Growing Correlation Between Crypto And Stock Markets In Asia, IMF Says

New data shows 10x increase in return correlations between Bitcoin and stocks in some regions.

Before the COVID-19 pandemic in Asia, there was a strong divide between crypto markets and financial markets in general. Today, this border has thinned and the situation requires additional regulatory measures, estimates the International Monetary Fund (IMF).

In an August 21 blog post, a group of IMF economists raised concerns about the dynamics of Asian markets, where the integration of crypto into the broader financial system appears to be growing rapidly . This poses certain risks to financial stability, the economists said, adding:

“While the financial sector appears to have been immune to these sudden moves, it may not be in future booms and busts. The contagion could spread through individual or institutional investors who may hold both crypto and traditional financial assets or liabilities. »

Economists further mentioned an example of the Indian market, where the return correlations of Bitcoin (BTC) and Indian stock markets have increased 10 times during the pandemic.

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The reasons for the closer ties between crypto and traditional finance are said to be the growing acceptance of crypto-related investment platforms and vehicles in the stock market and the growing adoption of crypto by investors individuals and institutions in Asia.

Using the fallout methodology developed in their Global Financial Stability Note, the experts also found a sharp increase in fallout from crypto-equity volatility in India, Vietnam, and Thailand. In conclusion, it is recommended that Asian regulators "establish clear guidelines on regulated financial institutions", inform and protect retail investors and closely coordinate...