Crypto fuels stock market volatility: IMF

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Bitcoin is moving more in line with stock prices than pre-pandemic, raising the risk that crypto asset volatility could destabilise financial markets.

Bitcoin is moving more in line with stock prices than pre-pandemic, raising the risk that volatility in the $US2 trillion crypto assets sector transmits a shock to destabilise financial markets, the International Monetary Fund has warned.

According to the IMF’s estimates, bitcoin volatility explains about one-sixth of S&P 500 volatility during the pandemic, and about one-tenth of the variation in S&P 500 returns.However, a new IMF analysis says that since central banks slashed interest rates to near zero to support economies during the pandemic, there has been increased co-movement and spillovers between crypto and equity markets.

A sharp sell-off in crypto assets since November has caused the value of the digital assets to fall from almost $US3 trillion to about $US2 trillion, although their value is still about four times as high as 2017. in a bid to appeal to young customers and keep pace with rivals such as Square and PayPal, which already allow users to trade and spend bitcoin.

 

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