Cryptocurrency is not an obscure asset class, yet a mounting correlation with the stock market undermines Bitcoin and other crypto’s “investment hedge” role.

This is according to new findings published by the International Money Fund (IMF), which also underscores the new risks linked to the growing connection between digital assets and financial markets.

Compiled by IMF Monetary and Capital Markets Department director Tobias Adrian along with economist Tara Iyer and Research deputy division head, Mahvash S. Qureshi, the report says the heightened correlation between crypto assets and stocks “limits their perceived risk diversification benefits and raises the risk of contagion across financial markets.

“Crypto assets such as Bitcoin have matured from an obscure asset class with few users to an integral part of the digital asset revolution,” the research went on to say.

The report identified that crypto assets helped diversify risk for investors by acting as a hedge against shifts in other asset classes before the Covid crisis. “But this changed after the extraordinary central bank crisis responses of early 2020,” with the report going on to add that crypto and stocks soared hand in hand as investor risk appetite increased, Cointelegraph reports.

In addition, the correlation coefficient between Bitcoin and the S&P 500 index has risen 3,600%, edging up from 0.01 to 0.36 after April 2020, indicating they have been increasing and dipping more closely since the pandemic.

As such, the more robust correlation brings heightened risks for Bitcoin, says the IMF report: “Given their relatively high volatility and valuations, their increased co-movement could soon pose risks to financial stability especially in countries with widespread crypto adoption.”

The authors of the research again urged for a global regulatory framework “to guide national regulation and supervision and mitigate the financial stability risks stemming from the crypto ecosystem.”