The Transition to Crypto Trade in Asia Underscores the Need for Regulatory Framework
The International Monetary Fund (IMF) stated that although digitalizing the payment system can help people shift to more environmentally friendly payment methods and promote financial inclusion, it can also put financial stability at risk.
State of Crypto Market in Asia
The success of the region’s equities markets and the performance of cryptocurrencies like Bitcoin and Ethereum have become more correlated as Asian investors poured money into the sector. Prior to the pandemic, there was a little link in returns or volatility between Bitcoin and Asian equities markets; however, this has changed considerably since 2020.
The rising popularity of cryptocurrency-related platforms and investment products on the stock market and at the over-the-counter market, or more typically, the rising adoption of crypto by both institutional and retail investors in Asia, could be the key drivers of the increased interconnectedness of the crypto and equity markets in that region.
Thus, with crypto usage growing, authorities in Asia are becoming more aware of the rising hazards it poses. Consequently, they have intensified their focus on cryptocurrency regulation, and legal frameworks are being developed in several nations, including Thailand, Vietnam, and India.
Important data gaps that continue to prevent local and international regulators from fully understanding the ownership and use of cryptocurrencies and how they interface with the traditional financial industry must also be addressed.
The primary usage of such assets within the nations should focus on the regulatory frameworks for cryptocurrencies in Asia. They ought to create unambiguous rules for regulated financial institutions and work to educate and safeguard individual investors.
Crypto Trading Shows Positive Recovery Post-Pandemic
The IMF also added in a blog post titled “Crypto is More in Step With Asia’s Equities, Highlighting Need for Regulation” that few regions of the world have embraced crypto assets as much as Asia. Top adopters include individual and institutional investors from India to Vietnam and Thailand. This raises the crucial question of how much crypto has been integrated into the region’s financial system.
“Cryptocurrency appeared to be apart from the banking system before the pandemic. The lack of correlation between Asian equity markets and other assets, such as bitcoin, helped allay fears about financial stability “According to the blog written by Tara Iyer, Anne-Marie Gulde-Wolf, and Nada Choueiri.
However, due to millions of people staying at home and receiving government assistance, as well as the availability of low-cost financing, cryptocurrency trading increased throughout the pandemic.
In just one and a half years, the market value of all crypto assets worldwide increased eight-fold, reaching USD 3 trillion last year.
After that, it fell to less than USD 1 trillion in June due to central banks raising interest rates to fight inflation.
The report warned that large losses on cryptocurrency might force these investors to rebalance their holdings, which could lead to market volatility or even a default on traditional obligations.
The site claimed that as Asian investors poured money into cryptocurrencies, there was a growing link between the success of the Asian equities markets and digital currencies like Bitcoin and Ethereum.
