The cryptocurrency market offers the potential for huge financial rewards for investors who aren’t afraid of a little risk, however its impact on world financial markets is still being sorted out.
The debate about its impact on financial markets is likely to heat up now that El Salvador has become the first nation to accept Bitcoin as legal tender, according to a report from National Public Radio (NPR). The country invested in about 550 Bitcoin, worth approximately $26 million, according to the report.
“We must break with the paradigms of the past. El Salvador has the right to advance toward the first world,” said the country’s president, Nayib Bukele, according to NPR.
The growth is measurable, with the International Monetary Fund (IMF) reporting that as of September, global cryptocurrency assets surpassed the $2 trillion mark.
“Crypto assets offer a new world of opportunities: Quick and easy payments. Innovative financial services. Inclusive access to previously ‘unbanked’ parts of the world,” the IMF said on its website. “All are made possible by the crypto ecosystem.”
However, investors tread at their own peril. Citing the Federal Trade Commission, TechCrunch reported in a blog that from October 2020 to March of this year, $80 million was lost by 7,000 crypto users. That money is lost because there is no regulation, such as the Federal Deposit Insurance Corporation in banking, to cover losses, according to the blog.
“The scams include fake currency exchanges and phony ‘investment’ websites selling the currency,” TechCrunch wrote in its blog.
According to the IMF blog, the anonymity that comes with cryptocurrency can lead to sketchy transactions, including money laundering and the financing of terrorism around the world. It also noted that while the risks linked with financial stability are not widespread, those risks should be closely monitored.
While cryptocurrency can have benefits for emerging economies, the IMF noted it is often underfunded and can lead to issues. It pointed out that as trading of crypto increases, capital flows could be negatively impacted.
To head off any financial stability issues, the IMF noted in its blog that it is imperative that regulators watch for any sudden changes in the crypto market and monitor potential risks that could result. Leaders also should coordinate between nations to lessen the potential for negative impacts and ensure effective regulation.