IMF Spots Correlations Between Crypto Assets and Asian Equity Markets

IMF Spots Correlations Between Crypto Assets and Asian Equity Markets

Officials at the International Monetary Fund (IMF) confirm that the correlation between the performance of the Asian equity markets and crypto assets such as bitcoin and ethereum has increased significantly.

IMF Executives on Crypto and Correlation to Asian Equities

The International Monetary Fund (IMF) published a blog post on Monday on cryptocurrency regulation and how crypto is now "more in step with Asia’s equities."

Anne-Marie Gulde-Wolf, Deputy Director of the Asia and Pacific Department in the IMF, Nada Choueiri, the Mission Chief for India, and Tara Iyer, an Economist in the Global Financial Stability Analysis Division of the Monetary and Financial Markets Department in the IMF, authored the post.

"While the returns and volatility correlations between Bitcoin and Asian equity markets were low before the pandemic, these have increased significantly since 2020," they wrote. "Crypto trading, however, soared as millions stayed home and received government aid, while low-interest rates and easy financing conditions also played a role."

They detailed:

"As Asian investors piled into crypto, the correlation between the performance of the region’s equity markets and crypto assets such as bitcoin and ethereum has increased."

The IMF officials noted that "the return correlations of bitcoin and the Indian stock markets have increased by 10-fold over the pandemic, suggesting limited risk diversification benefits of crypto." In addition, "the volatility correlations have increased by 3-fold."

The IMF officials further noted that "the rise in crypto-equity correlations in Asia has been accompanied by a sharp rise in crypto-equity volatility spillovers in some Asian countries," elaborating:

"This indicates a growing interconnectedness between the two asset classes that permits the transmission of shocks that can impact financial markets."

The IMF officials also asserted that "regulatory frameworks for crypto in Asia should be tailored to the main uses of such assets within the countries."

The authors added, "They should establish clear guidelines on regulated financial institutions and seek to inform and protect retail investors," elaborating:

"Finally, to be fully effective, crypto regulation should be closely coordinated across jurisdictions."