Moment meaning driver#

If those flows slow, it could mean more pain ahead for a market that is already reeling. Retail investors pumped $114 billion into stocks through March even as the S&P 500 dropped into a correction, the Wall Street Journal reported on Tuesday. “If the $1 trillion capital loss in crypto markets causes broad-based retrenchment by retail investors in other risk assets such as equities, then that’s where the spillover is.”

“Contagion here is not via linkages between the crypto ecosystem and the traditional financial system, but via retail investors’ sentiment,” Nikolaos Panigirtzoglou, a global market strategist at JPMorgan Chase, told Bloomberg on Thursday. She’s not the only one sounding the alarm.

Moment meaning driver#

Because crypto is where so many smaller investors have placed their bets, the losses sustained could become a driver of a broader risk-off move in the stock market.” “Retail investors have traditionally played the role of the canary in market selloffs. “The overarching and justified concern is that this first major confidence crisis sends a shiver through smaller investor sentiment as margin calls of any ilk tend to do,” DiMartino Booth said. A different kind of contagion riskĬryptocurrencies’ recent downturn could hurt retail investor sentiment and further the ongoing, partly Fed-induced, risk asset sell-off, DiMartino Booth told Fortune. The odds that this meltdown becomes a source of contagion to the financial system is thus remote,” Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence, told Fortune.īut that doesn’t mean another type of contagion risk isn’t possible. “The realm of crypto has been dominated by a handful of larger investors and small retail players. On the whole, most experts agree that, as of now, the risk of a domino effect trampling through financial markets akin to what was seen in the Great Financial Crisis is limited.

In front of the Senate Banking Committee on Tuesday, Yellen argued that “digital assets may present risks to the financial system and increased and coordinated regulatory attention is necessary,” specifically citing turmoil in the crypto markets and the collapse of the TerraUSD stablecoin. Treasury Secretary Janet Yellen has on her mind. While Bankman-Fried isn’t worried about the fallout from UST’s collapse, risks from a serious downturn in crypto are definitely something U.S. “But the contagion to the rest of the crypto industry is going to be more limited.” “It will probably be a ‘Lehman Bros’ event for the Terra ecosystem,” the billionaire founder of FTX, Sam Bankman-Fried, told Fortune on Thursday. Taken as a whole, cryptocurrencies’ market cap is down roughly 45% year-to-date, and in just a week’s time, the world’s leading digital assets, Bitcoin and Ether, have plummeted 23% and 31%, respectively.Įven worse, since November 2021’s highs, cryptocurrencies have given back around $1.6 trillion in value, and some of the most respected names in the industry are arguing this week’s blow-up of the algorithmic stable coin TerraUSD (UST) is a “Lehman Bros event.”īut unlike the events leading to the subprime mortgage crisis of 2008, the financial community is divided on whether a crypto blowup could lead to systemic risk for financial markets.