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Retail and institutional investors in the equity market are at risk of having their investment influenced by bitcoin and other cryptocurrency volatility, according to the International Monetary Fund (IMF).
IMF said the digital asset market has began to correlate with the stock exchange in India, Vietnam, and Thailand, and this could continue to spread across global equity market.
According to the Managing Editor for IMF publication, Jeff Kearns, the correlation return experienced by bitcoin and the equity market grew 10-fold over the pandemic in India, and volatility correlations is up 3-fold.
Kearns, in a report obtained by Ripples Nigeria on Tuesday, warned that activities in the cryptocurrency market had begun to influence the decision of investors in the equity markets due to investors in both market now holding bitcoin, ethereum and other cryptoassets.
Read also:Bitcoin transactions soar among Nigerians, despite CBN ban
“While the financial sector appears to have been insulated from these sharp movements, it may not be in future boom-bust cycles. Contagion could spread through individual or institutional investors that may hold both crypto and traditional financial assets or liabilities.
“Large losses on crypto may drive these investors to rebalance their portfolios, possibly causing financial-market volatility or even default on traditional liabilities.
“As Asian investors piled into crypto, the correlation between the performance of the region’s equity markets and crypto assets such as Bitcoin and Ethereum has increased. While the returns and volatility correlations between Bitcoin and Asian equity markets were low before the pandemic, these have increased significantly since 2020.” The statement reads.
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