The International Monetary Fund has joined the chorus of concern over crypto assets, warning that their rapid growth and increasing adoption are a threat to financial stability.

At a global level, “financial stability risks appear contained for now,” but with “limited or inadequate disclosure and oversight, the crypto ecosystem is exposed to consumer fraud and market integrity risks,” the IMF said in a chapter from its forthcoming Global Financial Stability Report.

“Risks can be further amplified by the use of leverage offered in crypto exchanges, which has been as high as 125 times the initial investment,” according to the fund, which also noted that “The anonymity of crypto assets and limited global standards create significant data gaps for regulators.”

The market capitalization of crypto assets reached an all-time high of $2.5 trillion in May. After a 40% plunge that month, the market value is back over $2 trillion, up 170% year to date.

“Most crypto assets are highly volatile, speculative assets,” the IMF said, highlighting decentralized finance (DeFi) products — many of which “contain risk disclosures that do not adequately warn against their large and volatile returns” — and stablecoins.

“In the future, a widely used stablecoin or DeFi service with a reach and use across multiple jurisdictions could scale up quickly and become systemically important,” the IMF suggested.

The fund also expressed concern that in emerging markets, the advent of crypto assets could accelerate the “cryptoization” of local economies and circumvent exchange and capital control restrictions. In September, El Salvador became the first country in the world to adopt bitcoin as legal tender.

“Increased trading of crypto assets in these economies could lead to destabilizing capital flows,” the IMF said.

The report recommends that “As a first step, regulators and supervisors need to be able to monitor rapid developments in the crypto ecosystem and the risks they create by swiftly tackling data gaps.”

Additionally, “Emerging markets faced with cryptoization risks should strengthen macroeconomic policies and consider the benefits of issuing central bank digital currencies.”

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