Why the IMF is worried


A visual representation of cryptocurrencies.

Jakub Porzycki | NurPhoto | Getty Images

The International Monetary Fund is concerned about cryptocurrencies, especially because the nascent market is growing at such a rapid pace and regulations are not keeping up.

The total market value of all crypto assets topped $ 2 trillion in September of this year, a 10-fold jump from levels seen in early 2020, according to data collected by the IMF.

Evan Papageorgiou, deputy division chief at the IMF, told CNBC in October that “the crypto ecosystem has grown tremendously … The process shows remarkable resilience, but there have also been some interesting stress tests.”

One of the problems that the IMF has highlighted is that many individuals and financial institutions trading in these assets “lack sound operational, governance and risk management practices”.

As such, the Fund said that consumers are at risk, adding that there is simply “inadequate disclosure and oversight” in this space. Additionally, he believes crypto assets create “data gaps” and “can open unwanted doors to money laundering, as well as terrorist financing.”

Other establishments called for more action to make these investments safer. Cryptocurrencies can be a divisive issue, with some claiming they are the future of money and others making more skeptical arguments about their risks.

Crypto influencers

UK financial regulator FCA has warned of the link between social media and crypto investing.

“Social media influencers are regularly paid by crooks to help them pump and dump new tokens on the back of pure speculation. Some influencers are promoting pieces that turn out to be simply non-existent,” Charles said. Randell, president of the FCA, in a statement. speech in September.

He added that due to the novelty of this technology, “we haven’t seen what will happen over a full financial cycle. We just don’t know when or how this story will end, but – as with all things. new speculation – this may not end well. “

Kim Kardashian, a celebrity with over 200 million Instagram followers, was paid to advertise a crypto token on her account earlier this year. Critics have pointed out how few details are known about the developers of ethereummax, the currency she announced. “This is not financial advice but a sharing of what my friends told me about the ethereum max token!” Kardashian’s post read. She added different hashtags, including #ad, which is needed to reveal that her post is paid.

Other social media users with huge amounts of followers, known as influencers, have also advertised crypto assets on their accounts.

“Cryptocurrencies are often advertised alongside these posts deploying this glamorous lifestyle and I think this association is very dangerous and harmful for young people,” Myron Jobson, a personal finance activist at Interactive Investor, told CNBC. , in October.

Standardization

He said policymakers need to look at cryptocurrency advertising and make sure they explain to people the risks associated with investing in such a volatile asset. Prices can fluctuate wildly even within a single trading day.

Another problem for policymakers is that young people are very interested in this market and often make their first investments in cryptocurrencies, using loans and credit cards to do this.

Data released by the FCA in June showed that around 2.3 million people in the UK hold cryptocurrencies. 14% of them use the credit to buy them and 12% of them think they will be protected by the FCA in the event of a problem. But the FCA has said it will not protect them.

A survey in 1,000 UK adults aged 18-29 showed in July that 27% used credit cards to invest in the same crypto dogecoin, 17% used their student loan and 12% said they used other types of loans.

This could become a double-edged sword, as investors could experience losses on their cryptocurrencies and then struggle to repay the loans and credits they have taken out to make those investments.

According to the IMF, national regulators should strive to have common rules globally, improve cross-border surveillance and, because this is such a new area, promote the standardization of standards. data.

“Time is running out, and action must be decisive, swift and well coordinated globally to allow benefits to flow while addressing vulnerabilities,” the IMF said in October.

—Taylor Locke of CNBC contributed to this article.


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