Impact Of Bitcoin & Crypto Market On Capital Markets - Analysis.

Impact Of Bitcoin & Crypto Market On Capital Markets - Analysis.

2022-01-13 | Daniel Smith

Impact Of Bitcoin & Crypto Market On Capital Markets - Analysis.

For more than a decade, Bitcoin as well as various cryptos were seen as hedges to other forms of assets, including equities. However, post-COVID, the values of cryptocurrencies are gradually tracking those of stocks as more consumers diversify their portfolios with risk assets.

According to three experts from the International Monetary Fund (IMF), the United Nations (UN), and the World Bank, this might be a hint of problems coming. The institution is well-known for making contractual loans to member nations.

As a result, the trio advocates for a worldwide regulatory framework to address financial security issues.

According to the latest research by cryptocurrency asset tracking firm Kaiko, the correlation coefficient among the price of Bitcoin as well as the S&P 500 stock index is 0.61. BTC as well as the Nasdaq have a 0.58 correlation.

The experts of the IMF highlight that the association does not just apply to US equity markets, but also to developing countries. It calculates a 17x increase in the 2020-21 correlation among bitcoin as well as the MSCI rising markets index.

However, unlike equities markets, which are typically governed by their host nations, numerous nations are even now deciding how to come to terms with cryptocurrencies. Whilst the Securities and Exchange Commission oversees stock markets in the United States, the variety of cryptocurrency assets and platforms—for illustration, NFTs, DeFi governance tokens, as well as stablecoins all, have distinct utilities—leaves the industry lacking a singular regulatory agency. It's similar to a sloppy NBA defense attempting to use zone coverage; it's occasionally uncertain who's meant to be covering whom.

Tobias and colleagues recognize that cryptos are rapidly acquiring traction, noting, "Our data implies that digital currencies are no more on the outside of the financial sector." Though they avoid being overly dogmatic in their essay, they believe that any regulatory structure should contain rules for banks on their access to crypto—as well as how banks might engage with this kind of assets.

If not, the rising link involving cryptocurrency as well as equities "may soon create dangers to financial stability, particularly in nations with substantial cryptocurrency acceptance," they caution.

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