Jakarta, CNBC Indonesia – The International Monetary Fund (IMF) is concerned about the use of cryptocurrency. Because this nascent market is growing at a significant pace without any regulations following it.
The total market value of all crypto assets exceeds $2 trillion in September 2021. A 10-fold increase from levels seen in early 2020, according to data compiled by the IMF.
“The crypto ecosystem has grown significantly. The process has shown great resilience but there have also been some interesting stress tests,” said Evan Papageorgiou, deputy division chief at the IMF in October.
Here are three IMF concerns over crypto, as reported by CNBC International.
Poor Financial Institutions
One of the problems the IMF has highlighted is that many of the people and financial institutions that trade these assets lack strong operational, governance, and risk practices.
The IMF said consumers were at risk due to “inadequate disclosure and oversight” in the crypto world.
“We believe crypto assets create multiple data loopholes that can open unwanted doors for money laundering, as well as terrorist financing,” the IMF said.
Other institutions have called for more action to make these investments safer. Cryptocurrency can be a divisive topic. Some argue that they are the future of money and others present a more skeptical argument about the risks.
The Emergence of Crypto Influencers
UK financial regulator FCA has warned about the link between social media and crypto investing.
“Social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation. Some influencers are promoting coins that don’t exist at all,” Charles Randell, chairman of FCA, said in a speech in September.
“How new this technology is, we haven’t seen what will happen over the full financial cycle. We really don’t know when or how this story will end, but – like any recent speculation – it may not end well,” he said.
Kim Kardashian, a celebrity with more than 200 million Instagram followers, was paid to advertise crypto tokens on her account earlier this year. Critics highlight how little detail is known about the developer ethereummax, the currency he advertises.
Other social media users with large followings, known as influencers, have also advertised crypto assets on their accounts.
“Cryptocurrencies are often advertised next to these posts that propagate this glamorous lifestyle and I think that association is very dangerous and dangerous for young people,” said Myron Jobson, personal finance campaigner at Interactive Investor.
Crypto Standardization
Myron Jobson further said that policymakers need to look at advertising cryptocurrency and making sure they explain to people the risks associated with investing in such volatile assets. As is well known crypto prices can fluctuate wildly even within a single trading day.
An additional problem for policymakers is that young people are very interested in this market and often make their first investments in cryptocurrencies. They even use loans and credit cards to do it.
Data published by the FCA in June showed that around 2.3 million people in the UK hold cryptocurrency. 14% of them used credit to buy it and 12% of them thought they would be protected by the FCA if something went wrong. But the FCA said it would not protect them.
A poll of 1,000 British adults aged between 18 and 29 showed in July that 27% of them used a credit card to invest in the dogecoin crypto meme, 17% used student loans and 12% said they used other types of loans.
This can be a double-edged sword as investors can face losses in cryptocurrency them, and then struggle to repay the loans and credit they took to make those investments.
According to the IMF, national regulators should work to have common rules globally, improve cross-border surveillance and because this is a new field, push for standardization of data.
“Time is critical, and action needs to be decisive, swift and well-coordinated globally to allow benefits to flow but, at the same time, also address vulnerabilities,” the IMF said.
(tfa/tfa)
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