The IMF warns falls and rises can infect stocks, cause greater volatility and affect the financial system.
The International Monetary Fund (IMF) finally recognizes that cryptocurrencies can generate a domino effect in the markets: their falls and rises can infect stocks, cause greater volatility and even, destabilize the financial system.
Tobias Adrian, Tara Iyer and Mahvash S. Qureshi, economists at the International Monetary Fund, highlight “the correlation of cryptocurrencies with other traditional assets such as stocks has increased significantly, limiting its use as a ‘diversifier’ and increasing the risk of contagion in financial markets.
They acknowledge that the beginning of this correlation between stocks and crypto has its origin in “the extraordinary responses to the crisis of central banks in early 2020. The prices of cryptocurrencies and American stocks rose amid expansive global financial conditions and a greater risk appetite of investors.
The fall of large cryptocurrencies such as bitcoin or ethereum they can trigger a domino effect.
“The higher correlation between cryptocurrencies and stocks increases the possibility that investor sentiment will rub off between those asset classes,” they add.
