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Oxford Law States that Crypto Regulation will Prevent Financial Meltdown

Due to the COVID-19 pandemic, a new trend has been introduced by investors, where they move their various assets into crypto. The simple reasoning is, these investors view crypto as a safe haven asset. This trend has been done enough times that even the academic world is taking notice of it.

Warnings Of Systemic Collapse Due To Crypto

Through a blog post made by the Oxford University Law Faculty on the 17th of April, researchers have taken note of crypto trading. Particularly, how crypto as a whole poses a threat to traditional finance. As such, the researchers are urging for strict regulations during this time of crisis, lest it poses a systemic risk to the current financial system as a whole.

Researchers state that the decentralized nature of crypto transactions removes the need for a central authority. Thus, large-scale migration to crypto from investors generally signals an overall loss in trust for the governments and banks as a whole to secure their funds properly.

Crypto: Subject TO Rampant Volatility

The researchers took the overall trading volumes under the microscope, particularly during the 1st of January and the 11th of March. Through doing so, they discovered that the top 100 cryptocurrencies managed to increase in tandem with the COVID-19 crisis. However, this positive correlation had itself reversed the moment people started to give a more positive response to traditional financial markets.

Researchers pointed out the ever-present factors of high volatility, bubbles, and crashes within the crypto industry. According to the researchers, these phenomena could be explained through herding behavior. Simply put, a large group of investors does something, which inspires more investors to do the same. The researchers went further, describing the crypto market as a whole as lacking in transparent information, as well as being lightly regulated.

Fickle To External Influences

According to researchers, a massive influence on the crypto market is the so-called “market influencers.” These take on the form of websites detecting market movement by “whales,” or holders of large amounts of crypto, as well as designated Telegram channels.

The asymmetric dispersion of information may cause investors to enact “pump and dump” schemes, the blog post warned. Herein, sophisticated investors lure in naive ones to the crypto market. They do this by inducing an artificial demand for a specific type of token, before selling their own tokens en masse. This ultimately leaves the uninformed investors with a loss.

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      A journalist, with experience in web journalism and marketing. Ali holds a master's degree in finance and enjoys writing about cryptocurrencies and fintech. Ali’s work has been published on a number of cryptocurrency publications.