The Role of Cryptocurrency in Financial Markets
Vincent Scibetta
Co-Presenters: Individual Presentation
College: College of Business and Public Management
Major: Finance
Faculty Research Mentor: Huaibing Yu
Abstract:
Cryptocurrency has emerged as a transformative force in global financial markets, challenging traditional financial systems and offering new investment opportunities. Initially regarded as a niche asset, cryptocurrencies like Bitcoin, XRP, and Ethereum have gained widespread adoption, attracting institutional investors, hedge funds, and major financial institutions. This shift has sparked debates on whether cryptocurrencies function as digital gold, a speculative asset, or a new form of decentralized finance.One of the key aspects of cryptocurrency’s role in financial markets is its impact on portfolio diversification. Studies indicate that Bitcoin exhibits low correlation with traditional assets like equities and bonds, making it an attractive hedge against market downturns. However, its high volatility raises concerns about its stability as a long-term investment. The rise of stablecoins and decentralized finance (DeFi) platforms further highlights crypto’s potential to provide alternative financial services outside traditional banking structures.Institutional adoption has played a crucial role in legitimizing cryptocurrency, with companies such as Tesla and MicroStrategy holding Bitcoin on their balance sheets, and major banks offering crypto-related investment products. Additionally, the introduction of cryptocurrency exchange-traded funds (ETFs) has provided more access to retail and institutional investors, further integrating crypto into mainstream finance.Despite its growing influence, cryptocurrency faces regulatory challenges and concerns over market manipulation, security risks, and environmental impact. Governments worldwide are grappling with frameworks to regulate digital assets without stifling innovation. The ongoing evolution of the crypto market suggests that while it may not fully replace traditional financial systems, it will continue to reshape how assets are stored, transferred, and invested.This paper explores the evolving role of cryptocurrency in financial markets, analyzing its benefits, risks, and future implications for global finance.