The recent phenomenon of people moving their assets into crypto as a safe haven in responding to the financial crisis has drawn the attention of the academic world.
According to a post made by an Oxford University Law Faculty, academics have noticed that cryptocurrency trading could turn into a threat to conventional finance and it should be overseen in a stringent manner during exigency to avoid methodical danger to the system.
Academics point out that decentralization of cryptocurrency trades, resulting in non-dependence on any centralized system, has encouraged investors to shift their capital to cryptocurrency when they no longer trust governments and banks for the purpose of safeguarding their hard earned money.
The academics studied the trading volumes from January 1 to March 11. They identified that trading volumes of top 100 cryptos rose in parallel with the total number of confirmed Covid-19 cases.
Nevertheless, the positive correlation took a U-turn after people started responding positively towards the conventional financial markets.
Academics contended that the cryptocurrency market indicates high volatility, bubbles and crashes, which can likely be detailed using the concept of herd mentality where a huge group of investors react in a similar manner.
They also detailed the prevailing cryptocurrency market as under regulated and miss transparent data.
The cryptocurrency market relies a lot on “market influencers” such as assigned Telegram channels and webpages monitoring major moves of “whales.” Asymmetric info may lure investors into “pump-and-dump” programs. The blog says:
“Sophisticated investors lure uninformed investors into the cryptomarket by creating an artificial demand for tokens and then swiftly selling their tokens, leaving the uninformed investors with a loss.”
Academics are concerned that if ignorant investors show herd mentality then it could result in a market crash. Since the conventional financial market is correlated to the cryptocurrency market, regulators may have to respond quickly to monitor cryptocurrency market in order to stop any kind of risk to the conventional financial markets.
Of late, the members of the J5 nations (Australia, the United Kingdom, Canada, the Netherlands, and the United States) amended their cryptocurrency guidelines in retaliation to cybercriminals working in a full-fledged manner during epidemic. Other studies indicate that cryptocurrency prices reacted nicely to transparent rules.
