Unregulated Bitcoin Dangerous to Traditional Markets – Research
The study showed the relationship of news on coronavirus and cryptocurrency dynamics
Herding behavior of the digital asset market could affect traditional finance
Regulation of cryptocurrencies is necessary to mitigate adverse impacts.
International consortium of news organizations developing transparency standards.
A study published on the Oxford College Law School blog says cryptocurrency trading needs to be regulated especially carefully during a crisis to prevent a threat to the traditional monetary system..
Cryptocurrency Reacts to Coronavirus Crisis
Jabotinsky and Sarel speculate about why cryptocurrency markets reacted with a crash to the worsening coronavirus pandemic in March. In an article titled How Disaster Impacts Crypto: Coronavirus as a Take a Look at Case, they looked at the impact of the crisis on digital asset dynamics..
According to the researchers, cryptocurrency transactions work without the participation of centralized authorities, so buyers tend to transfer their capital there as soon as they no longer trust governments and banks. They studied the volumes of buying and selling digital assets from January 1 to March 11. They found that the top 100 coins grew with the increase in the number of cases of COVID-19..
Their analysis shows that traders initially viewed cryptocurrencies as a reliable source of liquidity and an effective safe-haven asset. However, since February 28, when the global number of infections exceeded 50 thousand, this pattern began to change. Despite the general increase in morbidity, mortality has stabilized. In their opinion, this could mean that traders perceived the lull in the spread of the disease as a positive signal for traditional marketplaces, prompting them to return to investing in familiar assets..
Limit cryptocurrency to save traditional markets
Cryptocurrency traders are more prone to herding behavior than others. Excessive volatility, crashes, and bubbles are all the result of the same behavior of large groups of people.
Market Manipulation: How To Spot it & Save Your BTC
In addition, there is no clear source of information on the digital currency market, it is full of rumors that are spread through influencers, telegram channels, and sites that register whale activity..
“Informed buyers lure poorly informed players into the market by creating artificial demand for tokens through pumping and dumping schemes.”.
Researchers Hadar Jabotinsky and Roei Sarel believe that herd behavior of investors in cryptocurrency markets during a crisis threatens the stability of the conventional monetary system. The cryptocurrency sector is closely integrated with traditional financial institutions, so the collapse of one of them will inevitably provoke a domino effect. In this regard, it must be carefully regulated to avoid unwanted consequences..
Experts advise regulators to approach the issue carefully so as not to destroy the advantages that ensure the high reliability of the cryptocurrency market during a crisis. For example, they provide secure tokens with which corporations can raise money in the event of a collapse of traditional markets, “which can reduce liquidity restrictions and reduce the threat to the operation of a financial institution.”.
Do you think the volatility of the cryptocurrency markets is really a threat to traditional finance? Share your opinion in the comments.
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