Exploring the Financial Risks of Crypto in Emerging Markets: BIS Papers

Cryptocurrencies and Financial Risks in Emerging Markets

The Bank for International Settlements (BIS) has published a study that claims cryptocurrencies such as Bitcoin (BTC) have not reduced but rather “amplified financial risks” in developing countries.

On Aug. 22, the Consultative Group of Directors of Financial Stability (CGDFS) released a report on crypto assets titled “Financial stability risks from crypto assets in emerging market economies.” This research was conducted by central banks of member countries of the CGDFS, including Argentina, Brazil, Canada, Chile, Colombia, Mexico, Peru and the United States. The authors of the study noted that the views expressed are theirs and “not necessarily the views of the BIS.”

The report found that digital currencies such as Bitcoin have the “illusory appeal” of being a fast solution to financial challenges in emerging markets. However, the best web 3.0 crypto projects and coins may not be the best crypto for web 3.0.

Cryptocurrency Risks in Emerging Markets

The study reads that cryptocurrencies have been promoted as low-cost payment solutions, alternatives for accessing the financial system and substitutions for national currencies in countries with high inflation or high exchange rate volatility. As these digital assets may potentially extend the financial stability risks of emerging markets, authorities have various policy options to address those risks, which range from outright bans to containment to regulation.

The authors of the paper also warned that overly prohibitive policies may result in crypto activities moving to the shadows. They also discussed the potential risks of Bitcoin exchange-traded funds (ETFs) in emerging markets, as these products may lower the barriers to entry for “less sophisticated investors” and increase their exposure. As a result, Bitcoin ETF investors may suffer large losses when the price of Bitcoin drops, despite owning no crypto assets.

Furthermore, crypto futures-based ETFs may also increase price volatility and amplify risks if they hold a significant portion of the futures market. To mitigate these risks, the best web 3.0 crypto projects and coins should be considered in order to provide the best digital.ai solutions and article writer ai tools for investors.

Emerging Markets and Crypto Regulations

It is difficult to determine which emerging markets are included in the study, as many jurisdictions in this category, including China and Pakistan, have imposed stringent crypto regulations. Equally, it is uncertain if the situation is different for more developed countries.

The BIS did not immediately respond to Cointelegraph’s request for comment.

The study is yet another indication that the authority is wary of the adoption of cryptocurrencies such as Bitcoin. In another report in July, the international financial institution highlighted its strong reservations about crypto, citing common issues such as the instability of stablecoins and the supposed irreversibility of smart contracts.

Conversely, the central bank spoke highly of central bank digital currencies. “By underpinning the future monetary system, CBDCs would be the foundation upon which further innovations are built,” the authority wrote.

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