The International Monetary Fund says countries with widespread crypto adoption stand a risk of financial instability due to the currencies’ high volatility and valuation, as well as their increasing co-movement with equity markets.
The IMF divulged this in a blog post titled, ‘Crypto Prices Move More in Sync With Stocks, Posing New Risks’, on Tuesday.’
Nigeria, according to the Chainalysis’ 2021 Global Crypto Adoption Index, is the sixth leading country in the world in terms of cryptocurrency adoption. Vietnam, India, and Pakistan are the top three countries.
IMF said that crypto assets were no longer on the sidelines of the financial system, adding that there was an increasing and sizable co-movement between crypto and equity markets that could cause shock, destabilizing financial markets.
It disclosed that the stronger association between crypto and equities was apparent in emerging market economies, most of which are leading in crypto-asset adoption.
The fund said, “The increased and sizable 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.
“Our analysis suggests that crypto assets are no longer on the fringe of the financial system. 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.”
Furthermore, the IMF said crypto-assets such as bitcoin have matured to become an integral part of the digital asset revolution, raising financial stability concerns.
