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Why the IMF is concerned

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An illustration of cryptocurrency.

Jakub Porzycki | NurPhoto | Getty Images

It International Monetary FundConcerns about cryptocurrency are especially important because the market is still emerging at a rapid pace, and regulations have not followed suit.

The total market value of all crypto assets surpassed $2 trillion in September this year — representing a 10-fold jump from levels seen at the start of 2020, data collected by the IMF shows.

Evan Papageorgiou, a deputy division chief at the IMF, told CNBC in October that “the crypto ecosystem has grown significantly … The process shows remarkable resilience but there have also been some interesting stress tests.”

The IMF highlighted the problem that many people and institutions that trade these assets are “not strong in their operational, governance and risk management.”

As such, the Fund has saidConsumers are in danger, it said. Additionally, crypto assets are believed to create “data gaps” that “can open unwelcome doors for money laundering and terrorist financing.”

Others institutionsThese investors have been calling on the government to take more steps to ensure their safety. Some people believe that cryptocurrencies are the future, while others argue they pose a risk to their safety.

Crypto influencers

FCA in the United Kingdom has issued warnings about crypto investment and social media.

Social media influencers can be paid by fraudsters for their help in pumping and dumping new tokens. This is pure speculation. In September, Charles Randell (chair of the FCA) stated that some influencers encourage coins that do not exist.

Because of the technology’s newness, it is difficult to predict what would happen in a financial cycle. We simply don’t know when or how this story will end, but – as with any new speculation – it may not end well.”

Kim KardashianA celebrity who has more than 200 million Instagram followers was paid earlier in the year to promote a cryptocurrency token. Critics pointed out how little information was known about the people behind ethereummax and the currency she promoted. This isn’t financial advice, but I am sharing the information that my friends gave me about the Ethereum max token. The post was originally published by Kardashian read. The hashtag #ad was added to indicate that the post has been paid.

Others social media users, also known as influencers or people with large followings, have advertised crypto assets through their accounts.

Myron Jobon, an Interactive Investor personal finance activist, stated that cryptocurrencies often appear next to posts that offer a glamorous lifestyle.

Standardization

He suggested that policymakers should look closely at cryptocurrency advertising and ensure they clearly explain the risk associated with investing. Price swings can be extreme even on a single trading day.

A second issue is that young people often invest in crypto currencies using credit and loans.

The FCA published data in June showing that 2.3 million U.K. residents have cryptocurrencies. 14% use credit to pay for them. 12% believe they are covered by the FCA in case it doesn’t work out. However, the FCA says it won’t protect them.

pollIn July, 1,000 U.K. adults between the ages of 18 and 29 reported that 27% used credit card to invest in mem crypto dogecoin. 17% used student loans and 12% claimed they used other forms of loan.

It could be a double-edged sword for investors as they could suffer losses from cryptocurrencies, and then have difficulty paying back loans or credit that were used to make these investments.

The IMF recommends that national regulators work together to establish common standards globally and to improve cross-border supervision. They also advocate for standardization of data because this is a relatively new area.

The IMF stated in October that “time is critical” and called for swift, decisive and coordinated global action to ensure the flow of benefits and also to address vulnerabilities.

—CNBC’s Taylor Locke contributed to this article.

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