News on Crypto: The IMF Believes Stablecoins Might Lead to Another Crypto Winter

The “crypto winter” has already been exacerbated by the U.S. interest rate hike and the contagion effects of the Terra-LUNA crash in May and the liquidity crisis in June on the cryptocurrency market. The International Monetary Fund (IMF) has recently expressed concern that the cryptocurrency market, including stablecoins, could see yet another sell-off and failure.

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Stablecoins Could Cause a Crypto Winter Recession

Tobias Adrian, the IMF’s Director of Monetary and Capital Markets, said in an interview on July 27 that he thinks stablecoins will cause another crypto winter and so prolong the market selloff. Even for 2022 and 2023, the IMF forecasts gloomy global economic growth.

Further selloffs are possible in crypto assets as well as other hazardous asset markets such as equities. Some coin offerings may not succeed, including those that rely on algorithmic stablecoins, which have been among the most affected.

Some cryptocurrencies, such as algorithmic stablecoins and even fiat-backed stablecoins, could be doomed if there is another market downturn in crypto.

Risks are higher, according to Adrian, for stablecoins that are not fully backed by cash and treasuries. Because it is not backed one to one and has risky assets, Tether lost its peg to the US currency after the Terra-LUNA catastrophe, he said. But stablecoins backed by cash reserves have a lower risk of collapse.

The USDT does not hold any Chinese commercial paper, as confirmed by Tether’s CTO Paolo Ardoino today. In addition, the company’s exposure to commercial paper has decreased from $30 billion a year ago to approximately $3.7 billion. By this year’s end, Tether hopes to have cut its exposure to $200 million, and by the end of October/early November, it will have eliminated all of its exposure altogether.

Because of rising inflation, the IMF has reduced its forecast for global economic growth. This could lead to a recession in the near future. Adrian thinks exchanges and wallet providers ought to be regulated on a worldwide scale.

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Amid FOMC Meeting, Bitcoin and Ethereum Prices Fluctuate

Due to uncertainty over whether or not the Federal Reserve would raise interest rates by 75 or 100 basis points, the prices of bitcoin and ether have fluctuated recently. The Fed has signaled that a rate hike of 100 basis points will be on the table at their July FOMC meeting in response to inflation climbing to 9.1 percent in June, making this meeting extremely important for the crypto and stock markets.

Bitcoin is trading at $21,472, up 3%, while Ethereum is trading at $1,489, up 8%.