INVESTIGATING THE POTENTIAL OF CRYPTOCURRENCIES TO DISRUPT TRADITIONAL FINANCIAL MARKETS AND PAYMENT SYSTEMS

Abstract

Background: The rapid growth of cryptocurrencies has prompted significant global interest in their potential to transform traditional financial markets and payment infrastructures. Their decentralized nature, coupled with technologicaladvancements such as blockchain, poses both opportunities and challenges for legacy systems. However, concerns regarding volatility, regulation, and integration continue to shape the discourse surrounding their adoption. Objective: This study aims to investigate how cryptocurrencies could potentially disrupt conventional financial markets and payment systems. The focus is on understanding the mechanisms through which digital assets influence financial market behavior, affect regulatory frameworks, and offer alternative pathways for payment processing and financial inclusion. Methods: A mixed-methods research approach was employed, integrating both quantitative econometric models and qualitative thematic analysis. Quantitative data, including historical prices, trading volumes, and volatility indices of major cryptocurrencies (Bitcoin, Ethereum, Ripple, Litecoin), were collected from sources like Bloomberg and CoinMarketCap and analyzed using Vector Autoregression (VAR), Cointegration, and Granger Causality Tests. Simultaneously, semi structured interviews and focus groups with 200 stakeholders (financial professionals, institutional investors, cryptocurrency developers, and regulators) were analyzed thematically using NVivo software to assess perceptions, regulatory concerns, and adoption barriers. Results: Quantitative findings revealed moderate correlations between cryptocurrency and traditional asset returns (e.g., BTC-S&P 500: r = 0.35; ETH NASDAQ: r = 0.40), suggesting increasing market integration. Granger causality analysis demonstrated that price movements in Bitcoin and Ethereum significantly predict trends in traditional stock indices, indicating a potential disruptive influence. Thematic analysis identified regulatory uncertainty (85%), technological innovation (70%), and market volatility (65%) as central themes. Regional disparities in adoption were evident, with Asia-Pacific leading at 70% institutional adoption, while Africa lagged at 30%. Cryptocurrencies outperformed traditional systems in terms of transaction speed (10 minutes vs. 1-3 days) and cost ($0.50 vs. $15.00). Public sentiment was mostly positive (45%), although 20% expressed concerns regarding risk and security. Conclusion: The study concludes that cryptocurrencies possess substantial potential to disrupt and transform traditional financial markets and payment systems. While major digital assets like Bitcoin and Ethereum are increasingly influencing stock market behaviors, regulatory ambiguity and volatility remain significant hurdles. However, their efficiency, accessibility, and capacity to promote financial inclusion position them as viable alternatives to conventional financial infrastructures. Policymakers and institutions must address regulatory clarity and stability to enable broader adoption and integration of these digital assets into the global economy.