Bitcoin Crash Hasn’t Affected Financial Stability Worldwide

In a study released on Tuesday, the International Monetary Fund stated that the bitcoin crash hasn’t affected the stability of the global economy.

The IMF noted today’s “dramatic” sell-off in the cryptocurrency market but said that it hasn’t yet harmed the financial system in its report titled “World Economic Outlook Update: Gloomy and More Uncertain.”

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According to statistics from CoinMarketCap, the price of one bitcoin fell by about 5 percent today and was trading at $20,811.94. From its record high of almost $69,000 in November last year, the biggest cryptocurrency by market cap has been down over 70%. The sell-off this year has affected virtually all other cryptocurrencies, and they are all down as well.

Due to supply chain issues, the Russian military incursion in Ukraine, and other macroeconomic factors that are creating uncertainty, investors are turning away from “risky” investments. Digital currencies like Bitcoin are seen as risky, similar to equities.

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The big sell-off of cryptocurrency assets, according to the IMF, was what caused the collapse of algorithmic stablecoins and crypto hedge funds, albeit the consequences on the larger financial system have so far been minimal.

The body was referring to the failure of blockchain Terra when it said “algorithmic stablecoin.” Terra was well-liked by bitcoin traders before May. However, when its algorithmic stablecoin UST lost its peg to the dollar, billions of dollars worth of assets disappeared.

Since then, institution after institution—from the Bank of England to the Federal Reserve—have spoken out against stablecoins or, at the very least, have said that they require stronger regulation. The fall of Terra was “reminiscent of classic runs throughout history,” according to Federal Reserve Vice Chair Lael Brainard, who also noted earlier this month that new technology wouldn’t always shield investors from the same risks.

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