A report from S&P Global Ratings - leading provider of credit ratings, suggested that a cryptocurrency market collapse would hurt retail investors the most. Whereas, institutional investors such as banks and financial institutions would not suffer a major impact on its business.
According to their researchers, retail investors, opposed to institutional organizations, will experience the most impact of a crypto market crash. As noted by CNBC, the report stated “At this stage, we think that retail investors would be the first to bear the brunt in the event of a collapse in cryptocurrencies' market value. We expect rated banks to be largely insulated, given that their direct or indirect exposure to cryptocurrencies appears to remain limited.”
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Over the past 12 months, cryptocurrencies have gained a fair amount of popularity and enticed many to invest into it due to its high Return On Investment (ROI). The crypto space even saw institutional investors dive into crypto space as Cboe and CME group launched Bitcoin futures.
Cryptocurrencies unregulated nature pose a risk to the investments made by retail investors. Bitcoin had a difficult start of the year as the price considerably dropped from its all-time high of $20,000. However, since then it has recovered steadily.
At the start of February, both traditional and crypto markets crashed. The conjunction dip in both markets suggested some correlation, however, Mohamed Damak - S&P Global Ratings financial services sector lead, does not see any interdependence between the two markets.
As reported in CNBC, Damak remarked, “For now, a meaningful drop in cryptocurrencies' market value would be just a ripple across the financial services industry, still too small to disturb stability or affect the creditworthiness of banks we rate,”
Additionally, Damak highlighted on the need of a regulatory framework in the crypto space. The problem with cryptocurrencies is that it is unregulated, which results in many criminals to take advantage of it for illicit activities. Another issue that has been clouding the crypto market is speculative investing.
Regulations in the crypto space will ensure more transparency and safety for investors. “We believe that the future success of cryptocurrencies will largely depend on the coordinated approach of global regulators and policymakers to regulate and enhance market participants' confidence in these instruments,” said Damak.
Regardless of the report, downplaying the impact of cryptocurrencies in the financial market, it is buoyant on blockchain technology. The report pointed that the digital ledger technology will be a disrupter of the global financial markets.
Have they downplayed the impact a cryptocurrency market collapse could have on the existing financial market? Let us know your thoughts in the comments section.