Although cryptocurrencies took a back seat at the International Monetary Fund (IMF) meeting in Davos this year, the organization was keen to bring the issue to the attention of regulators.
Worthy “Cryptocurrency Contagion Underscores Why Global Regulators Must Act Quickly to Contain Risks”the text indicates that the bitcoin price is of concern.
Noting that the recent R$10 trillion drop in cryptocurrencies does not pose a risk to the global financial system, the IMF claims that emerging markets have already been affected by this decline.
Cryptocurrency volatility worries the IMF
Although Bitcoin was the fastest asset to reach the $1 trillion mark, not everyone celebrated the milestone. The International Monetary Fund, for example, is more concerned about the high volatility in this market, citing industry crashes.
“Bitcoin has skyrocketed in value, fueling gains during the pandemic, but since the end of 2021 it has lost nearly three-quarters of its value.”
After that, the organization signals the collapse of the sector. Although it doesn’t mention names, the text is a clear reference to projects like LUNA, Three Arrows Capital, and FTX, to name a few of the most well-known.
“In times of trouble, we have seen stablecoins, cryptocurrency-focused hedge funds, and cryptocurrency exchanges crash.”warns the International Monetary Fund. “This, in turn, raised serious concerns about market integrity and user protection.”
What’s the solution?
According to the International Monetary Fund, service providers must be “Licensed, Registered and Licensed”. Another recommendation for regulators is to increase the vigilance of entities that perform multiple functions ‘Subject to strict transparency requirements.’
Next, he also calls for treating stablecoin issuers like banks, as well as clear requirements for institutions exposed to cryptocurrencies, citing recent BIS guidance as a basis.
“Ultimately, we need robust, comprehensive, and globally consistent regulation and oversight of cryptocurrencies.”concludes the International Monetary Fund. “The cross-industry and cross-border nature of cryptocurrency limits the effectiveness of uncoordinated national approaches.”
Finally, the International Monetary Fund notes that cryptocurrencies do not yet pose a contagion risk to the global financial system. However, it does indicate that some emerging markets are already affected.
Although he does not name names, it is likely that they are referring to countries such as El Salvador. Today, the country has 2,381 BTC (258 million Brazilian reals) in cash, but this investment is in the red.
Right now, the International Monetary Fund is holding its annual meeting in Davos, but the cryptocurrency industry is not there as it was last year, mainly due to the crisis in this sector.