How Does Cryptocurrency Affect the Global Financial System?

The global financial system may change significantly due to the advent of cryptocurrencies and quickly expanding blockchain technology. It quickly rose to the top of the list of hot topics, attracting the attention of numerous governments, international organizations, and business companies.

In 2023, the total market cap of all cryptoassets, including stablecoins and tokens, exceeds $1 trillion as reported by CoinMarketCap. However, the global wealth is about to increase.

According to the Credit Suisse Research Institute’s Global Wealth Report, For the 12 months leading up to the end of 2021, the influence of government assistance measures pushed global wealth up by USD 41.4 trillion (+9.8%) to USD 463.6 trillion.

Given these figures, the cryptocurrency market is 0.21 percent of the total money market.

As in every market, there are cycles following the fact that the crypto market decreased. Some factors, like market volatility, potential tightening of regulation in the crypto space, and a slew of negative news in the networking sphere, increase the likelihood of this happening.

However, after each crypto winter comes to a thaw and a new boom, so we expect new growth in crypto market capitalization.

While it may be premature to argue that the cryptocurrency market significantly impacts the global financial system, we can anticipate a rebalancing of market power toward crypto demand as digital assets grow in popularity worldwide.

The growth of digital currencies helps usher in a more auditable and open method of exchanging money. While they could threaten traditional money games' status quo, their introduction would pave the way for a cashless future. That's why regulators do not want to give control to cryptocurrency, and so far, regulators have chosen not to provide cryptocurrencies any unique treatment.

However, the government can quickly turn on the "printing press" .At the end of 2022, according to the NY times investigation, the US alone passed the bill of 1,7 trillion dollars, and 50 billion $ was given to Ukraine by the US.

Much of the rest of the money the government reinvested for domestic needs. Thus, it is not to say that the war alone has changed consumer sentiment and affected inflation. The value of a currency will decrease if there is a rise in the amount of money in circulation. People don't want the government to be able to turn on the printing press anymore.

Cryptocurrency is a whole new difference between money games without coercive power and extensive institutional underpinning, except what could be provided by the computation coding.

Cryptocurrency has more control over illegal transactions than cash. No intermediaries are needed to use cryptocurrency, cross-border payment is much easier, banking bureaucracy is gone, there are clearly defined rules of the game, and everything is simple and transparent.

On the other hand, cash presents an intriguing opportunity for breaking the law or engaging in illegal activities such as money laundering, making payments on the dark market, or even supporting terrorism.

So, cryptocurrency can significantly replace accurate money turnover in the next 15-20 years, and maybe actual money turnover will be counted in cryptocurrency—money turnover 2.0.

But now, the banking system is represented by the symbiosis of digital money and a new cryptocurrency that will provide different services, like mobile money, prepaid credit, and postpaid billing platforms.

I am more concerned about crypto banks.

Cryptobanking employs decentralized peer-to-peer trading in a similar fashion but for lending purposes. Most of these lending platforms just blew up. They accepted deposits and utilized the deposits to create loans; the loans went bad, and the depositors panicked and demanded their money back, but it was gone.

In a perfect scenario, the platform continues in operation, generates profits, ceases issuing poor loans, and generates sufficient profits to fill the gap such that the acquirer never has to pay anybody back. The FTX bailouts did not pan out as intended, but that was the intention.

Another recent threat to the crypto industry is Signature bank's collapse. Signature had the utmost importance in the crypto world, as it was one of the first financial institutions to accept crypto deposits, but it could not still overcome the crisis.

One of New York's largest banks, which also had a recent push to attract bitcoin deposits, unexpectedly shut down on Sunday after authorities warned that it posed a threat to the global financial system if it remained open.

Despite that, denying the opportunity to speculate in cryptocurrency, imposing standard regulation rules, and granting a vote of confidence by credible crypto platforms will contribute to developing sufficient symbiosis of crypto and the global financial system within the next ten years.