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The leaders in the G20 summit are closely monitoring the risks of the fast-paced developments in the cryptoasset ecosystem. The New Delhi Declaration while endorsing the Financial Stability Board's (FSB's) high-level recommendations on crypto-assets and stablecoins activities, has also revealed that Finance Ministers and Central Bank Governors will discuss the roadmap on cryptocurrency in a meeting scheduled in October month.

"We continue to closely monitor the risks of the fast-paced developments in the cryptoasset ecosystem. We endorse the Financial Stability Board's (FSB's) high-level recommendations for the regulation, supervision and oversight of crypto-assets activities and markets and of global stablecoin arrangements," the New Delhi Declaration said.

Further, the declaration revealed that G20 leaders have asked the FSB and SSBs to promote the effective and timely implementation of these recommendations in a consistent manner globally to avoid regulatory arbitrage.

The declaration welcomed the shared FSB and SSBs workplan for crypto assets. We welcome the IMF-FSB Synthesis Paper, including a Roadmap, that will support a coordinated and comprehensive policy and regulatory framework taking into account the full range of risks and risks specific to the emerging market and developing economies (EMDEs) and ongoing global implementation of FATF standards to address money laundering and terrorism financing risks.

In the IMF-FSB Synthesis Paper: Policies for Crypto-Assets, it said, "At the request of the Indian G20 Presidency, the IMF and the FSB have developed this paper to synthesise the IMF's and the FSB's (alongside SSBs') policy recommendations and standards. The collective recommendations provide comprehensive guidance to help authorities address the macroeconomic and financial stability risks posed by crypto-asset activities and markets, including those associated with stablecoins and those conducted through so-called decentralised finance (DeFi)."

The IMF-FSB paper looks at the key risks to macroeconomic stability, financial stability, and other areas (such as legal, financial integrity and market integrity-related risks), posed by crypto-asset activities. It then presents policy responses to these risks in the areas of --- macro-financial policies; financial stability regulation; and other policies and regulations.

Some of the risks identified by the paper is that the widespread adoption of crypto-assets could threaten the effectiveness of monetary policy. The transmission of monetary policy would weaken if firms and households prefer to save and invest in crypto-assets that are not pegged to the domestic fiat currency or to use them as payment instruments or mediums of account.

Also, the spread of crypto-assets can increase fiscal risks. New fiscal risks can arise from the financial sector's exposure to the crypto-asset ecosystem, the lack of clarity of tax regimes, and the cross-border nature of crypto-assets. In turn, crypto-assets can affect tax revenue collection and compliance, even when not adopted as legal tender, the paper said.

If crypto-assets are granted legal tender status or official currency status, government revenues could be exposed to exchange-rate risk. Such risks would be significant if taxesare quoted in advance in a crypto-asset while expenditures remained mostly in other local currencies, the paper further highlighted.

Moreover, the paper explained that crypto-asset adoption can increase risks to public finances even without changing legaltender or official currency laws. Pseudonymous crypto-assets can undermine tax revenue collection and compliance since withholding taxes and third-party information could be challenging to collect. Finally, differences in cross-border tax treatment of crypto-assets may open loopholes for tax avoidance.

The roadmap recommended by IMF-FSB includes planned and ongoing work related to the implementation of crypto-asset policy frameworks, which taken together seek to: build institutional capacity beyond G20 jurisdictions; enhance global coordination, cooperation, and information sharing; and address data gaps necessary to understand the rapidly changing crypto-asset ecosystem.

The progress report will be reported to the Finance Ministers and Central Bank Governors (FMCBG) in the meeting.

Lastly, the New Delhi Declaration also welcomed the BIS Report on The Crypto Ecosystem: Key Elements and Risks.

Under the BIS report, there are three main takeaways. First, due to underlying economic incentives, the crypto ecosystem is characterised by congestion and high fees, which lead to fragmentation. Second, despite an original ethos of decentralisation, crypto and decentralised finance (DeFi) often feature substantial de-facto centralisation, which introduces various risks. Third, while DeFi mostly replicates services offered by the traditional financial system, it amplifies known risks. Moreover, as DeFi does not finance activity in the real economy, its growth is driven by the speculative influx of new users, with substantial risks to investors.

In conclusion, the BIS report outlines policy options to mitigate the multiple risks crypto poses to investors, the traditional financial system and the economy at large.

Before the global financial crisis in 2008, cryptocurrency were not so much in trend, however, it gained popularity when someone created Bitcoin in 2019. Up till this date, the creator of Bitcoin is a debatable topic, Some of the key names that came to light to be linked with Bitcoin would be a person, or group of people, using the alias Satoshi Nakamoto. It is still not proven who created Bitcoin.

Bitcoin which is currently the largest cryptocurrency in the market, influenced many other births of new cryptos and stablecions. Notably, the stablecoins gained popularity from 2020.

Nevertheless, Bitcoin and the overall general crypto market have been a matter of concern for regulators across the world. The fact that the majority of cryptocurrencies lack transparency, or proper management alongside their uniqueness of being a bubble and extremely volatile in nature, has kept many investors and experts on the edge to draw an outlook of this market. Once Warren Buffett viewed cryptocurrency as a gamble, without any intrinsic value and resources.

For example, when Russia invaded Ukraine in February 2022, global markets entered into a severe bearish phase owing to multi-decadal rises in inflation, supply-chain constraints, energy crises and so much more. Cryptocurrency too faced the brunt but the havoc in this market was spellbounding. Some of the key shocks were the $40 billion erosion in old Terra sisters, and the liquidity crunch in crypto exchanges like FTX, BlockFi, Celsius Network, Genesis Global Capital, Voyager Digital Three Arrows Capital, and Gemini Trust, etc.

On CoinMarketCap, currently, there are over 1.8 million cryptocurrencies including stablecoins and 670 exchanges.

Read more:

Roadmap For Regulations On Crypto Assets, Stablecoins To Be Discussed In October; What To Expect? - Goodreturns