Crypto Is Moving More Toward Asia’s Equities, IMF Suggests Regulation

• Relationship between the Asian equity market and cryptos has increased, as per IMF.
• IMF suggests regulatory frameworks to protect the investors.

According to a recent blog post from the International Monetary Fund (IMF), the interconnection between the Asian equity market and cryptocurrencies has nearly tenfold increased since the Covid-19 pandemic. The IMF expressed that Asia has adopted crypto assets more than any other region, with top adopters including individual and institutional investors from India to Vietnam and Thailand.

Blog post discloses: 

While the returns and volatility correlations between Bitcoin and Asian equity markets were low before the pandemic, these have increased significantly since 2020. Crypto trading, however, soared as millions stayed home and received government aid, while low-interest rates and easy financing conditions also played a role.

Is There a Need for Regulation?

The performance of the Asian equities markets and cryptocurrencies like Bitcoin and Ethereum have become more closely correlated as a result of the climb of Asian investors into crypto, as per the blog post. 

According to the blog, growing stock market acceptance of cryptocurrency-related platforms and investment vehicles, or more broadly growing crypto adoption by retail and institutional investors in Asia, could be the main factors driving the increased interconnectedness of the cryptocurrency and equity markets in the region.

However, the two asset classes are becoming more intertwined, allowing shocks that could affect financial markets to be transmitted. As a result, with crypto usage growing, authorities in Asia are becoming more aware of the rising hazards it poses. Subsequently, they have intensified their focus on cryptocurrency regulation, as per the blog. 

Additionally, substantial effort is required to close critical data gaps that still prohibit local and international regulators from fully comprehending the ownership and use of cryptocurrencies and their confluence with the conventional financial sector. It also advised regulations be written so they clearly define the rules for regulated financial institutions, work to educate and safeguard retail investors, become fully effective, and need close coordination across jurisdictions.

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