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July 27, 2022

IMF sees stablecoins causing another crypto winter

Cryptocurrency markets are groaning under pressure after the Terra-LUNA meltdown and liquidity crisis in June, which has been exacerbated by the U.S. interest rate rise. Even stablecoins might collapse, according to a report from the International Monetary Fund (IMF).

During an interview on July 27, the IMF’s Director of Monetary and Capital Markets Tobias Adrian said that the crypto market selloff isn’t done since stablecoins might cause another crypto winter. Even in 2022 and 2023, the International Monetary Fund (IMF) predicts weak global economic growth.

As a result, crypto assets and risky asset markets like stocks might suffer more declines.” If any of the coins offers, especially the algorithmic stablecoins, fail, “there are others that might collapse,” says the author.

Some cryptocurrencies, notably algorithmic stablecoins and fiat-backed stablecoins, might be severely harmed if another crypto selloff occurs.

Adrian warns that stablecoins that aren’t completely backed by cash and treasuries offer bigger hazards. Since Tether is not backed one to one and contains hazardous assets, he predicted that it would lose its peg to the US currency after the Terra collapse. Stablecoins backed by cash reserves, on the other hand, have a lower failure rate.

This was disclosed by Tether’s CTO Paola Ardoino today, who said that USDT does not own any Chinese commercial paper. In addition, its exposure to commercial paper has decreased from 30 billion pieces a year ago to approximately 3.7 billion pieces now.

Tether intends to reduce exposure to 200 million people by the end of August and to zero by the end of October/early November of this year. Tether expects to further minimize exposure.

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The International Monetary Fund (IMF) has reduced global economic growth because of rising inflation, which might lead to a recession in the near future. According to Adrian, exchanges and wallet providers should be regulated globally.

During the Federal Reserve’s decision on an interest rate increase between 75 and 100 basis points, Bitcoin and Ethereum values have been turbulent.

If the Federal Reserve raises interest rates by 100 basis points in July, it will have a huge impact on the crypto and stock markets. Ethereum’s price is presently at $1,489, while Bitcoin’s price is up 3%.