By Hannah Lang

WASHINGTON, (Reuters) – Bitcoin fell below $30,000 on Tuesday for the first 10 month. Meanwhile, cryptocurrencies have experienced a loss of nearly $800 billion overall in value over the last month according to CoinMarketCap data. This is due to investors worrying about tightening monetary policies.

Crypto is much larger than the Fed’s previous tightening cycle that began in 2016, raising questions about crypto’s interconnectivity to the rest of financial system.

WHAT IS THE CRYPTOCURRENCY MARKKET?

According to CoinGecko, November saw bitcoin hit an all time high of over $68,000. This pushed the crypto market’s value to $3 trillion. This figure stood at $1.51 trillion Tuesday.

Nearly $600 Billion of this value is held by accounts, closely followed by ethereum which has a $285B market cap.

While cryptocurrencies are experiencing explosive growth, their market share is still small.

According to the Securities Industry and Financial Markets Association, US equity markets are valued at $49 trillion. However, $52.9 trillion was estimated by the Securities Industry and Financial Markets Association for the remaining value of U.S. fixed interest markets as of 2021.

Who OWNS AND TRADES CRYPTOCURRENCIES

Although cryptocurrency was initially a retail phenomenon at first, institutional interest is rapidly growing from institutions, exchanges and companies to mutual funds, hedge funds, banks, corporations, businesses, and other financial institutions.

It is not easy to get data on how institutional and retail investors are impacted by the cryptocurrency market. However, Coinbase (NASDAQ : ), the biggest crypto exchange worldwide, reported that both institutional and institutional investors made up about half of all assets it held in its fourth quarter.

Coinbase stated that its institutional clients had traded crypto worth $1.14 trillion by 2021, up from $120 billion in 2020.

The majority of bitcoin and ethereum that is in circulation are held by very few people. According to the National Bureau of Economic Research, approximately 10,000 investors in bitcoin, either individuals or entities, have about one third of the market. Additionally, 1,000 investors hold roughly 3,000,000 bitcoin tokens.

University of Chicago research shows that approximately 14% of Americans have invested in digital assets.

COULD A CRYPTO-CRASH DAMAGE THE FINANCIAL SYTEM?

Although the crypto market overall is small, U.S. Federal Reserve and Treasury Department have identified stablecoins (digital tokens that are tied to traditional assets) as potential threats to financial stability.

Most stablecoins can be used for trading other digital assets. These stablecoins are supported by assets that may lose value or become inliquid during market stress. However, the rules surrounding these assets and investors’ redemption rights and disclosures are murky.

This could leave stablecoins vulnerable to investor anxiety, especially in market stress times, regulators warned.

According to CoinGecko, this happened Monday as TerraUSD, a large stablecoin broke its 1:1 peg to USD and dropped as low $0.67. It was partially responsible for the fall of bitcoin.

TerraUSD has an algorithm that keeps it tied to the Dollar. Investor runs on stablecoins, which have cash reserves or commercial paper, could lead to financial instability in the system.

As crypto assets continue to rise in popularity and traditional financial institutions are more involved with the asset class, regulators warn of other potential risks. The Acting Comptroller for the Currency, March 2017, warned banks that they could get tangled up in crypto derivatives and unhedged exposures. This is because the currency regulators have very little price history.

Regulators are still divided about the danger a cryptocurrency crash presents to the wider economy and the financial system.