As the price of Bitcoin (BTC) approaches $24,000 again, the crypto community has allowed itself some optimism. But this is not the case with the International Monetary Fund (IMF), which is sounding the alarm about the prices of cryptocurrencies.
Stablecoins: the main problem of the ecosystem in recent months
The IMF believes that there will be more volatility in the cryptocurrency market, despite the fact that Bitcoin and Ethereum are doing well now.
The IMF believes that bitcoin and ether will lose a lot of value after the last two cryptocurrency crashes. These crashes took place in May and June and caused Bitcoin and Ether to drop in value by more than 60% from their highs.
“We may see further crashes in both crypto assets and markets for risky assets such as equities,” Tobias Adrian, director of money and capital markets at the IMF, told YahooFinance.
According to the IMF, the Terra Project fiasco has caused other major platforms in the crypto ecosystem to plummet. The stablecoin Tron USDD, which lost parity, recently returned to one dollar. Regulators have been watching stablecoins very closely over the past few months and this type of cryptocurrency has fallen on hard times.
A stablecoin is a coin that is pegged to a real currency such as the dollar or the euro. They may also be linked to other assets such as gold. The asset to which the coin is pegged is called the base of the coin.
Some stablecoins are “backed by somewhat risky assets… The fact that some stablecoins are not fully backed by monetary assets is definitely a vulnerability,” Tobias Adrian says.
According to Tobias Adrian, the European Central Bank (ECB) and other institutions should start regulating cryptocurrencies. He says that as the market anticipates these new changes, it is important that cryptocurrencies are regulated by other institutions.
Regulation to prevent spread to other finances
According to Tobias Adrian, some stablecoins are fully cash-backed and are less likely to go bankrupt. He did not say which coins are fully backed by cashback, but expressed concern about other stablecoins.
During the last financial crisis, banks were not exposed to hidden assets through cryptocurrencies as they were during the 2008 financial crisis. Banks are no longer subject to the same exposure to cryptocurrencies. Cryptocurrencies that are currently going bankrupt have little to no impact on traditional finance, says Tobias Adrian and the IMF, who made this comment.
Tether and USD Coin are the two largest stablecoins in the cryptocurrency market. They have minimal impact on traditional markets but make up a significant portion of the crypto market. The coins are known as stablecoins and help keep the market stable.
The IMF says we need to continue to regulate the cryptocurrency market more because it is too big to manage on a case-by-case basis. The IMF has noticed that the world of cryptocurrencies is not sufficiently connected to the world of finance, so there is no chance that they will contact and cause bankruptcies to spread to the world of traditional finance.
“Regulate [cryptomonnaies] would be difficult on their own, but regulation of hotspots such as exchanges and wallet providers […], it’s something very specific and very doable. »