While Asian regulators target the industry, India, Vietnam and Thailand have adopted crypto assets the most in the region. Cryptocurrency trading soared during the pandemic, as millions of people had to stay at home while receiving government aid.
According to a survey by the International Monetary Fund (IMF), the COVID-19 pandemic may have contributed to increasing crypto asset adoption.
The capitalization of the overall crypto market grew 20 times to USD 3 trillion for one and a half years until December 2021. The IMF explains it dropped below USD 1 trillion in June 2022 due to higher interest rates, complicating access to cheap loans.
Asia had one of the highest levels of increase in the trading volume of cryptocurrencies and traditional stocks during the pandemic. Individual and institutional investors from India, Vietnam and Thailand are among the primary adopters, highlighting the relevance of cryptocurrencies on that continent.
That has affected the economy of various nations, which have not yet recovered their levels before the COVID-19 pandemic. That situation worsened with the Russia-Ukraine war, which seems far from over, making world recovery increasingly challenging.
The Interest in Crypto Assets Increases after the COVID-19 Pandemic
According to the IMF, cryptocurrencies seemed isolated from the financial system before the pandemic. At the time, Bitcoin and other crypto assets had little correlation with Asian stock markets.
However, cryptocurrency trading soared as millions of people had to stay home while receiving government aid. Meanwhile, low-interest rates and easy financing terms also rose, helping crypto asset adoption increase.
The IMF warns that investors may stir up hatred against cryptocurrencies after significant losses, causing further volatility in the stock market.
Asian investors hoarded cryptocurrencies, increasing the correlations between the return and volatility of stock markets and assets like Bitcoin (BTC) and Ether (ETH). Although those connections were low before the COVID-19 pandemic, they have increased since 2020.
For example, the return correlations between BTC and the Indian stock market increased ten times, suggesting limited risk diversification benefits of cryptocurrencies. Volatility correlations grew three times, indicating potential repercussions from risk sentiment across crypto and equity markets.
The Growth of Exchanges Contributes to Cryptocurrency Adoption in Asia
The IMF reported that the growth of exchanges and trading platforms has contributed to crypto asset adoption by Asian institutional and retail investors. Many entities hold positions in the stock and cryptocurrency markets, which shows the increasing interconnection between the asset classes.
While India, Vietnam and Thailand have adopted cryptocurrencies the most, China, the second-largest economy, is not on the list. The latter banned the mining and trading of those decentralized assets, as the government could not control them. The Asian nation has a digital yuan (e-CNY), a CDBC the authorities can control 100%.
The boom of cryptocurrency adoption raises concern among Asian authorities, which focus on regulating those assets. India, Vietnam and Thailand have already advanced legalization and created regulatory mechanisms to protect the market.
By Alexander Salazar
