How the Cryptocurrency Market is Connected to the Financial Market

45 Pages Posted: 13 May 2022 Last revised: 12 Oct 2022

See all articles by Sang Rae Kim

Sang Rae Kim

Vanderbilt University - Owen Graduate School of Management

Date Written: September 2022

Abstract

The cryptocurrency market is connected to the traditional financial market through reserve-backed stablecoins. A one standard deviation ($330 million) increase in the issuance of major stablecoins (Tether and USD Coin) on a given day results in an 11% increase in the commercial paper issuance quantity, an 18 basis point decrease in the commercial paper yield, and a 15 basis point decrease in the Treasury yield the following day. This shows that the exponential growth of stablecoins created an excess demand for short-term money-like safe assets. I also study the fiat cryptocurrency market's effect on the financial market.

Keywords: cryptocurrency, stablecoin, safe asset, private money

JEL Classification: E40, E50, G23

Suggested Citation

Kim, Sang Rae, How the Cryptocurrency Market is Connected to the Financial Market (September 2022). Available at SSRN: https://ssrn.com/abstract=4106815 or http://dx.doi.org/10.2139/ssrn.4106815

Sang Rae Kim (Contact Author)

Vanderbilt University - Owen Graduate School of Management ( email )

401 21st Avenue South
Nashville, TN 37203
United States

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