Even as the global economy is battered by the war in Ukraine, rising energy and food prices, and supply-demand imbalances feeding worldwide inflation, the broader financial markets have remained largely unaffected by the sell-off in the cryptocurrency market over the last couple of months, according to the International Monetary Fund (IMF).
High-interest rates plague global economies
In its July update released on July 26, the IMF stated that advanced economies are currently driven by high-interest rates and low valuations of corporates and that liquidity is extremely poor in both equity and fixed-income markets due to uncertainty in the economic outlook.
It further said the cost of borrowing has increased due to weaker currencies and wider dollar funding spreads, and that central banks across the world continue to tackle inflation by tightening monetary policies.
Crypto sell-off has not affected financial markets
“Crypto assets have experienced a dramatic sell-off that has led to large losses in crypto investment vehicles and caused the failure of algorithmic stablecoins and crypto hedge funds, but spillovers to the broader financial system have been limited so far,” the IMF stated.
The IMF’s report refers to the collapse of the Terra blockchain and its native token Luna that rocked crypto markets with Bitcoin losing 70 percent of its value since it reached an all-time high in August last year.
The carnage in the crypto markets rocked several bluechip crypto firms that declared insolvency, further bleeding the markets.
World economy in tatters post-pandemic
The IMF added that the world economy was already in tatters following the COVID-19 pandemic and high-interest rates globally and that a more-than-expected slowdown in China and negative spillovers from the war in Ukraine only exacerbated the situation.
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