‘Return Correlations of BTC, Indian Stock Markets Have Risen Ten-Fold': IMF

Despite the prevailing regulatory uncertainty in India, the crypto industry seems to have collected a fandom. As per the International Monetary Fund (IMF), the return correlations of Bitcoin and the Indian stock market have increased ten-fold in the post-pandemic world. This is indicative of the limited risk diversification benefits of cryptocurrencies. At this point, as per the IMF, the correlation between the performances of crypto assets and the overall Asian equity markets stands hiked substantially.

The growing adoption of crypto by retail and institutional investors in Asia, many of whom also participate in the equity markets, has emerged among the key drivers of the increased interconnectedness of crypto and equity markets in Asia.

“We find that the rise in crypto-equity correlations in Asia has been accompanied by a sharp rise in crypto-equity volatility spillovers in India, Vietnam, and Thailand,” the IMF said in a blog post.

This is not the first report released recently that has highlighted the expansion of the crypto culture in the Asian continent.

Back in June, an Accenture report had detailed that in Asian nations like India, Vietnam, China, Indonesia, Japan, Malaysia, Singapore, and Thailand, the holdings of crypto and other digital assets have risen multi-fold in recent years. The report said that the Asians with up to $1 million (roughly Rs. 7 crore) in the continent are investing in virtual assets in a bid to diversify their investment portfolios.

As per the findings, Thailand and Indonesia dwellers hold the maximum percentage of digital assets in Asia, followed by India, Singapore, and Thailand.

Meanwhile, India contributes up to seven percent on the chart representing the percentages of crypto and NFT holdings in Asia. This brings India ahead of Singapore, Japan, and Vietnam — reflecting six percent, three percent and four percent, respectively, in digital asset holdings on the Accenture survey graph.

For now, crypto makes for the fifth largest asset class in Asia.

While the IMF findings suggest a positive growth outlook for the crypto sector in Asia, it also paves way for concerning issues.

As per the post, this growing interconnectedness between the two asset classes permits the transmission of shocks that can impact financial markets.

The global financial body has called for the formulations of relevant legislations that would safeguard these growing number of crypto investors against financial risks as soon as possible.

“A significant effort is needed to address important data gaps that still prevent domestic and international regulators from fully understanding ownership and use of crypto and its intersection with the traditional financial sector,” the IMF noted.

While South Korea and Japan are experimenting with different elements of the cryptoverse like CBDCs and the metaverse, Thailand and Indonesia are focussing on incubating in-house crypto exchanges and tightening rules around crypto crimes.

In India, while start-ups are dabbing in experiments with crypto, Web3 and blockchain sectors, they are treading lightly due to the lack of clarity in regulations.

The Reserve Bank of India (RBI) favours a ban on the cryptocurrency sector, finance minister Nirmala Sitharaman told the parliament in July.

Calling for a global support on crypto regulations, Sitharaman said the RBI is concerned that the involvement of cryptocurrencies in India's existing financial systems may have a destabilising effect on the monetary and fiscal stability of the nation.

Earlier this year, tax laws around virtual digital assets went live in India but the country still awaits an elaborate framework around the crypto sector.

Cryptocurrency is an unregulated digital currency, not a legal tender and subject to market risks. The information provided in the article is not intended to be and does not constitute financial advice, trading advice or any other advice or recommendation of any sort offered or endorsed by NDTV. NDTV shall not be responsible for any loss arising from any investment based on any perceived recommendation, forecast or any other information contained in the article.