Cryptocurrency Markets and Financial Risk: A Systematic Review of Volatility, Contagion, and Regulation
DOI:
https://doi.org/10.61424/aj4wkv11Keywords:
Cryptocurrency markets, financial risk, market volatility, contagion, risk transmission, cryptocurrency regulationAbstract
Cryptocurrency markets have emerged as a significant component of the global financial system, while their high volatility, interconnectedness, and evolving regulatory environment have generated substantial financial risks for investors, financial institutions, and policymakers. This systematic review examines the major dimensions of financial risk in cryptocurrency markets, with particular emphasis on market volatility, contagion and risk transmission mechanisms, and regulatory responses. The review synthesizes findings from existing academic and empirical literature to identify the principal drivers of cryptocurrency price instability, including speculative trading, investor sentiment, market liquidity, macroeconomic conditions, technological developments, and information shocks. The analysis further demonstrates that cryptocurrency markets are increasingly interconnected, allowing financial stress originating in one cryptocurrency or market segment to propagate across other digital assets and, in some circumstances, to traditional financial markets. Regulatory developments are found to play a dual role: effective regulation can strengthen market integrity, investor protection, transparency, and financial stability, whereas fragmented or uncertain regulatory frameworks may increase market uncertainty and encourage regulatory arbitrage. Overall, the review indicates that cryptocurrency financial risk is multidimensional and cannot be adequately assessed through price volatility alone. A comprehensive risk-management framework should therefore integrate volatility monitoring, contagion analysis, liquidity assessment, market surveillance, and coordinated regulatory oversight. The study contributes to the literature by consolidating evidence on the interconnected nature of cryptocurrency risks and highlighting the need for adaptive regulatory and risk-management approaches as digital asset markets continue to evolve.
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