The increased correlation between stocks and cryptocurrencies poses risks to the financial stability of digital-asset-friendly countries. This conclusion is contained in the report of the IMF economists.
#Crypto and stocks are moving much more in sync and our latest research shows how this may be a risk to the stability of financial markets. See our latest #IMFblog for more. https://t.co/B5h2x4FPId pic.twitter.com/IvT6QwOe0e
— IMF (@IMFNews) January 11, 2022
Experts noted that the strengthening of the price consistency of the two asset classes has increased in the face of the coronavirus pandemic. Since its inception, more and more investors have begun to add cryptocurrencies to the portfolio because of their perception as a hedge against a fall in stocks, experts said.
“Increased correlation and spillovers between crypto and stock markets […] allow the transmission of shocks that could undermine financial stability. Our analysis showed that digital assets are no longer at the periphery of the financial system. “, – noted in the report.
Spillovers tend to increase during periods of volatility. For example, during market shocks in March 2020 or during sharp fluctuations in the cryptocurrency market in early 2021.
Experts estimate that the correlation between bitcoin and the S&P 500 index reached 0.36 in 2020-2021. In 2017–2019, the indicator did not exceed 0.01.
Analysts from Kaiko estimated the correlation between bitcoin and the S&P 500 index on average over the past 30 days at 0.61, between digital gold and the Nasdaq Composite index at 0.58. Values peaked since July 2020.
Bitcoin’s correlation with the S&P 500 and Nasdaq reached its highest level since July of 2020.
In our latest analysis, we explore the extent of the latest sell-off, #DEX trade volume, neutral funding rates, and much more.https://t.co/N76v4djPpz
— Kaiko (@KaikoData) January 10, 2022
Experts from the IMF stressed that there is a relationship between price movement and the stock markets of emerging economies. The correlation with the MSCI EM index for the 2020–2021 horizon was 0.34. The indicator increased 17 times compared to the previous reporting period.
The authors called for the creation of a global regulatory framework to mitigate such a threat.
They stressed that the document should include requirements for banks regarding their access and interaction with the new asset class. To monitor the rapid development of the crypto ecosystem and understand the associated risks, it is necessary to close the gaps in the anonymity of cryptocurrencies and the limitations of global standards.
As a reminder, in May 2021, DBS analysts found that the correlation between bitcoin and S&P 500 index futures increased after the price fluctuations of the first cryptocurrency increased.
In October, experts from MSCI warned of the growing influence of cryptocurrencies on the dynamics of securities portfolios.
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