Digitalization of the payment system can aid in the transition to the environmentally-conscious method of payments and also foster financial inclusion but at the same time crypto assets can pose risks to financial stability, the International Monetary Fund said.
In a blog titled 'Crypto is More in Step With Asia's Equities, Highlighting Need for Regulation' said, the IMF said that few parts of the world have embraced crypto assets like Asia -- where top adopters include individual and institutional investors from India to Vietnam and Thailand - which raises the important issue of the extent of integration of crypto into the financial system in the region.
"Before the pandemic, crypto seemed insulated from the financial system. Bitcoin and other assets showed little correlation with Asian equity markets, which helped diffuse financial stability concerns," the blog authored by Nada Choueiri, Anne-Marie Gulde-Wolf and Tara Iyer said.
Crypto trading, however, soared during the pandemic as millions stayed home and received government aid, while low-interest rates and easy financing conditions also played a role.
The total market value of the world's crypto assets surged twenty-fold in just a year and a half to USD 3 trillion in December.
Subsequently, it plunged to less than USD 1 trillion in June as central bank interest rate increases to contain inflation ended easy access to cheap borrowing, it added.
"Large losses on crypto may drive these investors to rebalance their portfolios, possibly causing financial-market volatility or even default on traditional liabilities," it said.
As Asian investors piled into crypto, the correlation between the performance
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