Crypto traders in Asia may not be most pleased to read this report

Asia became a hotbed of cryptocurrency adoption following the 2020 COVID-19 pandemic.

In his last reportThe International Monetary Fund (IMF) found that the general cryptocurrency market and the Asian stock market now share a strong correlation that did not exist before the pandemic.

A post-COVID crypto world?

Before the pandemic hit, the IMF found that concerns related to financial instability in Asia were minimal as the cryptocurrency market “seemed isolated from the financial system.”

But when COVID-19 hit, Asia saw significant cryptocurrency trading as many stayed home and received government aid.

Interest rates around the world were also lowered, which meant that people could access credit facilities.

All of these drove the value of the total cryptocurrency market up 20 times to $3 trillion in less than two years.

In addition, the IMF found that the pervasive impact of the pandemic in Asia led to a growing acceptance of crypto-related platforms and investment vehicles.

Furthermore, the rate of use of cryptocurrency by private and institutional investors in Asia who already had positions in the stock and crypto markets before the pandemic grew significantly.

Asia, whose overall impact in the crypto world went unnoticed before COVID, has now become a force to be reckoned with.

The reason for this is that the cryptocurrency trading volume coming from the region became a major source of the global increase in recent years.

Source: International Monetary Fund (IMF)

Here lies the connection

According to the IMF, Asian investors increased their presence in the cryptocurrency market during the pandemic, the region’s stock markets and cryptocurrencies, including Bitcoin [BTC] and Ethereum [ETH]developed a stronger correlation in their performance.

In this regard, the UN agency noted,

“Although the returns and volatility correlations between Bitcoin and Asian stock markets were low before the pandemic, these have increased significantly since 2020.”

Source: International Monetary Fund (IMF)

Furthermore, the IMF found that the correlation between expected returns on Bitcoin investments and Indian stock markets “has increased by 10 times in relation to the pandemic.”

Well, this can be attributed to the limited risk diversification benefits of cryptocurrencies.

The IMF also stated that the volatility correlations between Bitcoin investments and the Indian stock markets have grown by three times their initial position.

According to the report, this could mean “possible contagion of risk sentiment among the crypto and equity markets.”

This is not limited to just India. The volatility effects for crypto stocks also exist in Vietnam and Thailand, showing the increasing correlation between both asset classes.

Source: International Monetary Fund (IMF)

War on crypto

It is to be noted here that the Indian government has taken a rather tough approach to taxing cryptocurrency activities in the country.

In March, the Indian Parliament passed a controversial bill that imposed a 30% capital gains tax on cryptocurrency transactions in the country.

Since July, a 1% withholding tax (TDS) has been levied on every cryptocurrency transaction in the country.

According to data from Nomics, cryptocurrency trading volume on Indian exchanges such as WazirX has since declined.

Source: Nomics