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According to the International Monetary Fund, the value of Bitcoin and other cryptocurrencies is moving more and more in tandem with fluctuations in the stock market and therefore constitutes poor hedge for investment portfolios.

The IMF unveiled its research in a blog on Tuesday, reiterating last month’s calls for global regulatory action. Without action, massive swings in both asset classes could exaggerate financial instability, he warned.

“The correlation of crypto assets with traditional holdings like stocks has increased dramatically, limiting their perceived risk diversification benefits and increasing the risk of contagion in financial markets,” wrote Tobias Adrian and Mahvash Qureshi, two senior managers of the Fund’s capital markets. departments. Tara Iyer, an economist specializing in global financial stability, also contributed to the research.

The research is a blow to crypto proponents, who have described Bitcoin as an alternative to gold to protect against market volatility.

Cryptocurrency could have served this purpose before the pandemic struck. But Bitcoin has “moved more in tandem” with stock indexes, such as the S&P 500, since central banks launched massive asset purchase programs to protect their economies from the pandemic, the IMF noted.

The trend is “also apparent in emerging market economies,” where cryptocurrency adoption is much stronger, the bloggers wrote.

This growing connection between the two assets gives even more reason to develop a global framework to regulate and supervise crypto assets in order to avoid financial instability.

“Clear requirements” are especially necessary for financial companies that hold crypto assets, staff said.

The Basel Committee for Banking Supervision has already proposed slapping banks with strict capital buffers for cryptocurrencies – standards that the European Commission has said it will consider implementing.

The anonymous nature of crypto assets also needs to be addressed, IMF members said.


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