RACHEL MARTIN, HOST:
Cryptocurrencies have had a rough time of it lately. Bitcoin, for example, has lost more than half its value this year. Paddy Hirsch and Wailin Wong from our daily economics podcast, The Indicator, have this next story. They wondered, as these crypto assets become more mainstream, what is the risk to the wider economy?
WAILIN WONG, BYLINE: An annual survey by the Federal Reserve found that 12% of American adults used or held cryptocurrency purely for investment in the last year. Now, they probably didn't lose all their money, but that still is 31 million people. Surely that's going to affect the economy in some way?
PADDY HIRSCH, BYLINE: Well, you'd think so. But Jamie Cox says probably not. He's managing partner of Harris Financial Group in Richmond, Va.
JAMIE COX: This is not going to have the same deleterious effect that we saw with the housing market, you know, rippling into banks and creating insolvencies and then leading to a global financial crisis that could have led easily into a global depression. That's not where we are.
WONG: Jamie's not making light of the losses, but he says the wider economy is pretty insulated from them. First of all, the amounts of money we're talking about are comparatively small. The market capitalization of the entire crypto market is less than $1 trillion.
HIRSCH: Yeah. A trillion dollars may sound like a lot, but it's actually less than half of the market capitalization of Apple or Amazon. So the danger of an individual fund's losses on crypto rippling through the market are pretty low, Jamie says.
WONG: Perhaps more importantly, neither individuals nor corporations are using crypto assets as collateral for loans.
HIRSCH: This is a big deal - right? - because when people or companies borrow money, they have to provide collateral, some security that's some kind of asset that the lender can take and sell if the borrower defaults. Like, if you borrow money to buy a house, then the house is the collateral. And if you fail to make your mortgage payments, then the bank can take your home.
WONG: Companies use all kinds of stuff as collateral for the loans they borrow. But for the most part, no one right now is using crypto assets. They're too risky, too volatile, too uncertain. And that means that the corporate loan economy, all $22 trillion of it, is not affected by what's going on in crypto land.
HIRSCH: And lenders' refusal to accept crypto assets as collateral for loans is like this huge firewall between the cryptoverse (ph) and the wider U.S. economy. Now, that's not to say that crypto doesn't leak through here and there. Jamie says the stock market's a bit of a weak link because publicly traded corporations are increasingly beginning to dabble in crypto.
WONG: While the U.S. economy is pretty insulated from the ups and downs of the cryptoverse for now, things are moving fast. Crypto assets are becoming increasingly mainstream.
HIRSCH: And that means more and more Americans are going to become exposed to that world, either directly through their own investments or indirectly by owning stock in companies that have put money into crypto. And Jamie says that's something that the government is very aware of.
COX: I think that regulation was already being teed up, but it is definitely going to come in in a major way.
WONG: A lot of people believe that the blockchain and cryptocurrency are the future of finance. Even governments are getting on board the crypto train. But that does it mean that going forward the crypto market is going to be any less volatile or risky than it is today.
HIRSCH: Yeah. It could actually mean greater risk to the economy as these companies get bigger and more people invest in them. So yes, we can afford to wave off - if not ignore - this latest crypto meltdown. But we probably won't have that luxury for very much longer. Paddy Hirsch.
WONG: Wailin Wong, NPR News.
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