The International Monetary Fund (IMF) has published a post on their official blog on cryptocurrency regulation and research findings that crypto is now seen as more aligned with Asian equity markets.
Anne-Marie Gulde-Wolf, deputy director of the IMF's Asia and Pacific Department, Nada Choueiri, head of mission for India, and Tara Iyer, an economist in the global financial stability analysis section of the IMF's Monetary and Financial Markets Department are among those who have such views;
"Although the correlation of returns and volatility between bitcoin and Asian equity markets was low before the pandemic, it has started to change significantly since 2020,". "Crypto trading however began to record a surge since people started working from home and received government assistance. At the same time, low interest rates and easy financing terms also play a role.”
They detail:
As Asian investors flock to the crypto world, the correlation between the performance of the region's equity markets and crypto assets such as bitcoin and ethereum has increased.
IMF officials stated that for example, "the correlation of bitcoin returns and the Indian stock market has increased by 10 times since the pandemic, suggesting limited risk diversification benefits for cryptocurrencies". In addition, "Volatility correlation has increased by 3 times."
The IMF official further stated that "the increase in crypto-equity correlation in Asia has indicated a sharp increase in the volatility of crypto-equity markets in several Asian countries,".
This shows the growing correlation between the two asset classes, where any sentiment on these two markets can affect market volatility. The IMF official also emphasized that "The regulatory framework for cryptocurrencies in Asia should be adapted to the primary use of the asset in the country."
Market makers expect the IMF to set clear guidelines on regulated financial institutions and work to inform and protect retail investors.
