---

A deep dive into how a $3.2T crypto market intersects with banks, stocks, stablecoins, and mainstream finance and why regulators fear ripple effects.

---

Market on the Edge

The cryptocurrency world has ballooned into a financial powerhouse, buoyed in part by policies from the Trump administration that signaled open arms to digital assets. As crypto has gained a seat at the institutional table, its influence is no longer confined to niche traders or tech enthusiasts. Yet the very speed of its rise has amplified a critical question: Can turbulence in this lightly regulated arena spill over into traditional finance?

That concern is surfacing again as bitcoin slips below $90,000 for the first time since April, dragging the broader crypto market down by an astonishing $1.2 trillion in just six weeks. With volatility intensifying, understanding where crypto touches mainstream markets has never been more urgent.

How Crypto Grew Into a Global Force

According to CoinGecko, cryptocurrencies together now hold a staggering $3.2 trillion in market value and see nearly $200 billion in daily trading volume. By global standards, crypto is still a small slice of the financial system, but its interconnectedness has grown rapidly.

Bitcoin, the market’s bellwether, has deepened its ties to traditional risk assets. This week, its one-month correlation with the S&P 500 hit 0.84, the strongest level in six weeks, based on LSEG data. Such a tight relationship suggests that broader investor sentiment can move digital assets just as easily as it moves stocks.

What follows is a closer look at the key fault lines where crypto and the conventional financial system meet.

Stablecoin Reserves-A Silent Systemic Risk

Stablecoins function as the crypto market’s cash tokens pegged to the U.S. dollar and backed by real-world reserves. Issuers say each token can be exchanged for actual dollars at any moment. But this promise only holds if the reserves backing those tokens remain intact.

Financial stability experts warn that a sudden wave of redemptions could force issuers to liquidate large holdings, potentially triggering disruptions in the Treasury market or in the banks holding their deposits.

No player looms larger than Tether, headquartered in El Salvador, which controls roughly $181 billion in reserves, including $112 billion in U.S. Treasuries. Circle, the second-largest issuer, holds about $24 billion in Treasuries. Their combined footprint makes stablecoins significant purchasers of U.S. government debt an unusual and increasingly important junction between crypto and traditional finance.

Crypto-Linked Stocks-A Small but Surging Corner of the Market

Crypto-related stocks have raced ahead in 2025, boosted by surging valuations and a rush of new listings. Even so, the space remains tiny compared to global equities.

LSEG data shows stocks categorized under “blockchain and cryptocurrency” and “cryptocurrency mining” are worth around $225 billion, just 1.8% of worldwide equities.

This number excludes companies that hold bitcoin as a core treasury asset a group that includes giants like MicroStrategy as well as dozens of newly converted penny-stock vehicles taking speculative swings on bitcoin’s rise. Analysts at Standard Chartered estimate that if bitcoin falls below $90,000, half of these firms would be holding coins worth less than what they paid.

Meanwhile, four crypto companies have already gone public in 2025, raising $1.2 billion about 3.3% of all U.S. IPO proceeds so far.

Bank Exposure-Small but Growing

Banks’ relationship with crypto remains complicated. Some lend to crypto firms, some custody digital assets, and others hold reserves for stablecoin issuers. A handful have specialized exclusively in digital-asset clients a concentration of risk that became clear in 2023 when Silvergate Capital collapsed after massive deposit withdrawals from crypto customers.

In 2025, U.S. regulators loosened restrictions, clearing a smoother path for banks to engage in crypto-related activities. That shift has nudged financial watchdogs in Europe and elsewhere to reassess their own frameworks.

Reliable data remains scarce, but what is available suggests exposure is increasing:

• The European Central Bank reported that major euro-zone banks provided €4.7 billion in crypto custody services in 2024, up from €400 million the year before.

• The Basel Committee estimated global prudential exposure at €5.9 billion as of late 2024 among banks that volunteered data.

For now, the risks appear manageable, but the trend points toward deeper entanglement.

Crypto Investment Funds-Institutional Money Steps In

A pivotal moment came in early 2024 when U.S. regulators approved the first bitcoin exchange-traded funds. That decision unlocked a new wave of buyers, from pension funds to sovereign wealth funds bringing crypto further into the mainstream investment universe.

The number of digital-asset exchange-traded products (ETPs) worldwide has climbed to 367 in 2025, up from just 104 in 2021, according to Morningstar Direct.

Still, in the grand scheme of global finance, crypto ETPs remain small. They currently manage $222.3 billion, a sliver of the $17.4 trillion held by traditional ETPs.

Yet their symbolic impact is enormous: institutional adoption signals that crypto is no longer an outsider asset class it’s part of the investment landscape.

Why Regulators Are Watching Closely

Market analysts say regulators aren’t concerned about the size of the crypto market alone, they’re focused on where crypto touches the financial system and how quickly those connections are growing.

When bitcoin drops sharply, leveraged traders unwind positions, stablecoin reserves shift, crypto-linked stocks slide, and banks tied to the sector face fresh scrutiny. The concern is not that crypto will topple the global system today, but that its linkages could intensify rapidly without proper guardrails.

According to experts reviewing recent data, the real risk is correlation. When crypto moves in lockstep with mainstream markets, it transforms from an isolated speculative corner into a potential amplifier of financial stress.

A Market That Can No Longer Be Ignored

Crypto is now too connected to dismiss as a fringe phenomenon. Its stability mechanisms stablecoins, ETFs, publicly listed miners, and bank partnerships are intertwined with the traditional financial system in ways policymakers must monitor.

If extreme volatility persists, the next stress point could emerge from:

• Massive stablecoin redemptions

• Sharp drops in crypto-held corporate treasuries

• Bank liquidity tightening in crypto-exposed institutions

• Retail investors pulling back from volatile ETFs

Regulators are racing to understand these dynamics as institutional involvement grows.

The Future Hinges on Regulation and Resilience

The crypto market’s explosive growth has brought it closer than ever to mainstream finance. With trillions at play and institutional money now in the mix, the stakes are rising. As bitcoin retreats and volatility spreads, policymakers face a pivotal challenge: ensuring that innovation thrives without letting a largely decentralized market introduce systemic shockwaves.

Crypto may have once been an outsider in global finance but today, its movements echo far beyond digital borders.

 

ALSO READ:  Global Markets Sink as Investors Lose Nerve Ahead of Fed Decision