IMF questions the viability of crypto-assets

In its latest report on the financial stabilitythe IMF returns on the bankruptcies and the events in thecrypto ecosystem in 2022 and 2023. The opportunity to reiterate its call in favor of a coordinated regulation.

The International Monetary Fund is not a fan of cryptocurrencies, even less when states choose to give them legal tender, like El Salvador with Bitcoin. The institution had also conditioned its aid to Argentina to a policy discouraging the use of crypto.

But the IMF is also a proponent of increased regulation of the digital asset ecosystem. In fact, it devotes a few pages of its latest financial stability report to the crypto and its recent ‘setbacks’.

Bank failures and effects in the crypto

The fund discusses, among other things, the bankruptcy of American institutions, including the SVB. This incident highlights a interconnection between traditional finance and crypto – And thus the potential risks to stability.

The fallout from the Silicon Valley bank’s collapse has affected not only the crypto ecosystem, but also the financial institutions exposed to it, the IMF says.

Its failure resulted in two stablecoins (USDC and Dai), which held uninsured deposits in the bank, as well as the demise of Signature Bank of New York because investors became concerned about its footprint in the crypto-currency sector,” it analyzes.

Worsening crisis of confidence in digital assets

Economists at the global institution conclude, “These events add to questions about the viability of digital assets and reinforce the need for a appropriate regulation “.

For the IMF, this episode of banking crisis is not just about traditional finance. “These collapses have probably contributed to a worsening crisis of confidence in the digital asset markets,” it judges, along with the FTX bankruptcy.

These events would therefore argue in favor of a regulatory tightening, considers the Fund. They have even “made the call for comprehensive and consistent regulation and adequate supervision more urgent.

International cooperation to regulate crypto

The IMF makes some proposals in this direction. According to him, it is necessary to define a sufficient perimeter in order to cover ” all critical activities and entitiesincluding activities related to the storage, transfer, exchange, and retention of reserves.”

For example, actors “performing multiple functions” should be subject to “additional prudential requirements.” For stablecoin issuers, the requirements should also be “stringent.”

But most importantly, because of the ” cross-sectoral and cross-border nature ” of crypto, effective regulation requires a ” strong international cooperationsupported by strong, understandable and globally consistent regulation.

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