Crypto link with equity markets, according to the International Monetary Fund (IMF), will pose significant dangers to financial stability.
In a blog post titled ‘Crypto Prices Move More in Sync With Stocks, Posing New Risks,’ the IMF revealed this.
According to the analysis, before the pandemic, cryptoassets like Bitcoin and Ether had only a minor correlation with major stock indices. They were thought to aid risk diversification and serve as a buffer against asset class volatility.
This function, however, changed after the catastrophic central bank crisis responses of early 2020. As a result of easy global financial conditions and increasing investor risk appetite, both cryptocurrency and stock values have risen in the United States.
According to the Fund, the rising and significant movement and spillovers between crypto and equities markets show a growing connectivity between the two asset classes, which allows shocks to destabilize financial markets to be transmitted.
According to new IMF research, the correlation of crypto assets with traditional holdings like equities has risen considerably as adoption has surged, reducing their claimed risk diversification benefits and heightening the danger of financial market contagion.