IMF Official Suggests People Not Abandon Crypto After Terra's Crash

The digital assets industry saw the year's second-largest outflow as investors pulled out some $141 million (roughly Rs. 1,109 crore) from the industry last week following Terra's recent crash. Kristalina Georgieva, the managing director of the International Monetary Fund (IMF) has however urged members of the crypto community to not abandon these virtual assets just yet. Georgieva showed a soft approach towards the crypto sector while speaking at the ongoing World Economic Forum's annual meeting in Davos, Switzerland.

“I would beg you not to pull out of the importance of this world. It offers us all faster service, much lower costs, and more inclusion,” Bloomberg quoted Georgieva as saying.

In a video clip posted by the IMF official on her Twitter handle, she can be heard emphasising on the need for global lawmakers to regulate the crypto sector and educate investors about the risks and benefits.

The downfall of Terra earlier this month, has sent shockwaves across the virtual assets industry. The LUNA token, that fell in value by nearly 99 percent over the week, serves as the governance token of Terra.

The plunge of Terra, that started two weeks ago, is largely being blamed on the destabilisation of Terra USD's (UST) peg to the dollar which led to the conversions of UST for LUNA on a mass level.

At its peak, Terra was the eighth largest crypto token with a market cap of about $25 billion (roughly Rs. 1,93,150 crore). Its crash seemingly jeopardised the trust of investors on even solid projects.

Georgieva however noted that virtual assets also vary in categorisation and some assets are lesser prone to losses than others.

She said there is also a difference between stablecoins that are backed by cash as well as other assets and those that rely on algorithms to maintain their value, like the Terra coin.

“The less there is backing it, the more you should be prepared to take the risk of this thing blowing up in your face,” Georgieva added.

Her statements, seemingly supporting regulation and education around the crypto industry, came as a fresh change of pace from IMF's otherwise reluctant approach to the digital assets space.

The IMF has previously suggested El Salvador to delist Bitcoin as a legal tender citing financial repurcussions.

The IMF MD was speaking as part of a panel that had other guests including Francois Villeroy de Galhau, governor at the Central Bank of France.

The French financial official had different opinions on crypto, as he said that Terra's crash has garnered people's trust in central banks as opposed to cryptocurrencies.