Why IMF thinks cryptocurrencies could destabilise financial markets

cnbctv18.com:

Cryptocurrency assets are no longer obscure digital investments, and the International Monetary Fund is worried they now have the potential to destabilise the financial markets. In a blog post on January 11, IMF pointed out that cryptocurrency prices are now moving in tandem with the stock market, and they cannot be considered as a hedge for investment portfolios.

Tobias Adrian and Mahvash Qureshi in IMF's Monetary and Capital Markets Department, and Iyer, who works in the Monetary and Financial Markets Department, wrote in a blog post, "The increased and sizeable co-movement and spillovers between crypto and equity markets indicate a growing interconnectedness between the two asset classes that permits the transmission of shocks that can destabilize financial markets."Among the key concerns that IMF has highlighted is that these assets are widely being traded by individuals and institutions who "lack strong operational, governance, and risk practices". There is "inadequate disclosure and oversight" in the crypto space and this could be dangerous for customers, the IMF pointed out.The trio of economists is calling for a comprehensive global regulatory framework to combat any potential instabilities that can be caused by the now $2 trillion industry that is growing day by day.