A market intelligence group has said that cryptocurrencies such as bitcoin are a long way off from being a destructive force in the financial sector.
In a research note published today S&P Global wrote that digital currencies were unlikely to have an impact despite increased public interest unless they are regulated, reports Business Tech.
According to lead Dr Mohamed Damak, the group highlighted that bitcoin is showing signs of being in a bubble for four reasons: there is a limited number of coins in circulation, the market is highly volatile, a large number of coins are only held by a few users, and the market is not backed by a central issuer.
S&P Global believe that if bitcoin and other cryptocurrencies were backed by central banks, the banks would be in a better position to predict the demand for the coins. However, because financial institutions have stayed away from embracing the crypto market, should it fall, banks would avoid any damage, the market intelligence group state, adding:
We expect rated banks to be largely insulated, given that their direct or indirect exposure to cryptocurrencies appears to remain limited.
At the end of 2017, the global stock market reached $80 trillion. Notably, compared to the digital currency’s market value of just under $500 billion, it remains a drop in the ocean. Damak added:
For now, a meaningful drop in cryptocurrencies’ market value would be just a ripple across the financial services industry, still too small to disturb stability or affect the credit worthiness of banks we rate.
According to the group, retail investors would likely bear the brunt of a crypto market collapse as they currently make up the most activity in the market.
However, with rising interest in the digital currency market, the sector is attracting the attention of regulators. In South Korea, rather than issuing an outright ban on the market, authorities are keen to place greater transparency on cryptocurrency transactions. As a result, the government is considering adopting a crypto licensing system similar to New York’s BitLicense.
The cryptocurrency market may be a long way off from disrupting the financial sector, but it’s certainly moving at a pace that is attracting the attention of governments. With the market remaining steadfast despite its volatile nature it would seem that authorities are now becoming more accepting of it.