The International Monetary Fund (IMF) published an article saying that the linkage between cryptocurrency trading volumes and stock markets in Asia has grown significantly, highlighting the need for regulation.
The IMF said that few places in the world are as accepting of crypto assets as Asia, where top users include individual and institutional investors in countries such as India, Vietnam and Thailand, which raises an important question about the integration of cryptocurrencies into Asia extent of the financial system. As Asian investors flocked to cryptocurrencies, the correlation between the region’s stock market performance and crypto assets such as Bitcoin and Ethereum has increased.
While the return and volatility correlation between Bitcoin and Asian equity markets was low before the pandemic, it has risen significantly since 2020. For example, Bitcoin’s return correlation with Indian equities increased 10x during the Covid-19 pandemic, suggesting limited risk diversification benefits for cryptocurrencies, while volatility correlations increased 3x, suggesting that risk sentiment in cryptocurrencies and equity markets may be will overflow.
The IMF believes that key drivers of the increased interconnectedness of Asia’s cryptocurrency and equity markets may include the growing acceptance of cryptocurrency-related platforms and investment vehicles in the stock market and OTC markets, or, more generally, Asian retail and institutional investors There is a growing acceptance of cryptocurrencies, many of whom have positions in both the stock and cryptocurrency markets.