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Asia’s Growing Crypto Trade Needs Regulatory Frameworks: IMF

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Asia’s Growing Crypto Trade Needs Regulatory Frameworks: IMF

Asia's Growing Crypto Trade Needs Regulatory Frameworks: IMF

The IMF said that few regions in the world have embraced crypto assets like Asia.

New Delhi:

Digitization of the payment system can ease the transition to the eco-friendly mode of payment and also promote financial inclusion, but at the same time, crypto assets can pose risks to financial stability, said the Monetary Fund. international.

In a blog titled “Crypto is more in tune with Asian equities, highlighting the need for regulation,” the IMF said few parts of the world have embraced crypto assets like Asia – where major adopters include individual investors. and institutions from India to Vietnam and Thailand – which raises the important question of the extent of crypto integration into the region’s financial system.

“Before the pandemic, crypto seemed isolated from the financial system. Bitcoin and other assets showed little correlation with Asian stock markets, which helped dispel financial stability concerns,” the blog post said. by Nada Choueiri, Anne-Marie Gulde-Wolf and Tara Iyer. .

Crypto trading, however, soared during the pandemic as millions stayed home and received government assistance, while low interest rates and easy financing conditions also played a part. .

The total market value of global crypto assets has grown twenty-fold in just a year and a half to reach $3 trillion in December.

Subsequently, it plunged to less than $1 trillion in June as central bank interest rate hikes to rein in inflation ended easy access to cheap borrowing, he added.

“Significant crypto losses can lead these investors to rebalance their portfolios, possibly causing financial market volatility or even a default on traditional liabilities,” he said.

As Asian investors piled into crypto, the correlation between the region’s stock market performance and crypto assets such as Bitcoin and Ethereum, according to the blog, has increased.

“While returns and volatility correlations between Bitcoin and Asian stock markets were low before the pandemic, these have increased significantly since 2020.”

The blog said that the main drivers for the increased interconnectedness of crypto and equity markets in Asia could include the growing acceptance of crypto-related platforms and investment vehicles in the stock market, or more. generally the growing adoption of crypto by retail and institutional investors in Asia – many of them have positions in both the equity and crypto markets.

In addition, he raised concerns that a growing interconnectedness between the two asset classes allows the transmission of shocks that could impact financial markets.

“As a result, Asian authorities are increasingly sensitive to the growing risks posed by crypto as adoption continues to spread. They have therefore focused their attention on crypto regulation, and regulatory frameworks are in place. courses in several countries, including India, Vietnam and Thailand”.

In conclusion, he said that a major effort is needed to close the significant data gaps that still prevent national and international regulators from fully understanding the ownership and use of crypto and its intersection with the traditional financial sector. .

He recommended that regulations be designed in such a way as to establish clear guidelines on regulated financial institutions and seek to inform and protect retail investors, become fully effective and should be closely coordinated across jurisdictions.

(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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