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The increased correlation between the cryptocurrency and stock markets in Asia is a cause for concern and requires additional regulatory measures. This is stated in the report of the International Monetary Fund (IMF).
Economists noted that before the COVID-19 pandemic in Asia, there was a strong division between digital assets and the traditional market as a whole. According to the organization, the growing integration of cryptocurrencies into the larger financial system creates certain risks.
“The contagion can spread through individual or institutional investors who own both cryptocurrency and traditional financial assets or liabilities,” the report said.
According to experts, large losses in digital assets threaten to rebalance portfolios. This, in turn, will lead to volatility in the financial market or default on traditional obligations.
Data: IMF report.
The fund added that the price relationship between the indicators of the stock markets of the region and crypto assets like Bitcoin and Ethereum has increased. As an example, economists cited India, where the correlation between the profitability of digital gold and stock markets has grown tenfold during the pandemic.
Data: IMF report.
“Key factors in strengthening the interconnectedness of the cryptocurrency and traditional markets in Asia may be the growing recognition of digital asset-related platforms and investment instruments in the stock and OTC markets, or […] the growing adoption of cryptocurrencies by retail and institutional investors,” the report’s authors said.
They called on local authorities to “establish clear guidelines for regulated financial institutions,” inform and protect retail investors, and closely coordinate their efforts across jurisdictions.
In early 2022, IMF economists warned of the risks of “contagion” of the stock and bitcoin markets.
Recall that in July, the organization came to the conclusion that massive sales in the cryptocurrency market led to limited consequences for the broad financial system.
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