As the price of Bitcoin (BTC) approaches $ 24,000 again, the cryptocurrency community has been indulging in some optimism. But this is not the case with the International Monetary Fund (IMF), which raises the alarm on the prices of cryptocurrencies.
Stablecoin: a big problem in the ecosystem in recent months
The IMF thinks the cryptocurrency market will see greater volatility, despite bitcoin and ether are doing well right now.
The IMF believes that bitcoin and ether will lose more value after the last two cryptocurrency crashes. These crashes occurred in May and June and caused bitcoin and ether values to drop by more than 60% from their highs.
“We could see further collapses, both in cryptocurrencies and in markets for risky assets, such as stocks,” Tobias Adrian, director of money and capital markets at the IMF, said in an interview with YahooFinance.
According to the IMF, the Terra Project debacle caused a drastic drop in other major platforms in the crypto ecosystem. The stablecoin Tron USDD, which had lost parity, recently returned to one dollar. Regulators have been watching stablecoins very closely in recent months and times are tough for this type of cryptocurrency.
A stablecoin is a currency linked to a real currency, such as the dollar or the euro. They can also be linked to other assets, such as gold. The asset to which the currency is linked is called the base of the currency.
Some stablecoins “are backed by somewhat risky assets … The fact that some stablecoins are not fully backed by money-like assets is definitely a vulnerability,” says Tobias Adrian
The European Central Bank (ECB) and other institutions are expected to start regulating cryptocurrencies, according to Tobias Adrian. He says that while the market awaits these new changes, it is important that cryptocurrencies are regulated with other institutions.
Regulation to prevent the spread to the rest of the finance
According to Tobias Adrian, some stablecoins are fully cash backed and are less likely to risk bankruptcy. He didn’t say which coins were fully cash-backed, but expressed concern about other stablecoins.
During the last financial crisis, banks were not exposed to hidden assets through cryptocurrencies, as during the financial crisis of 2008. Banks are no longer exposed to cryptocurrencies in the same way. Cryptocurrencies currently bankrupt have little or no effect on traditional finance, say Tobias Adrian and the IMF who made this comment.
Tether and USD Coin are two of the largest stablecoins in the cryptocurrency market. They have minimal impact on traditional markets, but are a significant part of the cryptocurrency market. Coins are known as stablecoins and help maintain market stability.
The IMF says we need to continue to regulate the cryptocurrency market more as it is too big to be managed on a case-by-case basis. The IMF noted that the world of cryptocurrencies is not sufficiently connected to the financial world, so there is no possibility of them connecting and causing the spread of bankruptcies in the world of traditional finance.
“Adjust the [cryptomonnaies] in itself it will be difficult, but regulating entry points such as exchanges and wallet providers […], it is something very concrete and very feasible. “