A new analysis of the Bank of International Settlement (BIS) claims that regulatory news has a strong impact on cryptocurrency prices.
The report attributes this influential relationship to the fact that virtual coins are typically governed by national laws, as they rely on existing financial institutions that are already supervised by various regulators.
The authors analyzed 151 regulatory events and suspected that news of a general ban on cryptocurrency and its treatment under applicable securities law had a negative impact on prices. They also noted that reports of money laundering and terrorist financing concerns related to cryptos also led to price falls.
They found that while cryptocurrencies are often seen as operating outside the reach of national regulation, their valuations, transaction volumes, and user bases are essentially responsive to regulatory news.
They further realized that news related to bans on cryptocurrencies or their treatment under securities law have the greatest negative impact on ratings, closely followed by news about the fight against money laundering. News pointing to the creation of a legal framework for cryptocurrencies and the first coin offers coincides with strong market gains.
One example was the US Securities and Exchange Commission’s decision in March to block the exchange-traded Bitcoin fund of the Winklevoss twins. “In the five minutes around the announcement, Bitcoin’s price fell by 16%,” the report said and adds.
“Another event is the Japanese Financial Services Authority (FSA), which ordered six cryptocurrency exchanges to improve its money laundering procedures (June 2018). Again, although it seems that it took several hours until the start of the US trading day for this measure to take full effect, prices fell.”
While News reports on the possible introduction of central bank supported digital currencies seem to have little or no impact on market sentiment, it is positive to note that clear legal frameworks, albeit with a slight note, are very beneficial to sentiment in the crypto market.
“Overall, our analysis suggests that there are opportunities at this stage to apply rules when this is decided. And it also shows that regulation does not have to be bad news for the markets, with price reactions, in particular, signaling a clear preference for a defined legal status, albeit a light regulatory system,” the report states.