Cryptocurrency Crash Pose A Threat To The Financial System?

The cryptocurrency sector is dominated by Bitcoin (BTC), which accounts for $600 billion of that value, followed by Ethereum (ETH), with a $285 billion market cap. On Tuesday, the values of the number one crypto coin fell briefly below $30,000 for the first time in 10 months. A significant fall from the all-time high of more than $68,000 in November when the cryptocurrency market was almost $3 trillion. Today the market value is nearly reduced to half at $1.5 trillion.

The tightening of monetary policy by the Federal Reserve has a significant impact on the stock market and the cryptocurrency market. The cryptocurrency market lost nearly $800 billion in market value last month. The Fed had conducted the previous tightening procedure in 2016, but then crypto was a minuscule of what it is today. Therefore concerns have been raised about the interconnectivity of the cryptocurrency with the present financial regimen.

Size Of The Cryptocurrency Market

The crypto market was booming in November 2021 when Bitcoin hit an all-time high of $68,000. Then, the value of the crypto sector was estimated to be $3 trillion. But today, it is $1.51 trillion. So is the crypto sector closely related to the stock market?

The cryptocurrency sector is minuscule in comparison with the stock market. For example, the U.S. equity markets are worth $49 trillion. In contrast, the Securities Industry and Financial Markets Association has pegged the outstanding value of U.S. fixed income markets at $52.9 trillion as of 2021.

Cryptocurrencies-Who Are The Traders

Cryptocurrency started as a retail process. However, soon, more prominent players like institutional interest from exchanges, companies, banks, hedge funds, and mutual funds began getting involved. While it is impossible to gauge the proportion of the retail versus institutional investors in the crypto market estimates by Coinbase, the world’s largest cryptocurrency exchange pegs the figure as 50% of all the assets traded on the platform in the fourth quarter. One more the fact that Coinbase revealed was that institutional clients sold $1.14 trillion in crypto in 2021, up from just $120 billion in 2020.

Another revealed fact was that 10,000 bitcoin investors, both individuals and entities, own about one-third of the bitcoin market, and 1,000 investors own approximately 3 million bitcoin tokens.

Cryptocurrency Crash Means Trouble For Financial Regimens

United States Federal Reserve, United States Treasury Department has indicted stablecoins – digital tokens attached to the value of traditional assets – as a potential threat to financial stability. The fears were proved true when TerraUSD, a prominent stablecoin, broke its 1:1 peg to the dollar and fell as low as $0.67