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.”
There is significant room for growth in the cryptocurrency universe. Recent data suggest a small amount of American investors own any digital currencies and, after bitcoin, the numbers of crypto ownership dwindle.
In recent days, some market observers have opined that bitcoin’s bear market is close to completion while others have speculated that the digital currency will eventually become the world’s dominant currency.
“Before crypto-assets can transform financial activity in a meaningful and lasting way, they must earn the confidence and support of consumers and authorities,” said Lagarde. “An important initial step will be to reach a consensus within the global regulatory community on the role crypto-assets should play. Because crypto-assets know no boundaries, international cooperation will be essential.”
For more information on the cryptocurrency market, visit our Bitcoin category.