The crypto market is one of the most volatile you can find for several reasons. One of the main reasons is that the market is so new and in rapid growth. In many cases, crypto is causing its own volatility for that and many other reasons. But in other cases, the crypto market gets impacted by outside factors, which could be the regular financial market. While the mainstream financial markets are often considered much safer and more stable than crypto, even that can see some big swings, bull runs, and cracks. 

In the case of stormy weather in the regular financial markets, it’s important for crypto investors to keep an eye out for an impact. Even though the markets aren’t always connected at first glance, there will always be ways where markets affect each other. 

For crypto investors, that’s another volatility factor to consider when investing. Because even though your crypto investment is safe on paper, it can be impacted by much bigger powers from the mainstream financial world. There are currently many ways in which the crypto market can be affected in this way, and we would like to look at a few of the significant ones in this article. 

Source: Coinmonks

Ways the financial market can impact crypto

When discussing how the general financial market can impact crypto, we are talking about the global stock and trading market. We are also talking about big money institutions, such as banks, which can impact how the crypto market moves positively and negatively. 

Over the course of the pandemic, it was sort of the opposite as the global crisis had the stock market take a dip during a lot of uncertainty. In crypto, the market went the other way and saw a bull market like never before. This is an example of how global financial movements can turn out positively for crypto, but there are plenty of ways that the impact is negative. 

Financial Crises

First and foremost, a worldwide financial crisis will be the obvious event to impact crypto, even if that financial crisis isn’t triggered through crypto. If we end in another global crisis or recession, people won’t prioritise money to buy crypto, meaning that the market as a whole will likely take a hit. 

Regulation

That’s a rare scenario, but others have a higher risk of happening. One of the biggest is regulations and how governments and regulatory authorities can restrict or even ban the use of cryptocurrencies in certain ways. That could be a government banning cryptocurrencies in a respective country, basically killing the market without investors having the chance to do anything about it. It could also be if a government decides to impose regulations that make it difficult for crypto exchanges and trading platforms to operate, it can hamper the industry’s growth.

Financial Institutions 

Besides regulations, the financial sector can threaten the crypto market by creating direct competition. As crypto has grown bigger over the years, some financial institutions have started offering crypto-related services to capitalise on a growing market and customer base. These are services such as trading and can ultimately threaten the original crypto platforms and businesses if they get a big enough piece of the market. If these institutions end up dominating the market someday, they can restrict access to smaller players and make it difficult for new entrants to compete and help innovate the space further. 

Source: TradeSanta

Even if big players in the financial sector don’t straight up offer crypto-related services, there is a chance that they still invest in crypto themselves. This leads us to negative impacts such as market manipulation and volatility. In the financial sector, and including large institutional investors and hedge funds, it’s possible for them to manipulate the market by buying or selling large amounts of cryptocurrencies, which can cause significant fluctuations in prices. Such manipulation can create a sense of uncertainty and lack of trust among retail investors. The consequence of such manipulations can ultimately lead to a decline in the mainstream adoption of cryptocurrency – something most crypto investors are hoping to see one day. 

Security

The last negative impact to touch upon is cyberattacks, and how big financial institutions such as banks and exchanges are often the target for those. While it doesn’t happen often, a cyberattack, if successful, can lead too the loss of large amounts of cryptocurrencies. Even without an actual attack, there’s always a risk that a bank can crash or go completely bankrupt, which can also have a significant impact. A very recent and relevant example of this would be the crash of Silicon Valley Bank (SVB), which has already impacted the crypto world alongside the financial markets on a global scale. 

Final Thoughts

Overall, the financial sector can impact the crypto market negatively in several ways, ranging from regulatory actions to market manipulation, cyberattacks, competition, and market volatility.

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