{"id":230436,"date":"2021-07-07T16:59:06","date_gmt":"2021-07-07T16:59:06","guid":{"rendered":"http:\/\/radiofree.asia\/?guid=656553eb2872a5697b39e53e27b5b46e"},"modified":"2021-07-07T16:59:06","modified_gmt":"2021-07-07T16:59:06","slug":"cryptocurrency-may-wreak-havoc-on-economy-especially-on-people-with-no-assets","status":"publish","type":"post","link":"https:\/\/radiofree.asia\/2021\/07\/07\/cryptocurrency-may-wreak-havoc-on-economy-especially-on-people-with-no-assets\/","title":{"rendered":"Cryptocurrency May Wreak Havoc on Economy \u2014 Especially on People With No Assets"},"content":{"rendered":"\"A<\/a>

High-stakes institutional investors are increasingly exposing themselves to the volatile cryptocurrency market, raising fears that the digital asset industry could wreak havoc throughout the economy — a development that would harm people who can’t afford to own any financial asset, digital or otherwise.<\/p>\n

One in seven hedge funds now hold between 10-20 percent of their entire portfolios in cryptocurrency and one in four hedge funds are on the verge of investing in the asset class, according to a recent survey<\/a> conducted by the auditing firm PricewaterhouseCoopers. The cohort demonstrates that segments of the financial industry have a large appetite for risk. The survey also shows that 21 percent of all hedge funds own some cryptocurrency, with the average invested firm having just 3 percent of its portfolio in digital assets.<\/p>\n

The statistic on firms with up to one-fifth of their portfolios invested in cryptocurrencies was referenced during a June 30 hearing on cryptocurrency<\/a> before the House Financial Services Committee. Chair Maxine Waters (D-California) cited the findings after announcing<\/a> that the panel has \u201cbegun a thorough examination of this marketplace.\u201d<\/p>\n

Waters said she is particularly interested in \u201cthe systemic risks presented by hedge funds rushing to invest in highly volatile cryptocurrencies and cryptocurrency derivatives.\u201d The price of Bitcoin, the most popular cryptocurrency, has fluctuated wildly in 2021, including a 48.4 percent decline<\/a> during nine days in May, when the price of Bitcoin plunged from $59,519.35 to $30,681.50.<\/p>\n

Alexis Goldstein, a Truthout<\/em> contributor and an expert witness called on by Democrats to testify, said cryptocurrency markets are particularly attractive to hedge funds because rules on disclosure don’t require them to reveal what cryptocurrency they own. Popular cryptocurrency exchanges also allow customers to borrow heavily to buy digital assets.<\/p>\n

\u201cHedge funds are the perfect client to use those sorts of leverage,\u201d Goldstein remarked. Lending in cryptocurrency, which is known as decentralized finance, has increased this year alone by a factor of 25, according to one measure<\/a>: The value of assets pledged as collateral in decentralized finance loans has ballooned from $2 billion to $50 billion.<\/p>\n

If the cryptocurrency market takes another nosedive — like it did in May, shedding some $1 trillion<\/a>, or 40 percent of its global market cap<\/a> — investors will scramble to cover their losses on leveraged bets. This could generate a ripple effect, bringing down commercial ventures outside of the financial sector, which would harm those least likely to own any financial asset, digital or conventional. Economic downturns disproportionately harm the poor<\/a>, and<\/span> 45 percent of Americans own no stock, according to a Gallup poll<\/a> conducted last year, while only 14 percent<\/a> of Americans own cryptocurrencies.<\/p>\n

\u201cWhat happens if a huge number of hedge funds who have prime broker relationships with too-big-to-fail banks all happen to be in similar crypto positions, whether it’s long or short, and there’s massive volatility in the market? They may have to sell some of their other assets,\u201d said Goldstein, the director of financial policy for the Open Markets Institute and a former Wall Street banker who left the industry in 2010. She told the committee that losses on cryptocurrencies could lead to \u201cforced liquidations\u201d of non-crypto assets (stocks and bonds of other companies in hedge funds’ portfolios).<\/p>\n