Cryptocurrency Markets and Financial Risk: A Comprehensive Review of Volatility, Contagion, and Regulation
DOI:
https://doi.org/10.61424/7ppagz11Keywords:
Cryptocurrency Markets, Financial Risk, Market Volatility, Financial Contagion, Cryptocurrency RegulationAbstract
Cryptocurrency markets have emerged as an important component of the global financial system, attracting investors, financial institutions, businesses, and regulators while simultaneously generating significant concerns regarding financial risk and market stability. This review examines the relationship between cryptocurrency markets and financial risk, with particular emphasis on market volatility, contagion effects, and regulatory developments. Drawing on findings from existing empirical and theoretical literature, the study synthesizes evidence on the factors contributing to cryptocurrency price instability, including speculative trading, leverage, market sentiment, liquidity constraints, technological disruptions, macroeconomic conditions, and regulatory uncertainty. The review further explores how shocks originating in major cryptocurrencies and crypto-related institutions can spread across digital assets and, increasingly, interact with traditional financial markets. Evidence suggests that cryptocurrency markets exhibit persistent volatility and interconnectedness, although the magnitude and direction of contagion vary across market conditions and asset classes. The study also highlights the growing importance of regulatory frameworks in addressing investor protection, market manipulation, stablecoin risks, money laundering, and systemic financial vulnerabilities. Overall, the review indicates that effective regulation, improved market transparency, stronger risk-management mechanisms, and enhanced monitoring of crypto-financial linkages are essential for reducing vulnerabilities while supporting responsible innovation. The study concludes that cryptocurrency markets should be assessed not only as independent speculative markets but also as increasingly interconnected components of the broader financial ecosystem.
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