According to Outlook, the International Monetary Fund (IMF) has cautioned about the link between cryptocurrencies and financial markets, which presents risks to the financial systems.
The IMF in a report said that digital assets no longer represent the fringe of the financial system. There are emerging connections between customary holdings such as equities/stocks with crypto-assets which poses a significant danger with financial health owing to its high fluctuations. It appears to end the identified danger, magnify the advantages, and increase the risk of illness throughout financial markets. The issue is particularly acute in countries that have adopted digital units.
Bitcoin (BTC-USD) has evolved from a risky asset category to a critical component of digital asset innovation. This emergence appears to be raising worries about financial stability.
IMF reported that prior to the epidemic, cryptocurrencies like Bitcoin and Ethereum had little to no link with mainstream stock exchanges. Since the onset of the epidemic, crypto and stocks have moved in lockstep.
During the time, cryptocurrency has grown as a hedge against risks and volatility in other asset types. A dramatic drop in Bitcoin prices may increase investor risk aversion and may result in a decrease in equity market investment.
Senator Cynthia Lummis (R-WY), the most prominent proponent of bitcoin on Capitol Hill, is expected to introduce a crypto regulatory bill with the goal of integrating digital assets with mainstream financial systems under collective control of the CFTC and SEC. It will also aim towards classification of asset class and tax rules on cryptocurrencies which will protect consumers.
