An International Monetary Fund (IMF) division chief and deputy managing director are calling for more action to be taken in the regulatory aspect to avoid crypto’s ups and downs affecting banks and traditional financial institutions. Nobuyasu Sugimoto, deputy division chief of the financial supervision and regulation division of the IMF, and Bo Li, deputy managing director at the IMF, believe that, given the growing links between legacy finance and crypto, cryptocurrency’s volatility might bring systemic risks to the existing markets.
IMF Blog Post Calls for Containing Future Crypto Contagion
The volatility and instability of cryptocurrency markets are starting to worry regulators from all over the world. On Jan. 18, Nobuyasu Sugimoto, deputy division chief of the financial supervision and regulation division of the IMF, and Bo Li, deputy managing director at the IMF, issued an article warning about the effect that the volatility of crypto markets might have on the existing financial system.
The article remarks that the instability developed in crypto markets as a result of the different collapses of tokens and exchanges might affect traditional markets and institutions, given the current deepening of the links between these two systems.
Regulating these markets is one of the elements to prevent this from happening, according to the authors, who also indicate that investors in developed markets have been flocking to some of these assets due to the returns they offer. The IMF Blog post states:
Advanced economies are also susceptible to financial stability risks from crypto, given that institutional investors have increased stablecoin holdings, attracted by higher rates of return in the previously low-interest rate environment.
Risks of Substitution and Cryptoization
While the IMF still does not consider crypto and stablecoins as serious risks to the global financial system, some countries are substituting their currency with crypto and stablecoins, making international control of these funds especially difficult. For Sugimoto and Li, this situation has “the potential to cause capital outflows, a loss of monetary sovereignty, and threats to financial stability, creating new challenges for policymakers.”
This can be seen in economies that are being rammed with high levels of inflation and devaluation at the same time, with citizens losing trust in their fiat currencies and flocking to other alternatives, such as dollar-pegged stablecoins.
To control these risks, the blog post authors recommend setting up global regulations for virtual asset service providers, forcing customer assets to be segregated from the holdings of these companies. Also, stablecoin issuers should be heavily regulated, and are even advised to exert bank-like regulations, depending on the size of the project. Experts have stated before that a run on stablecoins might affect the U.S. Treasuries market.
Also, the global implementation of the Basel Committee directives, a standard on how much cryptocurrency exposure banks can have at any point in time, must be accelerated.
What do you think about the considerations of the IMF Blog post authors regarding cryptocurrency contagion risks? Tell us in the comments section below.
Sergio is a cryptocurrency journalist based in Venezuela. He describes himself as late to the game, entering the cryptosphere when the price rise happened during December 2017. Having a computer engineering background, living in Venezuela, and being impacted by the cryptocurrency boom at a social level, he offers a different point of view about crypto success and how it helps the unbanked and underserved.
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Ki Young Ju, the CEO of data analytic firm CryptoQuant is convinced that Bitcoin is on the cusp of a major lift-off as crypto traders continue to switch from a risk-off to risk-on mode.
Earlier yesterday, Young tweeted that Bitcoin had “entered into the early bull phase”, suggesting that the top cryptocurrency by market capitalization could be preparing to push higher. Despite plunging by roughly 77% on the back of macroeconomic headwinds and a wider route in the crypto industry last year, Bitcoin has had a good run so far this year. This month alone, the crypto asset’s value grew over 40%, fully recovering from the FTX-induced sell-off and perching above levels last seen in August.
According to Young, whereas the asset’s price could pull back following the recent pump, there is a higher chance that it will continue to rise as various metrics turn positive. Highlighting the MVRV ratio, a profit and loss indicator that measures if the bitcoin price is undervalued or overvalued, the pundit noted that most investors were still underwater, reducing the incentive to sell.
Typically, when MVRV is above 3.7 (red area), bitcoin is said to be overvalued (market tops), and when it is below 1 (green area), bitcoin is said to be undervalued (market bottom). Recently the MVRV indicator moved above 1 (1.07), signalling the beginning of a bull cycle.
In Young’s words;
“No one would want to sell here at a significant loss. If someone sells a lot, it’s highly likely forced & unwanted selling due to bankruptcy, government-seized coins, etc.”
On Wednesday, Young also stated that there was a likelihood that wealthy investors would purchase struggling US-based Bitcoin (BTC) mining companies and their crypto holdings at a discount this year, preventing further miner capitulation. According to him, such acquisitions would significantly remove systematic risks associated with the mining sector, igniting a bullish storm for BTC and other cryptocurrencies.
“BTC miner capitulation might play out differently this time. Less likely, but it could be bullish if someone(s) acquires US-based Bitcoin mining companies and their crypto holdings at a significant discount this year,” he said.
Notably, the total supply of BTC in loss hit a 9-month-low this week, the lowest since April 2022, when Bitcoin was trading in the $40,000 range. Cryptoquant noted that “every time the supply in loss reaches values above 50%, capitulations occur, and price bottoms can be identified along Bitcoin’s history.” Currently, 32% of Bitcoin’s total supply is in loss after dropping from about 55% a month ago.
At press time, Bitcoin was trading at $23,049, up 0.14% in the past 24 hours, according to data from CoinMarketCap.
The tragedy of FTX appears to be becoming more personal, as the bankrupt exchange’s legal counsels are now seeking to drag the founder’s family members and grill them about how they established their affluence.
