“Crypto sales won’t affect financial markets” – Here’s why
In a report released on July 26 International monetary fund claimed that Bitcoin [BTC] the bear market has no significance for the stability of the world’s financial system.
The IMF report “World Economic Outlook Update: Gloomy and More Uncertain” also noted that the cryptocurrency market has seen a “dramatic” sale. But the much talked about sale has not damaged the financial system.
This relative calm exists despite recent failures such as the Three Arrows Capital fund and the TerraUSD stablecoin. However, the aforementioned failure led some regulators to want to take more control over the developing market.
After a tentative recovery in 2021, the economic outlook has turned gloomy and uncertain, with the likelihood of a global recession. The last #WEO explains the reason behind the downgrade of our growth forecasts. pic.twitter.com/PbpvScahsN
— IMF (@IMFNews) 26 July 2022
At press time, Bitcoin was trading at $21,285.80. The largest cryptocurrency, by market capitalization, was at a low of 70% all-time high. However, the condition of almost all other cryptocurrencies was also on the decline. Well, the 2022 sale has affected all tokens equally.
Bitcoin and digital currencies are considered risky
Investors are moving away from “risky” assets as a result of the uncertainty caused by the Russian invasion of Ukraine and supply chain problems. In this context, the IMF stated,
“Crypto assets have experienced a dramatic selloff that has led to heavy losses in crypto investment vehicles and caused failures in algorithmic stablecoins and crypto hedge funds, but spillovers to the broader financial system have been limited so far.”
The body’s remark about an “algorithmically stable coin” alluded to the collapse of Terra’s blockchain. Terra had a good reputation among cryptocurrency speculators before May. But when the stablecoin UST lost its peg to the dollar, billions of dollars of investment disappeared. This led to feelings of distrust in the market.
The need for regulations
By considering the events of the year 2o22, institutions by institutions have come out against stablecoins. Indeed, some organizations have stated that they are calling for stronger regulations.
International standard setters are also trying to define exactly how banks should start investing in the cryptocurrency markets.
A cap on Bitcoin holdings has been proposed by Basel committee for banking supervisionalong with a significant capital requirement that would limit banks’ capacity to provide loans based on cryptocurrency reserves.
