The Banking Executive Magazine - July 2022 Issue

CRYPTOVULNERABILITY TO INFLATION AND TAXES AND MARKET TRENDS Investopedia analysis by Nathan Reiff, reveals that cryptocurrencies are affected by inflation, taxes, and market Trends. Top cryptocurrencies like Bitcoin, Ethereum, and BNB may be more susceptible to external mar- ket factors than some crypto enthusi- asts believe. These and other major tokens fell sharply in the first two weeks of April 2022, with the broader crypto market losing almost $400 billion of value during that time. Analysts view that a "disaster" in the financial markets could send crypto prices plunging even further. While Bitcoin has moved above and below a price threshold of $40,000 throughout most of 2022, the latest price drop is a reminder to investors that decentralized digital tokens may still react strongly to factors such as inflation, taxes, and overall market performance. The recent slump in cryptocurrency price levels may also be due in part to tax season. Federal Reserve increase of interest rates and borrowing costs may be felt most prominently in traditionally riskier areas like cryptocurrency. Ris- ing bond yields could also minimize excess return that investors could achieve from cryptocurrencies rela- tive to safer bets like bonds. Com- bined with persistent inflation and other large-scale economic con- cerns, this shift may cause investors to turn away from cryptocurrencies to safer alternatives. This could be re- flected in the price level of digital to- kens for those who continue to trade in this space. WAY FORWARD FOR ARAB BANKS AND AUTHORITIES This article reveals that cryptocurren- cies can play a major role during in- flation. Below, we suggest some recommendations to Arab banks and authorities to leverage the potential benefits of crypto currencies in ad- dressing and controlling the rising in- flation problem: Recommendation #1. Building expertise Arab banks and authorities should build expertise in developing crypto currency tools and technologies. Recommendation #2. Developing a unified central bank digital currency Central Banks in Arab countries should collaborate to develop a a unified central bank digital currency that can help in addressing the infla- tion challenge caused by excessive printing of fiat money. Recommendation #3. Important role for Islamic Banks in meeting Zero Inflation target Islamic banks can play a key role in helping to keep the inflation down and supporting the Zero Inflation tar- get advocated by the International Monetary Fund. Recommendation #4. Transition to electronic money stan- dard As advocated by the International Monetary Fund, a transition to an electronic money standard holds the dual promise of providing monetary policy firepower to restore full em- ployment quickly while targeting full price stability with zero inflation. the BANKING EXECUTIVE 14 ISSUE 163 JULY 2022