The International Monetary Fund (IMF), the world's financial firefighter, known in some quarters for pummeling flames with streams of water so hard that sometimes those in trouble escape the flames but are drowned by the deluge, is back again, this time, ringing alarm bells and calling for more regulation of the cryptocurrency industry. And echoing the concerns of regulators the world over, the IMF is reminding us that cryptocurrency poses a number of challenges and risks to financial stability. Are you surprised? I'm not. Let's get into it.
In a blog post on October 1 titled, Crypto Boom Poses New Challenges to Financial Stability the IMF acknowledged that the total market value of all crypto assets surpassed $2 trillion as of September 2021, a 10 FOLD increase from the past year, and conceded that crypto assets offer a new world of opportunities with quick and easy payments, innovative financial services, and access to previously unbanked parts of the world.
A Breakdown
In its October 2021, Global Financial Stability Report, the IMF noted that:
- The market capitalization for stablecoins quadrupled in 2021 to more than $120 billion.
- Bitcoin remained the dominant crypto asset, but its market share declined sharply in 2021 from more than 70% to less than 45%, with market interest growing for blockchains seeking to solve the challenges of scalability, interoperability, and sustainability.
- The size Decentralized Finance, (DeFi) grew from $15 billion at the end of 2020 to about $110 billion as of September 2021 largely due to the rapid growth of decentralized exchanges that allow users to trade crypto assets without an intermediary and of credit platforms that match borrowers and lenders without the need for a credit risk evaluation of the customer.
Identifying Risks
The global body is, however, pointing out that a lack of robust operational, governance and risk practices in the cryptocurrency industry put consumers at risk as some crypto projects were “likely created solely for speculation purposes or even outright fraud."
Hey, on note. Did we get a chance to chat about that Solana NFT project that made off with its investors coins? No? Okay, we'll get into it in another post... But to stay on topic, the IMF.
In its blog, the IMF noted that of the more than 16,000 tokens listed on various crypto exchanges in the past, only 9,000 exist today. Of the others, it points out, some show no volumes, and in some cases, the developers simply walked away from the project.
If this isn't buy at your own risk, then I don't know what is.
I'd fly into a rage here about unscrupulous developers like that NFT guy on Solana, but I'm trying to keep focus on the IMF, so let's keep going.
Anyways, so the financial body argued that the (pseudo) anonymity of crypto assets creates data gaps for regulators, opening "unwanted doors for money laundering, as well as terrorist financing". And while, authorities may be able to trade illicit transactions, they point out that it is much more difficult to identify the parties to these transactions.
Arguing that "cryptoization" presents a threat to fiscal policy and central banks' ability to effectively implement monetary policy, the IMF is calling on regulators worldwide to act together on cryptocurrency, to allow “the benefits to flow but, at the same time, also address the vulnerabilities.”
And how do they propose to do this? Well, of course...
Among other suggestions, the IMF is calling for cross border regulatory coordination for monitoring and enforcement, and, in some cases, it is recommending central bank digital currencies to reduce cryptoization pressures. In a nutshell. I'm paraphrasing.
And, there was the bell ringing, of course.
"Time is of the essence," was the call. "Action needs to be decisive, swift and well-coordinated globally to allow the benefits to flow but, at the same time, also address the vulnerabilities."
So, guys, what do you think?
I mean, the IMF has raised concerns, as it is expected to, a couple times this year about developments in the cryptocurrency industry.
And while there is reason, of course, to lift an eyebrow and be skeptical of the global development bank, closely tied to the world's richest countries, issuing a clarion call for swift, decisive, global action to regulate cryptocurrencies, one must be careful not to dismiss outright some of the very legitimate arguments raised.
I think, because of the IMF's past notoriety, one may be inclined to shrug off the arguments proposed by the entity simply because of the lingering taste of bile left after a tango. It is important, however, to pay attention to the recommendations made as they seem to align in many instances with other regulatory conversations surrounding the cryptocurrency industry and it helps to have some sense of anticipation for what the future may bring.
I, for one, may belong to the unpopular minority, but I do think that a balanced approach to regulations is important, because there is need for consumer protection, there's no denying that. There should be avenues for recourse from scams, theft, etc. There is need for better governance, more stability, better transparency and accountability. Don't come for me, I'm just saying.
I want my coins to grow, y'all. I wanna retire with fat pockets of crypto one day when I'm like, I don't know, maybe 45. So I want things to run smoothly.
But I'm no economist, so maybe I'm just parroting what I've heard, I don't know. Maybe, to go back to the firefighter analogy I used at the beginning, I'm just a little kid dancing naked by a busted fire hydrant.
you tell me, what do you think of this latest IMF report?
Do you agree with some of what they're saying or are you dismissing it all as simply the arguments of a financial system interested in maintaining the status quo? Have at it.
In the meantime, I'm off to follow the Solana NFT story so I can bring it to you guys. Until we chat again, be safe!
