Why IMF Thinks Crypto Market Could See ‘Further Selloff’
The crypto market is trading in the green with Bitcoin and Ethereum pushing past critical resistance levels. The No. 1 and No. 2 cryptocurrency by market capitalization are registering gains of 10% and 15% in the last day and seem poised for more gains in today’s trading session.
Related Reading | Bitcoin Surges Surprisingly As Fed Reveals 0.75 Basis Rate Bump
For more clarity on direction, Bitcoin needs to close the daily candle above $23,000 and Ethereum above $1,700. Data from Material Indicators registers a sell-side thing order book if BTC’s price could push above current levels with high probabilities of reaching $28,000 in the near term.
If this rally can push past $25k, $28ki comes into focus very quickly. If you are long, don’t forget to take profits along the way.
When the bear wakes up from hibernation, he’s going to be hungry. pic.twitter.com/YGe4Swu3wT
— Material Indicators (@MI_Algos) 28 July 2022
In the longer time frames, macroeconomic conditions will remain an obstacle to any sustainable rally. In that sense, Tobian Adrian, director of money and capital markets for the International Monetary Fund (IMF), predicted more losses in the nascent asset class.
In an interview with Yahoo Finance, Adrian talked about the risk of the crypto market and the risk of assets, such as stocks. When it comes to digital assets, Adrian believes that the collapse of a stablecoin could provide another leg down. The IMF official said:
There may be further errors in some of the coin offerings – particularly some of the algorithmic stablecoins that have been hardest hit, and there are others that may fail.
The IMF official was referring to the collapse of the Terra (LUNA) ecosystem. This event led to the downfall of Three Arrows Capital, Celsius and other companies in the crypto industry. Thus contributing to the crash in the price of Bitcoin and other cryptocurrencies.
Adrian claims that digital assets could face another similar event, but does not name a specific project the size of Terra that could trigger it. The IMF official believes that stablecoins could increase selling pressure in the nascent industry due to the alleged security vulnerabilities:
There is some vulnerability there, because they are not supported one to one. [Some fiat-backed stablecoins] are backed by somewhat risky assets…it is certainly a vulnerability that some of the stablecoins are not fully backed by cash-like assets.
Will the crypto market collapse if there is a recession in 2008?
In addition to the alleged risk of stablecoins, the IMF official talked about the potential risk of economic recession. The US recently reported its second consecutive quarter of negative GDP, which would technically be an economic recession.
However, Adrian ruled out that the global market would see something similar in 2008. At the time, the financial sector was prone to “shadow banking”, for assets hidden from banks’ balance sheets that collapse and exacerbated the financial crisis.
Cryptocurrencies may face a major hurdle from international regulators. The IMF official claimed that these entities should enforce securities laws to the 40,000 he claims made up the sector. He added:
Regulating the coins themselves is going to be difficult, but regulating the entry points like exchanges and wallet providers to invest in these coins, that’s something very concrete and very doable.
The US Securities and Exchange Commission (SEC) appears to be following this approach. The commission has entered legal battles with major players in the sector, including payment solutions company Ripple and crypto exchange Coinbase.
SEC Chairman Gary Gensler has already stated that he is willing to recognize that only Bitcoin is outside their jurisdiction. If the commission becomes more aggressive, the crypto market could suffer as crypto projects struggle to meet regulatory requirements.
Related Reading | Bitcoin Bounces Off Consolidation Area, What’s Next?
This is probably one of the biggest obstacles for the emerging asset class in the coming months along with macroeconomic conditions. In that sense, the IMF official may be spot on, but cryptocurrencies have been subject to regulatory hostilities since their inception.
