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IMF Observes Significant Rise in Correlations Between Asian Equity Markets and Bitcoin

IMF officials claim that there is now a considerable correlation between the performance of the Asian equities markets and digital currencies like bitcoin and ethereum.

In a blog article about crypto regulation and how it is now “more in step with Asia’s equities,” the International Monetary Fund (IMF) mentioned.

The post was written by Tara Iyer, an economist in the Monetary and Financial Markets Department’s global financial stability analysis division, Anne-Marie Gulde-Wolf, the IMF’s deputy director for Asia and the Pacific, and Nada Choueiri, the mission commander for India.

“While the returns and volatility correlations between bitcoin and Asian equity markets were low before the pandemic, these have increased significantly since 2020. Crypto trading, however, soared as millions stayed home and received government aid, while low interest rates and easy financing conditions also played a role.”

They further added: “As Asian investors piled into crypto, the correlation between the performance of the region’s equity markets and crypto assets such as bitcoin and ethereum has increased.”

The return correlations between bitcoin and the Indian stock markets, for instance, have multiplied tenfold since the outbreak, the IMF officials found, “suggesting limited benefits of cryptocurrency for risk diversification.” Furthermore, “The volatility correlations have tripled.”

Further noting that “the rise in crypto-equity correlations in Asia has been accompanied by a sharp rise in crypto-equity volatility spillovers in some Asian countries,” the IMF officials provided the following clarification:

“This indicates a growing interconnectedness between the two asset classes that permits the transmission of shocks that can impact financial markets.”

The IMF also mentioned that “regulatory frameworks for crypto in Asia should be tailored to the main uses of such assets within the countries. They should establish clear guidelines on regulated financial institutions and seek to inform and protect retail investors,” elaborating:

“Finally, to be fully effective, crypto regulation should be closely coordinated across jurisdictions.”

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