This is not the first time such accusations against digital assets have been made. For example, back in October 2021, Sir John Cunliffe, Deputy Governor for Financial Stability at the Bank of England, made it clear that he believes Bitcoin could be the source of a new global financial crisis. Such a scenario will allegedly be relevant if the authorities do not thoroughly regulate digital assets. Read more about the situation in a separate article.

Bank of England

Well, in November 2021, former U.S. presidential candidate Hillary Clinton stressed the risk of digital assets to the dollar. According to her, Bitcoin could allegedly destabilise entire states.


In general, the following discussion will focus on Bitcoin's correlation with traditional assets like the Nasdaq and S&P500 indices. On the eve, the asset correlation reached its highest level since July 2020. Here's the corresponding graph.


Bitcoin and traditional assets correlation chart

What are the dangers of Bitcoin?

Economists Adrian Tobias, Tara Iyer and Mahvash Qureshi have called the high correlation between the two aforementioned areas a “risk of systematic contamination of traditional financial markets”. Here is a quote from their recent publication, mentioned in the news publication Decrypt

The largely dependent co-movement of cryptocurrency and stock markets point to a growing relationship between the two asset classes that allows for the transmission of economic crises potentially destabilising financial markets.


In this case, for some reason, the cryptocurrency industry is being presented as dangerous by experts. They say it could trigger a crisis in traditional finance, not the other way around. And this sounds strange given that the authorities are actively printing fiat money, the surplus of which leads to higher inflation.

For example, yesterday US officials announced new inflation data. At 7 per cent in December 2021, it was the highest rate since 1982. And that problem clearly didn't arise because Bitcoin fell noticeably after hitting an all-time high of $69,000 in the first half of November.


Rising correlation between Bitcoin and the S&P 500 stock index

Overall, what’s happening means that the crisis in the cryptosphere may now even be affecting the traditional economy, experts say. Over the past couple of years, crypto’s capitalisation has grown to trillions of dollars – and any collapse of the industry would supposedly affect the wealth of a large number of investors.

Crypto trading

The reverse is also true: with a strong correlation to the stock market, a crisis in the latter would have a very negative impact on the cryptosphere. So how to solve the problem? According to economists, it is possible to reduce the impact of negative correlation effects through thoughtful regulation of the crypto market. However, this is not a new suggestion in itself and has been actively discussed by crypto-enthusiasts, along with global governments, for several years in a row.


We believe these concerns are unconvincing, as the bigger threat to the traditional economy is still the massive increase in the amount of money in circulation. On top of that, the crypto sphere is capitalised at $2.2 trillion - which is still very small in the context of the overall economy. Therefore, it seems to us that the collapse of the digital asset market will have no impact on other assets and their investors. And these accusations are more like an attempt to shift responsibility from bankers to developers.


What do you think about it? Share your opinion in our Millionaire Crypto Chat. There, we’ll talk about other topics that affect the digital asset industry.