Crypto's connections to the rest of the financial system

By Elizabeth Howcroft

PARIS (Reuters) -Cryptocurrency markets have surged in recent years, in part fuelled by the Trump administration's pro-crypto stance which has encouraged wider acceptance among financial institutions.

With a total value of $3.2 trillion and around $197 billion of trading volume per day, cryptocurrencies represent a small part of global markets, crypto tracker CoinGecko estimates. 

But regulators and investors are still worried about whether any problems in the lightly regulated crypto world could spill over into the wider financial system.

The biggest cryptocurrency, bitcoin, fell below $90,000 for the first time since April this week, and some $1.2 trillion has been wiped off the value of all cryptocurrencies in six weeks.

Bitcoin, generally moves in line with broader risk appetite. Its correlation with the S&P 500 on a one-month rolling basis this week was 0.84, its strongest in six weeks, LSEG data shows. Correlation is measured from -1 to 1.

Here's where crypto and mainstream markets intersect.

STABLECOIN RESERVES

Stablecoins are cryptocurrencies pegged to a real-world currency, usually the U.S. dollar. Stablecoin issuers hold reserves to match the number of tokens they have created, and say that token-holders can swap their stablecoins back into dollars on demand.

Financial stability experts warn that a rush of redemption requests would cause a run on these reserves, affecting banks where cash is deposited, or even the assets that the reserves are invested in.

The stablecoin market is dominated by El Salvador-based Tether, which has around $181 billion in reserves, of which $112 billion is held in U.S. Treasuries. Rival Circle holds $24 billion in U.S. Treasuries.  

CRYPTO-RELATED STOCKS

Crypto stocks have soared in 2025, and more crypto companies have gone public. But pure players remain a tiny part of the overall market.

The market cap of stocks in the "blockchain and cryptocurrency" and "cryptocurrency mining" category is $225 billion, just 1.8% of the global equities market, LSEG data shows.

This excludes so-called crypto treasury companies, whose business model is to buy and hold crypto. While the bitcoin buyers include major players like Strategy, dozens of penny stocks have this year been taken over by crypto enthusiasts to bet on rising prices.

Standard Chartered estimates that a bitcoin price below $90,000 leaves half of these companies' corporate treasuries holding bitcoin worth less than they paid for it.

Four of the 173 new U.S. public listings in 2025 have been crypto companies, raising a combined $1.2 billion, around 3.3% of the total funds raised from U.S. IPOs, LSEG said.  

BANK EXPOSURE TO CRYPTO

Banks gain exposure to the crypto world by taking on crypto-linked clients, holding stablecoin reserves, or offering crypto-related services such as asset custody.

Some small banks specialise in crypto, concentrating the risk, as seen in 2023 when crypto-focused U.S. bank Silvergate Capital collapsed after customers pulled deposits.

U.S. regulators this year made it easier for banks to engage with crypto-related activities, pressuring regulators elsewhere to rethink their approach.

Data on banks' exposure is hard to find, but what is available suggests it is small but growing. 

The European Central Bank said in a May review that significant institutions in the euro zone provided 4.7 billion euros worth of crypto asset custody services in 2024, up from 400 million euros in 2023.

Basel Committee on Banking Supervision data shows 5.9 billion euros worth of prudential exposure to crypto in the second half of 2024, among banks from countries which volunteered data.

CRYPTO INVESTMENT FUNDS

The January 2024 decision by U.S. regulators to allow bitcoin exchange-traded funds unleashed a new wave of buyers, including institutional investors such as sovereign wealth funds and pension funds pouring money into crypto. 

The number of digital asset exchange-traded products worldwide has surged to 367 in 2025, up from 104 in 2021, according to Morningstar Direct data.

Still, with $222.3 billion in assets under management, crypto ETPs are tiny compared to the $17.4 trillion managed by the world's non-crypto ETPs, Morningstar estimates. 

(Reporting by Elizabeth Howcroft; Additional reporting by Amanda Cooper; Editing by Tommy Reggiori Wilkes, Alden Bentley and Alexander Smith)