How Do Cryptocurrencies Influence Financial Markets?

Global finance has undergone a phenomenal shift in the past era of 2021 driven by the unprecedented Covid-19 pandemic, the oil price war between Russia and Saudi Arabia and the weakening US dollar. The financial crisis of 2020 ushered us into the vicissitudes of 2021. The outbreak of the pandemic caused businesses and finances to collapse and left millions of people without livelihoods worldwide. The stock markets collapsed by 40%. The only silver lining was cryptocurrencies. Fear permeated financial levels around the world as a turbulent global economy struggled to stay afloat. However, cryptocurrencies looked distant from the fall and emerged as a savior for investors.

Since their inception, cryptocurrencies have positively impacted the way financial markets do business and set new standards.

Relationship between crypto and traditional financial assets

People and institutions tend to counter the prevailing stuff with something unusual. There was a time when banks and other traditional financial institutions showed a clear distaste for anything crypto-related. However, later realizing that crypto is here to stay and acknowledging its positive impact on the financial system, there have been instances where conventional institutions and crypto-based companies have collaborated.

There have been differing opinions on the impact of cryptocurrency price movements on stock prices. According to a recent report by DSB, a giant banking institution in Singapore, Bitcoin’s growth impacts stock markets during large price movements. The report, titled Shifting Cross-Asset Correlation, combined data from November 2020 and Bitcoin movements over the past few months. During these periods, the study found that when Bitcoin saw significant growth, there was a positive correlation with S&P 500 futures.

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Another study by Abakah and Rojo conducted in 2020 to examine the two-way associations between cryptocurrencies and stock markets concluded that cryptocurrencies are separate from mainstream financial asset classes. This study used six major cryptocurrencies and six stock markets to examine the cointegration between these markets.


Cryptocurrencies have reduced the need for third parties like banks to process payments. Along with eliminating the intermediaries, people are flocking to cryptocurrencies as they offer a faster, cheaper, and more efficient way to conduct transactions. Unlike before, people don’t have to wait days for their transactions to be approved and sent to the person they want.

Post-pandemic, online retail sales grew 14.4% in 2020 to approximately $794 billion. As people stayed at home, digital peer-to-peer (P2P) apps replaced cash in their daily lives. Many people were willing to accept payments in cryptocurrencies. In order to meet all user needs, many online stores have been forced to add cryptocurrencies as additional payment methods.

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loans and savings

With the growth of the decentralized finance ecosystem (DeFi), crypto loans and savings products are becoming increasingly important. Crypto savings accounts offer higher returns than traditional modes, with some accounts offering investors returns of up to 40% APY. On the other hand, crypto lending platforms allow users to access funds while allowing the lender to benefit from the loans. It is worth noting that the borrowing process is less lengthy and hostile for the borrower. To get a loan, people no longer have to provide their debt-to-income ratio, credit score, and homeownership status.

fundraising processes

Cryptocurrencies have also changed the way projects raise funds. Offering a faster and more transparent way to raise money makes the crypto ecosystem manufacturing process more acceptable to investors and money seekers. All project owners have to do is select a funding process, platform and launchpad for their project. Crypto fundraising processes typically involve a private sales funding round, an Initial Exchange Offering (IEO), an Initial Coin Offering (ICO), or a Security Token Offering (STO).

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Connection to the international market

Operating in international markets has always been fraught with obstacles. First, exchanging foreign currency for local currency was a struggle given the different exchange rates. Also, time has always been a daunting factor. Sending payments across the border was also quite expensive. Thanks to cryptocurrencies, businesses can now conduct faster and more secure transactions. You can conduct trusted transactions, which means the parties involved do not need to know or trust each other.

Wrap up

Cryptocurrencies have come a long way to carve out a niche for themselves in financial terms. Although these are still in the early stages of development, the effect they have made is nothing short of phenomenal. The uses of cryptocurrencies are diverse enough to affect users’ daily activities and change the way people deal with various aspects of their finances such as savings, credit, payments and others. The relationship between cryptocurrencies and mainstream finance is growing and will become more apparent in the years to come.

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