## Crypto is More in Line with Asian Equities, Highlighting Need for Regulation

_IMF Blog, August 21, 2022_

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**Canonical URL:** [Crypto is More in Line with Asian Equities, Highlighting Need for Regulation](https://www.imf.org/en/blogs/articles/2022/08/21/blogs-crypto-asian-equities-082122)

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## Bibliographic details
- Authors: Nada Choueiri, Anne-Marie Gulde-Wolf, Tara Iyer
- Published: August 21, 2022

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### Overview
- Authors: Nada Choueiri, Anne-Marie Gulde-Wolf, Tara Iyer
- Publication date: August 21, 2022
- Geographic focus: Asia
- Central observation: Crypto trading volume and co-movement with equity markets have surged in the region, raising financial stability and regulatory concerns.

### Key statistics and market developments
- The total market value of the world’s crypto assets surged 20-fold in just a year and a half to $3 trillion in December.
- The market then plunged to less than $1 trillion in June as central bank interest rate increases ended easy access to cheap borrowing.
- Return correlations of Bitcoin and Indian stock markets have increased by 10-fold over the pandemic.
- Volatility correlations between Bitcoin and Asian equity markets have increased by 3-fold since the pre-pandemic period.

### Drivers of increased interconnectedness
- Growing acceptance of crypto-related platforms and investment vehicles in the stock market and at the over-the-counter market.
- Growing crypto adoption by retail and institutional investors in Asia, many of whom hold positions in both equity and crypto markets.
- Pandemic-era dynamics: millions stayed home and received government aid; low interest rates and easy financing conditions supported a surge in crypto trading.

### Risks and transmission channels
- Contagion mechanisms:
  - Individual or institutional investors holding both crypto and traditional financial assets or liabilities could transmit shocks across markets.
  - Large losses on crypto may drive portfolio rebalancing that could cause financial-market volatility.
  - Severe losses could lead to default on traditional liabilities.
- Although the financial sector appeared insulated during the recent sharp movements, it may not be in future boom-bust cycles.

### Evidence and methodology
- Analysis references the spillover methodology developed in the January Global Financial Stability Note.
- Findings using this methodology show a sharp rise in crypto-equity volatility spillovers in India, Vietnam, and Thailand, indicating growing interconnectedness and the potential for shock transmission between asset classes.

### Policy recommendations and regulatory priorities
- Authorities in Asia have increased focus on crypto regulation; regulatory frameworks are underway in several countries including India, Vietnam and Thailand.
- Regulatory frameworks should be tailored to the main uses of crypto assets within each country.
- Frameworks should:
  - Establish clear guidelines on regulated financial institutions.
  - Seek to inform and protect retail investors.
- Effective crypto regulation should be closely coordinated across jurisdictions.

### Data and monitoring needs
- Significant effort is needed to address data gaps that prevent domestic and international regulators from fully understanding ownership and use of crypto and its intersection with the traditional financial sector.

*Source: Crypto is More in Line with Asian Equities, Highlighting Need for Regulation — Nada Choueiri, Anne-Marie Gulde-Wolf, Tara Iyer, August 21, 2022.*

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## References

- [an environmentally-conscious payment system](https://blogs.imf.org/2022/06/16/how-crypto-and-cbdcs-can-use-less-energy-than-existing-payment-systems/)
- [financial inclusion](https://blogs.imf.org/2021/07/29/making-the-digital-money-revolution-work-for-all/)
- [risks](https://blogs.imf.org/2021/10/01/crypto-boom-poses-new-challenges-to-financial-stability/)
- [https://www.imf.org/wp-content/uploads/2022/08/APD-MCM-Ch1.jpg](https://www.imf.org/wp-content/uploads/2022/08/APD-MCM-Ch1.jpg)
- [Contagion could spread](https://blogs.imf.org/2022/01/11/crypto-prices-move-more-in-sync-with-stocks-posing-new-risks/)
- [https://www.imf.org/wp-content/uploads/2022/08/APD-MCM-Ch2-1.jpg](https://www.imf.org/wp-content/uploads/2022/08/APD-MCM-Ch2-1.jpg)
- [Global Financial Stability Note](https://www.imf.org/en/Publications/global-financial-stability-notes/Issues/2022/01/10/Cryptic-Connections-511776)
- [https://www.imf.org/wp-content/uploads/2022/08/APD-MCM-Ch3-v2.jpg](https://www.imf.org/wp-content/uploads/2022/08/APD-MCM-Ch3-v2.jpg)
- [Regulatory frameworks](https://blogs.imf.org/2021/12/09/global-crypto-regulation-should-be-comprehensive-consistent-and-coordinated/)

_Source: https://www.imf.org/en/blogs/articles/2022/08/21/blogs-crypto-asian-equities-082122_