The growing correlation between cryptocurrencies and exchanges in Asia is a matter of concern and requires additional regulatory action. This is stated in the report of the International Monetary Fund (IMF).

Economists noted that before the COVID-19 pandemic, there was a strong split between digital assets and the traditional market in general in Asia. According to the organization, the increased integration of cryptocurrencies into the larger financial system poses certain risks.

“Infection can spread through individual or institutional investors who own both cryptocurrency and traditional financial assets or liabilities,” the report says.

According to experts, massive losses in digital assets threaten to rebalance portfolios. This, in turn, will lead to volatility in the financial market or default on traditional liabilities.

The fund added that the price correlation between the performance of the region’s exchanges and crypto assets such as Bitcoin and Ethereum has increased. Economists cited India as an example, where the correlation between digital gold and stock market returns increased tenfold during the pandemic.

“The main drivers of the growing interconnectedness of cryptocurrency and traditional markets in Asia may be the increased acceptance of digital asset-related platforms and investment instruments in the equity and OTC markets, or […] The authors of the report said that cryptocurrencies are increasingly being adopted by retail and institutional investors.

They urged local authorities to “set clear guidelines for regulated financial institutions”. In their view, it is necessary to inform and protect retail investors while closely coordinating their efforts in different jurisdictions.

In early 2022, IMF economists warned of the risks of “contamination” of the stock and bitcoin markets.

Recall that in July, the organization concluded that large sell-offs in the cryptocurrency market had limited consequences for the wider financial system.

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