Crypto trading increased last year as millions stayed home and received government aid, while low-interest rates and flowing liquid money also played a role. 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 2021. Then it plunged to less than $1 trillion in June this year as central banks across the world raised interest rates to contain inflation and ended easy access to cheap borrowing. While the financial sector appears to have been insulated from these sharp movements, the present is no indicator of the future.
Moreover, the crypto market is often linked with the stock market – so if there’s a downtrend in stocks, we often see a similar movement in crypto prices. Many factors that affect the stock market also have an impact on cryptocurrencies. While the returns and volatility correlated between Bitcoin and Asian equity markets were low before the pandemic, these have increased significantly since 2020. IMF observes that the rise in crypto-equity correlations in Asia has been accompanied by a sharp rise in crypto-equity volatility spillovers in India, Vietnam, and Thailand. Accordingly, authorities in Asia have focused on crypto regulation, and regulatory frameworks are underway in several countries including these. Much more research is needed before domestic and international regulators can understand the ownership and use of crypto and its intersection with the traditional financial sector in Asia and elsewhere.
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