Regulations Drive Down Bitcoin Prices, Says Research

The crypto markets seem to favor less regulation, unsurprisingly.

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The introduction of regulations tend to drive Bitcoin and cryptocurrency prices down, says new research.

News of crypto regulations have a negative impact on the price of Bitcoin, suggests a 2020 paper published in the journal Research in International Business and Finance. The study looks at five categories of news: anti-money laundering, exchange controls, issuance (securities) regulations, and state-backed cryptocurrencies ⁠— all of which statistically drive prices down.

The study analyzed 120 regulation-related news events reported by traditional media outlets like Bloomberg, Reuters, BBC, and the Financial Times between 2017 and 2018 between those five categories.

Researchers then estimated the direct effect of each regulatory event on the price of 300 cryptocurrencies ⁠— consisting mainly of Bitcoin by merit of market capitalization ⁠— and found that four out of five regulatory events have a significant impact on prices, with AML and issuance regulation being the most consistent ones. Reports of the risk concerns from various government officials, however, doesn’t seem to impact prices much.

Exchange regulations caused prices to slip an average of 1.78%. News of stringent AML policies caused an even larger 2.46% average loss. The most devastating was issuance regulations, including regulations around whether coins are considered securities or the rejection of Bitcoin ETFs, causing prices to drop an average 2.67%.

In contrast, the relaxation of the respective policy measures is interpreted as positive news by the markets and is followed by appreciating cryptocurrency prices. 

Crypto Markets Value Freedom Above All

The results strongly indicate that the cryptocurrency market perceives the introduction of new regulations to the scene as value-destroying, even if they are expected to reduce risk and help wider crypto adoption in the long run.

Considering the current stage of crypto development and industry maturity, the findings of the study suggest that the markets favors a “hand-off” regulatory approach.

The findings also have significant implications for investors, especially day traders, who should keep on the lookout for regulatory news which could drive Bitcoin and crypto prices in either direction.