HomeBUSINESSCrypto currencies’ volatility poses financial stability risks for Nigeria, others – IMF

Crypto currencies’ volatility poses financial stability risks for Nigeria, others – IMF

The International Monetary Fund says crypto currencies’ high volatility and valuation, as well as their increasing co-movement with equity markets, will soon pose risks to financial stability in countries with widespread crypto adoption.

The IMF disclosed this in a blog post titled, ‘Crypto Prices Move More in Sync with Stocks, Posing New Risks’, on Tuesday.’

According to the Chainalysis’ 2021 Global Crypto Adoption Index, Nigeria is the sixth leading country in the world in terms of cryptocurrency adoption. Vietnam, India, and Pakistan are the top three countries.

IMF said in the latest post that crypto assets were no longer on the sidelines of the financial system, adding that there was an increasing and sizable co-movement between crypto and equity markets that could cause shock, destabilising financial markets.

It disclosed that the stronger association between crypto and equities was apparent in emerging market economies, most of which are leading in crypto-asset adoption.

The fund said, the increased and sizable co-movement and spillovers between crypto and equity markets indicate a growing interconnectedness between the two asset classes that permits the transmission of shocks that can destabilise financial markets.

According to the IMF, crypto-assets such as bitcoin have matured to become an integral part of the digital asset revolution, raising financial stability concerns.

The Washington-based lender said, Before the pandemic, crypto-assets such as bitcoin and ether showed little correlation with major stock indices. They were thought to help diversify risk and act as a hedge against swings in other asset classes.

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