One of the directors working with the International Monetary Fund (IMF) recently issued a warning about the crypto market.
According to him, both equities and crypto assets are likely to see more selloffs in the future and he also said that more crypto tokens were likely to fail.
More selling pressure
The IMF’s director of Monetary and Capital Markets, Tobias Adrian recently issued a warning about higher selling pressure in the crypto market.
He gave an interview to Yahoo Finance in which he said that more crypto tokens were likely to become failures.
He said that risky asset markets were likely to see more selloffs and this included both crypto assets as well as equities.
The IMF director said that as far as coin offerings are concerned, more failures would be seen, particularly in algorithmic stablecoins that have already taken a hard hit.
Moreover, if an economic recession is to happen, the IMF director believes that crypto would take an even harder hit and it would drop even more than it already has.
The Terra fiasco
Back in May, the crypto market was shaken when the crypto token terra (LUNA) and the algorithmic stablecoin TerraUSD (UST) collapsed.
This had prompted Gary Gensler, the chairman of the US Securities and Exchange Commission (SEC) to warn that there would be other failures in crypto tokens as well.
Adrian also issued a warning about the potential of stablecoins that are backed by fiat currency. This is something that has also been highlighted by US Treasury Secretary Janet Yellen and the US Federal Reserve.
The IMF executive particularly mentioned Tether (USDT) and said that it is not pegged 1-on-1 to the US dollar, which means there is a lot of vulnerability there.
He also said that some of the stablecoins out there are backed by risky assets. Hence, the fact that they are not backed by cash-like assets fully leaves them vulnerable to risks.
However, Adrian also added that the risk was not the same as it had been in the financial crisis of 2008. He said that back then, the problem was that banks had been highly exposed to shadow banks.
But, there has not been any such exposure of banks to crypto in the same way.
But, it should be noted that the IMF director acknowledged that regulations are needed for protecting investors as well as the financial system.
Adrian said that given that there is a huge number of cryptocurrencies that already exist, regulating them individually would be immensely difficult.
Instead, he said that it would be feasible and concrete to regulate the entry points for investing in these cryptocurrencies, such as wallet providers and exchanges.
A report was also published by the IMF on Tuesday, which highlighted that there had been a dramatic selloff in the crypto market that had resulted in hefty losses.
These losses had resulted in failures of crypto hedge funds and algorithmic stablecoins, but the broader financial system had not seen any major impacts.