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Fintech

IMF warns that crypto threatens financial stability

As conventional banks, asset managers and regulators embrace crypto, the institution warns this large and volatile asset class poses new risks to the world financial system.

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Photo: iStock

At the start of October, the IMF published the second chapter of its latest global financial stability report ahead of the rest of the document, conveying some sense of urgency.

Its 18 pages survey the rapid growth of crypto assets – now worth $2 trillion, a 10-fold increase from early 2020 – identifying fragilities in the emerging ecosystem of exchanges, wallets, miners and stablecoin issuers. It calls on regulators and policymakers to up their game, stating that the crypto boom poses new challenges to financial stability. It adds that while the risks are not systemic yet, they are growing and need to be closely monitored.

The fund enables clients … to further diversify their portfolio in a secure and regulated way
Bernadette Leuzinger, Crypto Finance
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Beyond the obvious investor-protection concerns about hacks and so-called rug pulls – the IMF points out that 16,000 crypto tokens have been listed, but only 9,000 still exist today as creators abandon many of them – and excessive leverage of up to 125 on some crypto exchanges, the authors now worry about knock-on effects from crypto volatility on the conventional financial system.

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