As the correlation between the cryptocurrency market and U.S. stocks gradually increased after 2020, the risk diversification ability of crypto assets also decreased relatively.
The International Monetary Fund (IMF) issued a research article on Monday warning that cryptocurrency trading volume and stock market connectivity in Asia have increased significantly, and countries need to pay attention to the need for regulation.
The countries that have embraced crypto assets the most in Asia include retail investors and investment institutions in India, Vietnam and Thailand, according to the IMF paper.
The main reason is that millions of Asians are receiving government subsidies to invest in crypto from home during the Covid-19 quarantine. Low interest rates and easy financing conditions have also boosted trading volume in the crypto market, the IMF noted in the report: Few parts of the world are as welcoming to crypto assets as Asia.
With the investment of Asian investors in the market, Bitcoin and the stock markets of India, Vietnam and Thailand in 2017-2019, compared with the two periods of 2020-2022, the return and volatility correlation rose by an astonishing multiple.
For example, the return correlation between Bitcoin and the Indian stock market has increased 10-fold and the volatility correlation has increased threefold, indicating that risk sentiment in crypto and traditional markets spills over into each other.
The IMF reiterates that national regulatory frameworks should be tailored to the primary use of crypto assets in each country, with responsible regulators providing clear provisions to inform and protect retail investors;
And encourage countries to closely harmonize regulations related to crypto assets within the region.
In addition, since El Salvador adopted bitcoin as legal currency, the IMF has held regular talks with the country to urge it to give up Bitcoin, and criticized the country’s plans to issue bitcoin bonds and state-run digital wallet Chivo.
The IMF is still negotiating with the country to give up bitcoin as part of a $1.3 billion bailout.