In a court filing, FTX attorneys requested that Sam Bankman-Fried’s parents, Joseph Bankman and Barbara Fried, testify under oath and produce financial papers regarding their personal fortune as part of the company’s effort to reclaim funds that may be used to repay creditors.
Gabriel, the brother of former FTX CEO Bankman-Fried, will also be questioned in court over any financial benefits he may have gotten from the company.
SBF, although being collaborative to the point of spending the rest of his life in prison, has neglected to provide federal prosecutors with all the necessary information regarding the diverted money, resulting in the current situation.
Lawyers Seek Answer From SBF Family If They Received Money From FTX
In light of claims that FTX shifted billions of dollars in investor cash to prop up his Alameda Research trading unit, federal authorities have accused him with fraud. SBF entered a not-guilty plea.
According to reports, other FTX executives may be subject to the same inquiry in an attempt to locate assets associated with the bankrupt cryptocurrency exchange.
Sources also have it that Bankman-Fried’s mother provided tax advice and recruitment assistance to FTX personnel.
FTX former CEO, Sam Bankman-Fried. Image: CNA.
Reportedly, his father served as a tax counsel to employees of the company and provided recommendations for the appointment of the company’s legal team.
Supposedly, Gabriel established a lobbying group and housed its operations in a mansion worth several million dollars not far from the U.S. Capitol.
It has been stated that his mother and brother are not helping with the investigation that is currently taking place into FTX.
Reuters reported in November that Bankman-Fried’s parents were signatories on a $16.4 million residence in the Bahamas, which was designated in property records as a “holiday home.”
FTX Owes Thousands Of Creditors Money
SBF faces eight criminal counts, including violations of campaign finance regulations and wire fraud. Since his extradition from the Bahamas to the United States, he has been under house arrest at his parents’ home. His trial is scheduled to commence in October.
After the collapse of the once-powerful cryptocurrency exchange in November, newly released bankruptcy records revealed thousands of creditors to whom FTX owes funds.
Wall Street stalwarts like JPMorgan and Goldman Sachs were included on the 116-page list of creditors, which also included firms, charities, people, and other institutions.
Crypto total market cap at $996 billion on the daily chart | Chart: TradingView.com
Meanwhile, FTX has opposed to a request from the U.S. Department of Justice for an independent inquiry into the company’s collapse, claiming that it is already conducting a comprehensive review that includes family members of SBF.
FTT, the native token of the FTX cryptocurrency exchange, had risen by 185% over the last 30 days.
At the time of writing, the altcoin was trading for $1,940, a decrease of approximately 22% from its previous price of $2,4.00.
New CCO brings three decades of financial services experience
SAN FRANCISCO – Jan. 24, 2023 – Kraken, one of the world’s largest and most-trusted crypto platforms, today announced the appointment of CJ Rinaldi as Chief Compliance Officer. CJ’s decades of experience, both in traditional and decentralized finance, will further strengthen Kraken’s compliance program amid a fast-evolving regulatory landscape.
“To accelerate the adoption of cryptocurrencies around the world, Kraken must continue to navigate an increasingly complex regulatory landscape,” said Kraken’s incoming CEO David Ripley. “CJ’s impressive international career in both the private and public sectors positions us for continued success in meeting global compliance needs.”
CJ was previously Chief Compliance Officer at Blockchain.com, where he was tasked with building out global compliance frameworks and mitigating compliance risk for the firm. Prior to that, CJ had several roles at Deutsche Bank, including Chief Compliance Officer for its swap dealer and US broker dealer. He also served as Head of Business Line Anti-Financial Crimes Compliance supporting its investment bank, where he led a global team tasked with mitigating financial crime risk, implementing procedures and controls through effective and efficient operational solutions.
“Kraken’s commitment to security and transparency while building world class products and services makes it the gold standard in an industry that’s shaping the future of finance. It is trusted players like Kraken that will help ensure the crypto ecosystem operates within all regulatory frameworks” says Rinaldi. “I am excited to grow Kraken’s data-driven approach to compliance, ensuring the protection of both the company and its clients.”
Prior to Deutsche Bank, CJ worked at UBS Investment Bank in multiple roles, including as Global Head of Client Infrastructure. He also served as Senior Counsel in the Enforcement Division of the U.S. Securities and Exchange Commission.
For more information, please visit kraken.com or reach out to [email protected].
Kraken is one of the world’s longest-standing digital asset platforms. Globally, Kraken clients trade more than 200 digital assets and 8 different national currencies, including GBP, EUR, USD, CAD, JPY, CHF, AUD and AED.
Kraken was founded in 2011 and was one of the first exchanges to offer spot trading with margin, parachain auctions, staking, regulated derivatives and index services. In 2022, it launched a custodial NFT marketplace. Kraken is trusted by over 9 million traders and institutions around the world and offers professional, round-the-clock online support. Kraken was the first company to have ever conducted a Proof of Reserves audit and has since committed to undergoing Proof of Reserves on a regular basis.
Kraken is backed by investors including Tribe Capital, SkyBridge, Hummingbird Ventures, Blockchain Capital, Digital Currency Group, among others.
Kraken markets can be monitored and traded through the Kraken iOS and Android apps, and through the Cryptowatch iOS, Android and Desktop apps.
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