According to the International Monetary Fund, the crash in the crypto market and the decline in Bitcoin have not had any impact on global financial stability.
A new report was recently published by the financial institution in which it acknowledged that the financial system had not suffered from any such consequences because of the sell-off in the financial markets.
Last year in November, Bitcoin reached an all-time high value of $69,000, but its price has plunged almost 70% since then.
There has been a decline in the value of every other cryptocurrency, as the entire market capitalization of the crypto space has come down by two-thirds of its all-time high value.
Those who invest in the financial markets have been dealing with uncertainty brought on by a number of macroeconomic factors, such as the supply chain bottlenecks, the impact of the COVID-19 pandemic, and the conflict between Russia and Ukraine.
It is because of these factors that most investors have turned away from risky assets and have opted for safe-haven options, which means equities and cryptocurrencies are suffering.
Crypto market sell-off
The IMF said in its recent report that there had been a massive sell-off in the crypto market and this had resulted in significant losses for those who had invested in these digital assets.
The turmoil in the crypto market also saw the crash of some tokens and eventually resulted in the bankruptcy and of a number of companies because their operations took a hit.
This was in reference to the crash of the TerraUSD (UST) stablecoin, which had imploded this year in May. The algorithmic stablecoin lost its peg to the US dollar, causing the Terra ecosystem to collapse.
This meant that its sister token, LUNA, also came down to a value of almost zero. Almost $60 billion was wiped out from the crypto market and this crash had ripple effects on the whole crypto industry.
The crash of the UST stablecoin and LUNA token impacted a number of companies that were exposed to it. The crypto hedge fund Three Arrows Capital (3AC) filed for bankruptcy because of its LUNA exposure.
Its filing meant that it defaulted on a loan from Voyager Digital worth $680 million and this prompted Voyager to file for bankruptcy as well.
The crash of the Terra ecosystem and its stablecoin, plus the impact it had on the overall market, has intensified the need for stablecoin regulation.
It has recently become a very hot topic because stablecoins were considered a safer option as opposed to cryptocurrencies and this illusion was shattered.
Therefore, regulatory scrutiny has gone up where stablecoins and even the crypto space is concerned. Countries like Japan and South Korea have already introduced regulations for stablecoins.
In addition, the United States is also working on legislation for stablecoins, as well as the crypto sector, although none of them have been approved as yet and there is still work to do.