Also, in addition to the greater popularity and adoption of crypto assets, The IMF stressed that the correlation of these with traditional investments such as equities increased significantly, limiting the perceived benefits of risk diversification and increasing the risk of contagion in financial markets.
In this sense, the institution pointed out that this increase in the correlation between stocks and cryptos increases the possibility of contagion between the different asset classes, as suggested by the substantial rise in the indirect effects of prices and the volatility of bitcoin on the stock markets. , and vice versa, between 2020-21 compared to 2017-19.
The greater and considerable joint movement and the indirect effects between crypto markets and exchanges indicate a growing interconnection between the two asset classes that allows the transmission of ‘shocks’ with the capacity to destabilize financial markets.
“Our analysis suggests that crypto assets are no longer on the fringes of the financial system“, said Tobias Adrian, chief financial advisor and director of the Monetary and Capital Markets Department of the institution. The article was published on the official blog of the Monetary Fund, entitled:” Crypto Prices Move More in Sync With Stocks, Posing New Risks “(Cryptocurrency prices move more in sync with stocks, posing new risks.”)
In this way, the IMF considered that it is time to adopt a global regulatory framework “comprehensive and coordinated” to guide national regulation and supervision and mitigate risks to financial stability arising from the crypto market. In this sense, he proposed that such a framework should encompass regulations adapted to the main uses and establish clear requirements for regulated financial institutions regarding their exposure and commitment to these assets.
“Cryptoassets like bitcoin have gone from being a dark asset class with few users to an integral part of the digital asset revolution,” said Tobias Adrian.
Along these lines, the study points out that “the strongest correlations suggest that bitcoin has been acting as a risk asset” and not as a safe haven, as many of its advocates as a portfolio diversifier have been pointing out for some time.
On this same point, the IMF goes further and concludes that “its correlation with stocks has become higher than that of stocks and other assets such as gold, investment grade bonds and major currencies “. A series of factors that “point to limited risk diversification benefits in contrast to what was initially perceived,” according to the institution.
Source From: Ambito
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