IMF: Bitcoin matured to ‘an integral part of digital asset revolution’

Crypto
is
no
longer
an
obscure
asset
class
within
the
financial
ecosystem,
but
a
growing
correlation
with
the
stock
market
undercuts
the
“investment
hedge”
role
of
Bitcoin
(BTC)
and
other
cryptocurrencies,
according
to
a new
International
Monetary
Fund
(IMF) research.

A
blog
post
accompanying
the
survey

highlights

new
risks
associated
with
the
growing
interconnectedness
between
digital
assets
and
financial
markets.
Penned
by
IMF
Monetary
and
Capital
Markets
Department
director
Tobias
Adrian
and
economist
Tara
Iyer
as
well
as
research
deputy
division
chief
Mahvash
Qureshi,
the
article
claims
that
the
increasing
correlation
between
crypto
assets
and
stocks
“limits
their
perceived
risk
diversification
benefits
and
raises
the
risk
of
contagion
across
financial
markets.”

“Crypto
assets
such
as
Bitcoin
have
matured
from
an
obscure
asset
class
with
few
users
to
an
integral
part
of
the
digital
asset
revolution,”
the
article
reads,
adding
that
this
transition
comes
along
with
financial
stability
concerns.

Noting
that
BTC
and
Ether
(ETH)
rarely
correlated
with
major
stock
indexes
before
the
pandemic,
the
authors
agreed
that
crypto
assets
helped
diversify
risk
for
investors
by
acting
as
a
hedge
against
swings
in
other
asset
classes.
“But
this
changed
after
the
extraordinary
central
bank
crisis
responses
of
early
2020,”
the
authors
wrote,
adding
that
crypto
and
stocks
surged
hand
in
hand
as
investors’
risk
appetite
grew.


60-day
correlation
coefficient
between
Bitcoin
and
S&P
500
index.
Source:
IMF

The
correlation
coefficient
between
BTC
and
the
S&P
500
has
jumped
3,600%,
going
from
0.01
to
0.36
after
April
2020.
This
means
that
the
two
asset
classes
have
been
more
closely
rising
and
falling
together
since
the
coronavirus
pandemic
began.



Related:




What
should
the
crypto
industry
expect
from
regulators
in
2022?
Experts
answer,
Part
1

With
stronger
correlation
comes
greater
risks
for
Bitcoin,
according
to
IMF
experts.
The
growing
interconnectedness
between
crypto
and
equity
markets
would
permit
the
transmission
of
shocks
that
can
destabilize
financial
markets.
Noting
that
crypto
assets
are
no
longer
on
the
fringe
of
the
financial
system,
the
authors
summarized:

“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.”

The
experts
further
called
for
a
coordinated
global
regulatory
framework
“to
guide
national
regulation
and
supervision
and
mitigate
the
financial
stability
risks
stemming
from
the
crypto
ecosystem.”

Last
month,
IMF
chief
economist
Gita
Gopinath
made
a
similar

call
for
a
global
policy

regarding
crypto.
She
argued
that
if
countries
were
to
ban
crypto,
then
they
would
not
have
any
control
over
offshore
exchanges
that
are
not
subject
to
their
country’s
regulations.

read original article here