Cryptocurrencies represent challenges and risks for world finance: the IMF reiterated this, while the debate on the rise of crypto assets – worth over $ 2 trillion – intensifies.
The boom in the cryptocurrency market poses new challenges to financial stability: this is how the International Monetary Fund expressed itself in its Global Financial Stability Report.
In a chapter entirely dedicated to crypto-assets, which are rapidly and significantly rising in 2021, experts have warned international regulators and investors about the potential risks that the unregulated sector still represents for the entire world system.
The 10-fold increase in the market value of crypto assets from the beginning of 2020 to today questions world finance on opportunities and threats related to virtual currencies.
The risks of cryptocurrencies, according to the IMF.
The International Monetary Fund dedicated a specific chapter to the cryptographic ecosystem in the Global Financial Stability Report updated in October.
The attention for the cryptocurrency market has highlighted how the sector is worthy of attention and is growing on the ground; however, still slippery, not without gaps and risks for the global financial balance.
IMF experts recognized that:
“The rapid growth of the crypto ecosystem presents new opportunities. Technological innovation is ushering in a new era that makes payments and other financial services cheaper, faster, more accessible and allows them to cross borders quickly.”
However, ignoring some unaddressed risks or challenges would be a mistake. The report, for example, noted that consumers must first and foremost be protected, considering that “more than 16,000 tokens have been listed on various exchanges, but about 9,000 exist today, while the rest have disappeared in some form.”
This may have happened because the trading volume has deflated and is no longer profitable. Or again due to the withdrawal of the developers from the project or because the tokens had a single speculative purpose or a link with fraudulent moves.
Furthermore, the IMF highlighted another unclear aspect:
“The (pseudo) anonymity of crypto assets also creates data gaps for regulators and can open unwanted doors to money laundering and terrorist financing … Furthermore, the crypto ecosystem falls under different regulatory frameworks in different countries. Making coordination more difficult.”
Digital currencies in developing countries
The sudden and rather widespread adoption of cryptocurrencies in some developing countries has also triggered the IMF’s alarm.
This latter phenomenon must be carefully monitored since it could support the dollarization or cryptography of national economies.
If citizens flock to digital currencies and substitute them for local currency, the ability of central banks to guide monetary policy can be severely curtailed. With the increase in crypto-assets, tax evasion and capital outflows could find a further boost, perhaps in already fragile countries.
How much is the cryptocurrency market worth
According to the IMF, the market value of crypto assets has increased ten times to over $ 2 trillion since the beginning of 2020.
Total market capitalization stood at $ 2.06 trillion on Friday, Oct.1, according to CoinMarketCap’s digital asset price tracking data.
The supply of stablecoins – cryptocurrencies that aim to fix their value, usually against the US dollar – has quadrupled, reaching a value of 120 billion dollars in 2021.
For this reason, considering these constantly rising numbers and the cryptographic market’s volatility, the IMF’s invitation is to national regulators, supervisors, and politicians to consider the sector, reducing vulnerability, opacity, and favoring common standard rules and controlled emissions by the central banks.