A blog post by the International Monetary Fund (IMF) has expressed that the high volatility of cryptocurrencies, valuation, and the increasing co-movement with equity markets will cause risks to financial stability in nations that have adopted the digital currency.
In the blogpost titled ‘Crypto Prices Move More in Sync With Stocks, Posing New Risks’, the IMF stated that crypto assets were no longer in favour of the financial system, noting that the crypto market and equity market have exhibited increasing co-movements which could cause a bump in financial markets.
It further disclosed that both the crypto and equity market have a strong association which was apparent in emerging market economies, most of which are leading in crypto-asset adoption. According to the Chainalysis’ 2021 Global Crypto Adoption Index, Nigeria remains the sixth leading country in the world in terms of cryptocurrency adoption. Vietnam, India, and Pakistan are the top three countries.
The financial body stated that the analysis suggests that crypto assets are no longer on the fringe of the financial system. Given their relatively high volatility and valuations, their increased co-movement could soon pose risks to financial stability especially in countries with widespread crypto adoption.
According to the IMF, Bitcoin, a crypto-asset, has grown to become an integral part of the digital asset revolution, raising financial stability concerns.