Price Risk

Price risk or market risk is the risk of a decline in the value of an asset, due to external factors or market conditions, during a period in which a financial contract is active. The risk of the asset declining must be factored into the contract's payment terms to hedge the risk of the asset.

Crypto assets are subject to extreme volatility and thus have extreme price risk, which makes them unsuitable as a medium of exchange or for denominating contracts in.

References

  1. Liaw, K. Thomas. 2021. ‚ÄėTrading and Regulation of Cryptocurrencies, Stablecoins and Other Cryptoassets‚Äô.
  2. Maia, Guilherme, and Jo√£o Vieira dos Santos. 2021. ‚ÄėMiCA and DeFi (‚ÄúProposal for a Regulation on Market in Crypto-Assets‚ÄĚ and ‚ÄôDecentralised Finance‚Äô)‚Äô. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3875355.
  3. Rae, Shaela W, and Lorraine Mastersmith. 2019. ‚ÄėCrypto Asset Trading in Canada: Entering a New Era of Regulation‚Äô. Banking & Finance Law Review 35 (1): 153‚Äď85.
  4. Doctorow, C. (2022, February 3). Pluralistic: 03 Feb 2022 ‚Äď Pluralistic: Daily links from Cory Doctorow. https://pluralistic.net/2022/02/03/liquidation-preference/
  5. Cumming, Douglas J., Sofia Johan, and Anshum Pant. 2019. ‚ÄėRegulation of the Crypto-Economy: Managing Risks, Challenges, and Regulatory Uncertainty‚Äô. Journal of Risk and Financial Management 12 (3): 126. https://doi.org/10.3390/jrfm12030126.
  6. Ferrari, Valeria. 2020. ‚ÄėThe Regulation of Crypto-Assets in the EU ‚Äď Investment and Payment Tokens under the Radar‚Äô. Maastricht Journal of European and Comparative Law 27 (3): 325‚Äď42. https://doi.org/10.1177/1023263X20911538.
  7. Finck, Michèle. 2018. Blockchain Regulation and Governance in Europe. Blockchain Regulation and Governance in Europe. Cambridge University Press. https://doi.org/10.1017/9781108609708.