Understanding systemic risk in financial markets: Risks of cryptocurrency
The rise of cryptocurrency has brought significant changes in the financial markets, while its decentralized and peer-to-peer nature attracts many investors. Despite its growing popularity, however, cryptocurrency has caused concerns about systemic risk. In this article, we dive into the concept of systemic risk in financial markets, including the risks associated with cryptomes.
What is a systemic risk?
The systemic risk refers to the potential of the widespread and interconnected crisis, which could have catastrophic consequences for the entire financial system. It includes multiple factors that are connected to create the collapse of the whole system, which is often caused by the only event or combination of events. In financial markets, the systemic risk may result from various sources, including market volatility, credit risk, liquidity risk and counterparty risk.
Systemic risk types
There are several types of systemic risk that may affect financial markets including:
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Credit Risk : This type of risk involves potential loss of capital due to failure or insolvency of the debtor or issuer, often caused by changes in credit conditions.
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Risk of the counterparty : This type of risk involves potential loss of value due to the failure of the counterparty to fulfill its obligations.
Cryptocurrency and systemic risk
The increase in cryptomena emphasized concerns about systemic risk in financial markets. Here are a few reasons why:
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Risks of liquidity : Lack of regulation and supervision in the cryptocurrency space may make investors more difficult or selling their assets, thereby increasing the risk of liquidity.
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Market concentration : The global crypto market is increasingly concentrating, with larger players dominate the space. This concentration can cause systemic risks if one or more of these players experiences a crisis.
Examples in real world
Several high -profile examples emphasized the risks associated with the cryptomena:
2017 Crypto Market Collaps : A significant drop in the price of bitcoins led to a huge sale, causing losses for investors and disrupting markets worldwide.
2018 Venezuela Crypto Crash : An attempt by the Venezuelan Government to disable cryptocurrency has encountered extensive criticism, leading to a sharp decline in the value of assets such as Bitcoinaudir.
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2020 Bitcoin Flash Crash : A sudden increase in Bitcoin prices led to rapid market correction, causing considerable losses for investors.
Systemic risk mitigating
In order to alleviate the systemic risk associated with cryptomes and other financial instruments, the regulatory authorities have introduced various measures:
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Provision of liquidity : Financial institutions are called to provide support for liquidity for cryptoms markets.
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