the International Monetary Fund (IMF); He stated that the rising prices of cryptocurrencies such as Bitcoin, Ethereum, Cardano, Solana threatened financial stability and issued a warning about the risks cryptocurrencies pose to global economies.
According to a report released Friday, the IMF warned against “cryptoising” emerging markets and emerging economies or replacing local currencies with cryptocurrencies:
“Crypto-asset technologies have the potential to be used as a tool for faster and cheaper cross-border payments. But despite the potential gains, the rapid growth and increased adoption of crypto assets pose financial stability risks.”
According to the IMF, an important component of the increase in market value is; to stablecoins, newer technologies like Ethereum; Increasing investor interest in other “smart contract” blockchains such as Cardano and Solana, as well as decentralized finance (DeFi).
Volatility, Insecurity and Governance Risks
As mentioned above, according to the agency, the rapid increase in the market value of cryptocurrencies is largely due to increased investor interest in the crypto industry. In April, the global crypto market cap nearly tripled, reaching an all-time high of $2.5 trillion before hitting roughly $1.5 billion in June 2021, down over 40% in the months that followed. The market has recently reached a market capitalization of $2 trillion with a 170 percent gain from year-to-date and has recouped its losses, and the IMF was not very pleased with such an increase.
Although cryptoassets have gained significant value, the IMF claims that “when judged against volatility, the returns on non-stablecoin crypto assets are not that impressive.”
Governance risks arising from the lack of transparency in the issuance and transactions of crypto assets have been known to cause significant investor losses in the past. In addition, the rate of cybercrime in the industry continues to increase and it is a known fact that cryptocurrencies are constantly at risk of being stolen. While most of these attacks target wallets and exchanges, the IMF warns that they can be carried out on consensus algorithms that support the operation of blockchains, causing deeper problems.
Although the losses from the above challenges did not have a significant impact on global financial stability, it seems quite likely that such risks will increase in importance as the IMF calls for urgent cross-border cooperation to mitigate these risks through regulatory and supervisory means.