What is the digital currency and financial markets?
Pro Research Analysisby 
Searched over 200M research papers
Understanding Digital Currency and Financial Markets
Introduction to Digital Currency
Digital currency, also known as digital money or cyber cash, is a form of currency that exists only in digital form and is managed, stored, and exchanged through digital devices such as computers and smartphones. Unlike traditional physical currencies, digital currencies do not have a physical form and are used primarily for online transactions10. They can be categorized into virtual currencies and cryptocurrencies, each with distinct characteristics and uses10.
Types of Digital Currency
Cryptocurrencies
Cryptocurrencies are a subset of digital currencies that use cryptographic techniques to secure transactions and control the creation of new units. Bitcoin, the most well-known cryptocurrency, has sparked significant interest and debate due to its decentralized nature and speculative trading behavior3. Cryptocurrencies are often considered digital financial assets, but they differ significantly from other digital assets in terms of their underlying technology and regulatory challenges1.
Central Bank Digital Currencies (CBDCs)
Central Bank Digital Currencies (CBDCs) are digital currencies issued by central banks. They represent a digital form of a country's fiat currency and are designed to provide the safety and stability of central bank-backed money while leveraging the advantages of digital transactions2. CBDCs can be fully backed by central bank reserves, creating a synthetic central bank digital currency (sCBDC) that combines private sector innovation with public sector stability2.
Impact on Financial Markets
Market Dynamics and Speculation
The introduction of digital currencies has significantly impacted financial markets, particularly through speculative trading. The behavior of digital currency exchange rates, such as Bitcoin, is heavily influenced by market speculation rather than fundamental value, leading to high volatility3. This speculative nature creates opportunities for studying market dynamics and the relationship between digital currencies and online search trends3.
Financial System Transformation
Digital financial assets and currencies are transforming the global financial system by altering the structure of financial flows and enabling new forms of transactions. These changes have the potential to elevate domestic financial systems to new levels of efficiency and regulation4. Innovations such as peer-to-peer lending, equity crowdfunding, and virtual currencies are reshaping how businesses are financed and how investors source opportunities8.
Legal and Regulatory Challenges
The legal regulation of digital currencies remains a significant challenge. The decentralized nature of cryptocurrencies makes it difficult for states to control their circulation and storage, leading to concerns about their use in illegal activities such as money laundering and terrorism financing1. Legal norms and regulatory frameworks are crucial for ensuring the stability and security of financial markets in the digital age9.
Risks and Considerations
Systematic Risk
The rapid expansion of digital currencies introduces new risks to the financial system. The variability and dynamic correlations of digital currencies can intensify technological and network risks, which are not yet fully mitigated9. Policymakers and regulators must carefully consider these risks when developing frameworks for digital currency adoption6.
Economic Impacts
The shift from traditional banking deposits to digital currencies can lead to significant adjustments in the balance sheets of various institutional sectors. These adjustments may trigger large movements in securities prices and induce changes in the financial network structure7. The economic impacts of digital currency adoption depend on the design of the digital innovation, the size of the deposit shift, and the channels through which balance sheet adjustments occur7.
Conclusion
Digital currencies are reshaping the financial landscape by introducing new forms of money and transforming financial markets. While they offer numerous advantages, such as increased efficiency and new investment opportunities, they also pose significant risks and regulatory challenges. As digital currencies continue to evolve, it is crucial for policymakers, regulators, and financial institutions to carefully navigate these changes to harness their potential while mitigating associated risks.
Sources and full results
Most relevant research papers on this topic
Digital Financial Assets And Digital Currency In The Russian Legal Field
Digital financial assets and cryptocurrencies are relatively new tools in the financial market, with their value not dependent on labor invested, and their legal regulation is currently insufficient to control their circulation and storage.
The Rise of Digital Money
Digital money, while less stable as a store of value, could rapidly adopt as a means of payment, with potential benefits and risks, and a synthetic central bank digital currency (sCBDC) to manage risks.
Literature Review
Highly CitedBitCoin meets Google Trends and Wikipedia: Quantifying the relationship between phenomena of the Internet era
Digital currencies like BitCoin and search queries on Google Trends and Wikipedia are connected, with a pronounced asymmetry in the effect of increased interest on the currency's exchange rates above or below its trend value.
Highly CitedThe role of digital financial assets in the transformation of the global financial system
Digital financial assets significantly impact global financial systems, requiring domestic doctrine to adopt a new approach to regulating their use.
What is digital currency
Digital currencies are all forms of electronic money, grouped based on their technology and whether they can be traded for cash at par value.
The Effects of Central Bank Digital Currencies News on Financial Markets
Central Bank Digital Currency news negatively impacts the MSCI World Banks Index and USEPU, but positively affects cryptocurrency, foreign exchange, bond markets, VIX, and gold.
Digital Currencies in Financial Networks
Digital currencies introduce significant adjustments to balance sheets, potentially trigger large changes in securities prices, and alter financial network structure, depending on the design and timing of the initiative.
INTERNET FINANCE: DIGITAL CURRENCIES AND ALTERNATIVE FINANCE LIBERATING THE CAPITAL MARKETS
Internet finance innovations like peer-to-peer lending and virtual currencies are revolutionizing the global economy, promoting democracy, capital formation, sustainability, and equality without relying on tax increases.
Systematic Risk and Prevention of Digital Currency
Digital currencies pose challenges to traditional currency concepts and operations, and legal norms play a crucial role in regulating financial markets.
Prospects and Problems of Digital Currency
Digital currency is money managed, stored, and exchanged through digital devices such as computers and smartphones. There are two types of electronic currency:Virtual and cryptocurrencies that have no physical form and exist only digitally. Digital currency, also known as digital money or cyber cash, can be used to purchase goods and services, but may be restricted to certain online communities such as games or social networks. The data required for the study were collected using secondary data collection methods. This paper explores the importance of digital currency in India and the modern world.
Try another search
What is the Big data analytics in predictive modeling?
Does gamification increase participant engagement?
What is history of malaysia
does interest in a subject improve learning outcomes?
What is Knowledge Management?
what is the current understanding of the effects of sensory electrical stimulation on the spinal mec