Cryptocurrency Markets: Price Discovery, Volatility, and Regulatory Challenges

Abstract

Cryptocurrencies—digital assets using blockchain technology for decentralized transaction recording and issuance—have grown from Bitcoin’s 2009 launch as a peer-to-peer electronic cash system into a multi-trillion-dollar asset class encompassing currencies, smart contract platforms, stablecoins, and decentralized finance (DeFi) protocols. Bitcoin’s price volatility—reaching $69,000 in November 2021 and falling below $16,000 in December 2022—and the spectacular collapses of Terra/LUNA and FTX in 2022 have raised fundamental questions about whether cryptocurrencies function as currencies, commodities, speculative assets, or fraud vehicles. This paper reviews the economics of cryptocurrency markets: price formation and return dynamics, the market microstructure of crypto exchanges, the stablecoin ecosystem and its systemic vulnerabilities, DeFi’s promise and limitations as a decentralized financial system, and the evolving regulatory landscape for crypto assets across major jurisdictions.