Bitcoin, the largest digital currency, traded modestly higher Tuesday after receiving an important endorsement. Christine Lagarde, the head of the International Monetary Fund (IMF), highlighted some of the benefits of bitcoin.
“Just as a few technologies that emerged from the dot-com era have transformed our lives, the crypto assets that survive could have a significant impact on how we save, invest and pay our bills,” said Lagarde in a blog post.
Recently, some big-name investors, including George Soros and the Rockefeller family, signaled their interest in blockchain technology and cryptocurrenices. That against a backdrop of potentially favorable seasonality. Recently, the Bitcoin Dominance Index has been rising, confirming the dominant perch of the cryptocurrency. After bitcoin, the largest cryptocurrencies are Ethereum, Ripple, Bitcoin Cash and Litecoin.
Assessing Risks
Some regulators have been critical of risks posed by cryptocurrencies with some countries moving to ban transactions in digital currencies and/or exchanges where digital currencies can be traded. Earlier this month, the Reserve Bank of India (RBI) said it is banning banks from dealing digital currencies and Chile recently banned some crypto exchanges. Still, Largarde implies risks of the asset class may be overstated.
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“What are the implications for financial stability? Our preliminary assessment is that, given their still-small footprint and limited links to the rest of the financial system, crypto-assets do not pose an immediate danger,” she said in her blog. “Even so, regulators should remain vigilant: crypto-assets have the potential to magnify the risks of highly leveraged trading, and to increase the transmission of economic shocks should they become more integrated into mainstream financial products.”