $42,000, pausing the market. However, investors appear unconcerned, as the market has seen far worse times in the past. Nonetheless, 2022 will undoubtedly be a watershed year for cryptocurrency as more firms and institutions enter the market and new innovations emerge.

The epidemic is still wreaking havoc on the global economy as the Omicron variant spreads quickly. The International Monetary Fund (IMF) has predicted that banks will lose a lot of money during the next five years.

According to a CNBC survey from December 2021, 83% of millennial billionaires possess cryptocurrency, and nearly half of them are comfortable investing in the asset class. Furthermore, as younger generations become more involved in the financial markets, they are more likely to invest in popular crypto assets.

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Chetna Prakash