IMF Sees Stablecoins Can Lead To Another “Crypto Winter”

The crypto market is reeling under pressure as a result of contagion due to the Terra-LUNA crash in May and liquidity crisis in June, with the U.S. interest rate hike adding more pressure to the “crypto winter”. Now, the International Monetary Fund believes the crypto market could see another sell-off and crypto failures, including stablecoins.

IMF Thinks Stablecoins Risks Crypto Winter Recession

Tobias Adrian, Director of Monetary and Capital Markets for the IMF, in an interview on July 27, believes the crypto market selloff isn’t over as stablecoins could lead to another crypto winter. The recent IMF economic outlook report even shows bleak global economic growth in 2022 and 2023.

“We could see further selloffs, both in crypto assets and in risky asset markets, like equities. There could be further failures of some of the coin offerings — in particular, some of the algorithmic stablecoins that have been hit most hard, and there are others that could fail.”

Another crypto selloff could further fail some cryptocurrencies, especially algorithmic stablecoins and even fiat-backed stablecoins.

Adrian says stablecoins not fully backed by cash and treasuries pose greater risks. He pointed to Tether losing its peg to the US dollar after the Terra-LUNA crash as it is not backed one to one and has risky assets. However, some stablecoins backed by cash reserves are less likely to fail.

Tether’s CTO Paolo Ardoino today revealed that USDT holds no Chinese commercial paper. Moreover, its total commercial paper exposure has dropped to nearly 3.7 billion from 30 billion a year ago. Tether plans to further decrease exposure to 200 million by August-end and zero by end of October/early November this year.

The IMF downgraded global economic growth amid soaring inflation, which risks a forthcoming recession. Adrian believes a global regulatory approach is needed to regulate exchanges and wallet providers.

Bitcoin and Ethereum Prices Volatile Amid FOMC Meeting

Bitcoin and Ethereum prices are volatile as the Fed decides on an interest rate hike between 75 or 100 bps. The July FOMC meeting is most significant for the crypto and stock markets as the Fed has put a 100 bps rate hike on the table as a result of inflation rising to 9.1% in June.

Bitcoin and Ethereum prices are currently trading 3% and 8% higher at $21,472 and $1,489, respectively.

Varinder is a Technical Writer and Editor, Technology Enthusiast, and Analytical Thinker. Fascinated by Disruptive Technologies, he has shared his knowledge about Blockchain, Cryptocurrencies, Artificial Intelligence, and the Internet of Things. He has been associated with the blockchain and cryptocurrency industry for a substantial period and is currently covering all the latest updates and developments in the crypto industry.

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