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Cryptocurrencies are prone to volatility and volatility due to their nascent stage and relatively small user base. Since the birth of the world’s first cryptocurrency, Bitcoin (BTC), there has been very little time when the market has contained volatility. This continued unpredictability of digital assets remained a concern for regulators around the world.
Nobuyasu Sugimoto, Deputy Director of the IMF’s Financial Supervision and Regulation Division, and Bo Li, Deputy Managing Director, issued a warning in a recently published article. Crypto market volatility
It works well in traditional financial systems.
While this article highlights why the cryptocurrency industry is unpredictable, it also highlights the multiple events that have occurred in the field in the form of cryptocurrency projects such as the collapse of the Terra (LUNA) network and the bankruptcy filings of prominent cryptocurrency companies. Accident quoted. Such instances could affect both financial systems due to the links between them that have strengthened over time.
International Monetary Fund officials said in an article that the market needs regulation to avoid potential impacts on existing financial markets. It was also noted that investors in developed markets are becoming more attracted to newly developed asset classes after being attracted by investment returns.
As institutional investors increased their holdings of stablecoins as a result of higher returns in the previous low interest rate environment, the IMF blog post noted that developed economies are also vulnerable to financial stability threats from cryptocurrencies. says there is.
Although the IMF continues not to view cryptocurrencies and stablecoins as a significant threat to the global financial system, several countries are replacing their currencies with cryptocurrencies and stablecoins, and these funds global surveillance has become particularly difficult. This situation, in the words of Sugimoto and Lee, “could lead to capital outflows, loss of monetary sovereignty and threats to financial stability, and could create new problems for policymakers.”
Citizens have lost faith in fiat currencies and are turning to other alternatives such as dollar-pegged stablecoins in an economy that is simultaneously being blamed for high levels of inflation and currency depreciation.
To mitigate these risks, the authors of this blog post propose establishing international standards for organizations that provide services for virtual assets, requiring them to segregate their customers’ assets from their own. increase. Depending on the size of the project, stablecoin issuers may also be subject to strict regulation and may even be required to do so. Stablecoin volatility could affect the US Treasury market, according to past experts.
Nancy J. Allen is a cryptocurrency enthusiast and believes that cryptocurrencies will inspire people to be their own bank and move away from traditional currency exchange systems. She is also interested in blockchain technology and its capabilities.
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