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The IMF warns of the risks of cryptocurrencies


(Agence Ecofin) – Cryptocurrencies have become a financial asset that counts on a global scale. But the fact that its value continues to rise and fall rapidly poses a risk, according to the IMF. A warning that concerns Nigeria.

According to information contained in a blog published on the website of the International Monetary Fund (IMF), cryptocurrencies constitute a risk to watch for investors who engage in them and countries who find an opportunity in them.

“Crypto assets such as Bitcoin have gone from an obscure asset class with few users to an integral part of the digital asset revolution. This raises financial stability concerns,” can we read in the document.

According to the analysis, the problem with these cryptocurrencies is that their value does not reflect an effective economic reality and depends on the decisions of investors based on trends in the financial markets. It thus notes that there is a coincidence between the evolution of the value of the shares of companies listed on the stock exchange, and that of bitcoins.

However, a hypothesis that is regularly put forward is that the current valuation of stock markets in developed countries is due more to the low profitability offered by bonds than to an effective anticipation of increased sales by companies.

In Europe, Japan and particularly in the United States, benchmark debt securities (government bonds) show returns close to zero, zero, or even negative. For investors, the classic safe havens of corporate stocks and commodities are no longer enough. Cryptocurrencies have become a new target.

Indeed, the market value of these unseen assets has risen from $620 billion in 2017 to nearly $3 trillion in November 2021, due to their surge in popularity among retail and institutional investors. At the start of 2022, their combined market capitalization has fallen to around $2 trillion. Which is almost four times the value of 2017.

This alert particularly concerns Nigeria, which is recognized as the first country in the world in terms of the use of Bitcoin, the most important cryptocurrency of the moment. This could also affect countries like Côte d’Ivoire, which dominates the use of this asset in the WAEMU zone. Many analysts, however, are skeptical about the level of loss in value of these currencies.

They are now of interest to large institutional investors, including development banks in Europe, as well as reputable financial groups such as the American Goldman Sachs. Volatility, however, seems inherent to this type of asset, but has not prevented its growth. Beyond the ups and downs, those who have held them since 2017 have multiplied their fortunes. But the question is how long will this last?

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