Is the collapse of the cryptocurrency a threat to the financial system?

Is the collapse of the cryptocurrency a threat to the financial system? – Mail Bonus

WASHINGTON – On Tuesday, Bitcoin fell briefly below $ 30,000 for the first time in 10 months, but cryptocurrencies have lost nearly $ 800 billion in market value over the past month, according to CoinMarketCap data site, as investors worry about monetary restraint. Compared to the Central Bank’s last austerity cycle, which began in 2016, cryptocurrencies are a much larger market, raising concerns about its interconnection with the rest of the financial system.


In November, the most popular cryptocurrency, bitcoin, reached a historic high of more than $ 68,000, pushing the value of the cryptocurrency market to $ 3 trillion, according to CoinGecko. That figure was $ 1.51 trillion on Tuesday.

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

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

US stock markets, for example, are worth $ 49 trillion, while the Confederation of Securities and Financial Markets has tied the outstanding value of US bond markets at $ 52.9 trillion by the end of 2021.


Cryptocurrency started as a retail phenomenon, but the interest of institutions from stock exchanges, companies, banks, hedge funds and mutual funds is growing rapidly.

Although it is difficult to obtain data on the retail ratio of institutional investors in the cryptocurrency market, Coinbase, the world’s largest cryptocurrency exchange, said that institutional investors and retail investors each accounted for 50% of their fourth-quarter assets.

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

Most bitcoin and ethereum in circulation are owned by a select few. An October report by the National Bureau of Economic Research (NBER) found that 10,000 bitcoin investors, both individuals and individuals, control about a third of the bitcoin market and 1,000 investors own approximately 3 million bitcoin tokens.

About 14% of Americans were invested in digital assets as of 2021, according to research by the University of Chicago.


Although the overall cryptocurrency market is relatively small, the US Federal Reserve, the Treasury Department and the International Financial Stability Board have labeled stablecoins – digital tokens related to the value of traditional assets – as a potential threat to financial stability.

Stablecoins are mainly used to facilitate trading in other digital assets. They are backed by assets that can lose value or become illiquid in times of market stress, while the rules and disclosure of these assets and investors’ redemption rights are murky.

That could make stablecoins susceptible to a loss of investor confidence, especially in times of market stress, regulators have said.

It happened on Monday, when TerraUSD, a major stablecoin, broke a 1: 1 bond with the dollar and fell to $ 0.67, according to CoinGecko. That move contributed in part to the fall of bitcoin.

Although TerraUSD maintains its relationship with the dollar through algorithms, investing in stablecoins that hold reserves in assets such as cash or commercial papers could spill over into a traditional financial system, causing stress in these underlying asset classes, regulators say.

As the wealth of more companies is tied to the performance of cryptocurrencies and traditional financial institutions that are more in the asset class, other risks are emerging, regulators say. In March, for example, the currency’s monetary watchdog warned that banks could be exposed to cryptocurrencies and unprotected cryptocurrencies, as they deal with little historical price information.

However, regulators generally disagree on the magnitude of the threat posed by the collapse of cryptocurrencies to the financial system and the wider economy.

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