The Crypto market capitalization has plunged from $3.1 trillion to the current $1.28 trillion. This raises some concerns about whether Cryptos are an existential risk to the financial and economic system. However, when NBC News went on a fact-finding mission, experts allayed the fears. They confirmed that the Crypto bearish cycle would not negatively impact the financial and macro-economic system.
Institutional Investors Have Limited Exposure
According to one expert, Joshua Gans, an economist at the University of Toronto, institutional investors have limited exposure to digital assets. One ideal example is Tesla which owns $1.261 billion worth of digital assets out of an asset book of over $59 billion as per its recently released financial statements. The digital asset portfolio is further not diversified as it mostly comprises 42,000 BTC and an unspecified number of Doge tokens.
The scenario is replicated in other institutional investors. Most of them are hodling Crypto using the same financial rationale to invest in risky stocks such as tech shares.
Banks Have Dedicated Departments for Digital Assets Portfolio Management
Most importantly, financial institutions that have historically heralded financial crises have a prudential Digital asset management policy. Therefore, they can foresee market cycles and decide whether to short-sell or long-sell their digital assets to either hedge their losses or maximize their gains. Hence, financial institutions ensure that they insulate themselves from Crypto market risks, affecting their liquidity and stability positions that can jeopardize their clients.
Additionally, the Crypto market is comparatively small compared to other industries, such as the real estate market, which has a value of $43.4 trillion. On the other hand, Gold has a global market capitalization of $10 trillion, according to a Goldman Sachs report. Therefore, a bearish and volatile Digital asset market is unlikely to impact any vital economic sector in the short or medium term.
The Rise of Stablecoins Is Shoring Cryptocurrency Adoption
Stablecoins such as USDT and USDT are at the center of promoting the adoption of Cryptocurrencies. Following the recent recognition of Stablecoins as a means of payment, the world is likely to experience the adoption of Cryptos in general at an increasing rate.
However, the Financial Services and Markets Bill proposing the enactment of this policy excludes algorithmic Stablecoins from the bill. This follows the recent plunge of the TerraUSD token, sparking concerns from Crypto enthusiasts who believed in Stablecoins and governments worldwide who had taken a soft stance on digital assets of this nature.
Nonetheless, the Crypto market remains an ideal investment option for investors. Particularly, BTC pairs attract high investor confidence across various trading platforms such as Binance.