Could the recent Crypto crash hurt the global financial system ?: Report -by Ecork

Is cryptocurrency crash a threat to the financial system?

Bitcoin briefly fell below $ 30,000 for the first time in 10 months on Tuesday, while crypto-currencies total lost $ 800 billion in market value last month, according to CoinMarketCap database, as investors are angry about the effectiveness of monetary policy.

Compared with the Fed’s last tightening cycle which began in 2016 crypto is a much larger market, raising concerns about its interconnectivity with the rest of the financial system.

How Great is the Cryptocurrency Market?

In November, the most popular cryptocurrency, bitcoin, hit a record high of $ 68,000, pushing the value of the crypto market to $ 3 trillion, according to CoinGecko. That number was $ 1.51 trillion on Tuesday.

Bitcoin accounts for nearly $ 600 billion of that value, followed by ethereum, with a market capitalization of $ 285 billion.

Although cryptocurrencies have enjoyed explosive growth, the market is still relatively small.

U.S. equity markets, for example, are approaching $ 49 trillion while the Securities and Exchange Commission estimates the astonishing value of U.S. fixed-income stocks at $ 52.9 trillion as of the end of 2021.

Who owns and trades Crypto currencies?

Cryptocurrency started as a retail event, but corporate interest from exchanges, companies, banks, hedge funds and cooperative currencies is growing rapidly.

While data on retail share instead of institutional investors in the crypto market is hard to come by, Coinbase, the largest cryptocurrency exchange in the world, says the institution and individual retail investors account for 50% of the assets on his altar in the fourth quarter.

Its institutional customers sold $ 1.14 trillion in crypto by 2021, up from just $ 120 billion by 2020, Coinbase said.

Most bitcoin and ethereum in payment is held by a few options. A October report from the National Bureau of Economic Research (NBER) found that 10,000 bitcoin investors, both individuals and companies, control about one-third of the bitcoin market, and 1,000 investors own about 3 million shares. -ami bitcoin.

Nearly 14% of Americans invest in digital assets as of 2021, according to a University of Chicago study.

Could a Crypto crash damage the financial system?

While the general crypto market is relatively small, the US Federal Reserve, the Treasury Department and the International Monetary Fund have identified financial stability – digital signals compared to the value of traditional assets – as a threat to monetary stability. .

Stablecoins is widely used to facilitate trading in other digital assets. They are supported by assets that can lose value or become negligent in times of crisis, while the laws and regulations surrounding those assets and investors ’redemption rights are unstable.

That could make stable coins more susceptible to loss of investor confidence, especially in times of crisis, regulators have said.

That happened on Monday, when TerraUSD, a major stability, broke its 1: 1 peg to the dollar and fell as low as $ 0.67, according to CoinGecko. That move in part contributed to the fall of bitcoin.

Although TerraUSD maintains its tie to the dollar through an algorithm, the investor operates on the stability of assets that maintain assets as money or bonds can spread into a traditional financial system, causing stress in the asset classes of it is under, say the directors.

With more companies investing in crypto assets and traditional financial institutions stepping up in the asset class, other risks are emerging, regulators say. In March, for example, the Securities and Exchange Commission warned that banks could be hampered by crypto derivatives and non-threatening cryptocurrencies, for they are working with low historical data.

However, general regulators are divided on the extent of a crypto accident risk to a broader financial system and system.

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