Tobias Adrian stated there might be further sell-offs in crypto markets and flaws in some digital asset offerings. The IMF recently said a dramatic sell-off had led crypto assets to suffer huge losses and algorithmic stablecoins to fail.
The International Monetary Fund (IMF) recently said that crypto markets might experience growing selling pressure and more flaws in cryptocurrency offerings.
Tobias Adrian, director of Monetary Markets of the IMF, stated that there might be more sell-offs in both crypto asset and risky asset markets. He added that there might be more flaws in some digital asset offerings, particularly in some algorithmic stablecoins.
Likewise, Adrian expressed that the price of cryptocurrencies would drop even more in the case of a recession.
The economist thinks that more fiat-backed stablecoins might experience a collapse. In May, the crash of TerraUSD (UST), an algorithmic stablecoin, triggered a bearish crypto market.
Referring to Tether (USDT), Adrian explained there was some vulnerability since stablecoins are not one-to-one backed. Furthermore, he said that somewhat risky assets back some fiat-backed stablecoins, highlighting that cash does not fully support some leading stablecoins.
Unlike the 2008 financial crisis, losses have not spread to the traditional financial system, although crypto markets have crashed.
The growth of digital assets might pose a threat to the traditional market, according to the European Systemic Risk Board (ESRB). The IMF called for more regulation on cryptocurrencies, like in January when it warned El Salvador to remove BTC as legal tender.
The IMF Says Cryptocurrencies Do Not Affect the Traditional Financial System
Tobias Adrian recently expressed that he is less concerned about a new shadow-banking incident. He said the assets hidden off the balance sheet collapsed and exposed the banking system to billions in losses and liquidity problems in 2008.
Adrian explained that financial institutions suffered much exposure to shadow banks in the 2008 crisis. However, he stresses that this exposure now occurs through crypto assets.
The IMF singled out crypto assets in its latest global economic outlook report. They said a dramatic sell-off had led crypto assets to suffer huge losses and algorithmic stablecoins and cryptocurrency hedge funds to fail. However, they pointed out that the effects on the traditional financial system have been insignificant.
The IMF lowered its expectations for global economic growth this year due to growing inflation and continuous increases in interest rates.
However, Adrian considers that more regulations are necessary to protect investors and the financial system. Therefore, there should be a global regulatory approach to avoid cross-border regulatory arbitrage.
Tobias Adrian noted that there are 40,000 digital currencies in the market, which makes regulating them difficult. However, he believes controlling entry points like exchanges and wallet providers is concrete and doable.
Meanwhile, Bitcoin (BTC) is trading at around USD 23,030 and accumulated an 8.1% gain over the last 24 hours. Its daily trading volume is above USD 58.72 billion, while its market capitalization is about USD 440.06 billion, according to CoinGecko.
By Alexander Salazar
