The IMF recommends that digital currencies not be considered as a risk prevention channel

The IMF recommends that digital currencies not be considered as a risk prevention channel.

The IMF expert said that the synchronized movement of cryptocurrencies and securities “could soon pose many risks to financial stability, especially in countries with widespread adoption of digital currencies”.

In a recent report, the International Monetary Fund (IMF) recommends that digital currencies should not be viewed as a hedge against market volatility as this currency is currently moving in line with the stock market, increasing the risk of spreading in financial markets.

Before the pandemic, digital currencies, including Bitcoin and Ethereum, had almost no correlation with the stock market, but liquidity was high due to the response of banks, economists said. Central banks with the pandemic and increased risk tolerance among investors caused cryptocurrencies and share prices to rise.

This improved connection has prevented Bitcoin from serving as a hedge in times of market volatility, as advocates of the digital currency have long touted. Instead, the coin is now a risky asset.

Experts cite analyzes that show that the spillover effect between cryptocurrencies and stocks tends to increase in volatile phases in the financial markets, such as in March 2020, or in volatile phases in the Bitcoin price from the beginning of 2021.

IMF experts said the synchronized movements of cryptocurrencies and securities “could soon pose many risks to financial stability, especially in countries with widespread adoption of digital currencies”.

The experts therefore call for the development of a “comprehensive and globally coordinated regulatory framework in order to direct regulation and monitoring at the national level and to reduce risks to financial stability from the ecosystem of digital currencies”.