Experts have called for caution and regulation as the total market value of all the crypto assets surpassed $2 trillion – a 10-fold increase since early 2020.
They warned that many of these entities lacked strong operational, governance and risk practices.
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Financial experts with the International Monetary Fund (IMF), Dimitris Drakopoulos, Fabio Natalucci and Evan Papageorgiou, who noted that crypto assets offered a new world of opportunities warned that along with the opportunities were challenges and risks.
The trio noted in an article on IMF’s blog that crypto exchanges, for instance, had faced significant disruptions during periods of market turbulence, adding that there were also several high-profile cases of hacking-related thefts of customer funds.
The financial experts argued that consumer protection risks remained substantial, given limited or inadequate disclosure and oversight.
“For example, more than 16,000 tokens have been listed in various exchanges and around 9,000 exist today, while the rest have disappeared in some form. For example, many of them have no volumes or the developers have walked away from the project. Some were likely created solely for speculation purposes or even outright fraud,” they noted.
They also opined that the anonymity of crypto assets created data gaps for regulators and could open unwanted doors for money laundering, as well as terrorist financing. They stressed that although authorities may be able to trace illicit transactions, they may not be able to identify the parties to such transactions.
The extent of the adoption of crypto assets is difficult to measure; however, surveys and other measures suggest that emerging markets and developing economies like Nigeria may be leading the way. Most notably, residents in these countries increased their trading volumes in crypto exchanges sharply in 2021.
“Looking ahead, widespread and rapid adoption can pose significant challenges by reinforcing dollarisation forces in the economy – or in this case cryptoization – where residents start using crypto assets instead of the local currency. Cryptoization can reduce the ability of central banks to effectively implement monetary policy,” they said.
They urged regulators and supervisors to monitor rapid developments in the crypto ecosystem and the risks they create by swiftly tackling data gaps, stressing that the global nature of crypto assets means that policymakers should enhance cross-border coordination to minimise the risks of regulatory arbitrage and ensure effective supervision and enforcement.
The experts also wanted national regulators to prioritise the implementation of existing global standards.
