Crypto prices have been experiencing a surge in recent months, with hackers increasingly targeting centralised exchanges rather than decentralized finance networks. This trend has led to a significant increase in the value of funds stolen in crypto heists, which nearly doubled from 30% last year to 40% this year. The concentration of assets and potential increased threat of hacks may have long-term consequences for exchanges, as insurance companies may demand more safeguards from exchanges and regulators may set out explicit minimum standards for the crypto market.
Circle Financial, operator of the USDC stablecoin, has proposed a capital framework for stablecoins, deposit tokens, and tokenized cash to safeguard against financial shocks, prevent runs, and boost customer confidence. However, some argue that stablecoins can't have runs as people don't rush to withdraw their cash from safe and unleveraged balance sheets. The authors argue that trading generates a secondary market price, making the issuer more susceptible to runs.
The Great Global Market Crash of August 2024 has also had an impact on crypto prices, with bitcoin down 11.4% and Ethereum down 20% in the same period. The S&P 500 has seen a retracement, while Nvidia has seen an 18% increase. The real outlier is crypto, with bitcoin down 11.4% and Ethereum down 20%.
The market may not yet have worked out how to position itself around the election, but crypto could end up being one of the markets with the strongest reaction to the outcome of November's vote. As crypto prices become subdued, it is likely that the market will continue to face challenges in maintaining its position in the crypto market.
