IMF director expects more crypto drop amid a recession

    31 Jul 2022

    The International Monetary Fund (IMF) director Tobias Adrian has warned of further selloffs in crypto assets and equities. He also expects crypto to drop even more amid a recession.

    Tobias Adrian, director of Monetary and Capital Markets for the IMF, warned about further selling pressure in the crypto market and more crypto token failures in an interview with Yahoo Finance on July 27.

    “We could see further selloffs, both in crypto assets and in risky asset markets, like equities,” he said, adding: “There could be further failures of some of the coin offerings – In particular, some of the algorithmic stablecoins that have been hit most hard, and there are others that could fail.”

    Also, Adrian expects crypto to drop even further amid a recession. The IMF director warned about the potential for fiat-backed stablecoins to experience runs, something that both US Treasury Secretary Janet Yellen and the US Fed have also cautioned about.

    In particular, speaking of Tether (USDT), the IMF executive noted:

    “There’s some vulnerability there because they’re not backed one to one.” He also stressed that some stablecoins “are backed by somewhat risky assets,” adding, “it is certainly a vulnerability that some of the stablecoins are not fully backed by cash-like assets.”

    However, Adrian does not see an immediate threat similar to the 2008 financial crisis.

    “What was very worrisome in the 2008 crisis was that the banks were highly exposed to the shadow banks, and we don’t see this exposure of banks to shadow banks through crypto at the moment,” he stated.

    Furthermore, the IMF director stressed that regulations are needed to protect investors and the financial system.

    “Regulating the coins themselves is going to be difficult, but regulating the entry points such as exchanges and wallet providers to invest in those coins that’s something that is very concrete and very feasible,” Adrian suggested, noting the sheer number of cryptocurrencies in existence.

    Also, the IMF said in a report published Tuesday:

    “Crypto assets have experienced a dramatic sell-off that has led to large losses in crypto investment vehicles and caused the failure of algorithmic stablecoins and crypto hedge funds, but spillovers to the broader financial system have been limited so far.”

    Back in May, cryptocurrency Terra (LUNA) and stablecoin TerraUSD (UST) imploded, prompting SEC Chairman Gary Gensler to warn that a lot of crypto tokens will fail will fail and call for tighter stablecoin regulations.

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