A recent research has established that, despite the common belief that digital currencies operate generally outside the realm of government regulations, regulatory actions still have a great influence on crypto prices. The research was conducted by the Bank for International Settlements (BIS), a financial institution comprising of 60 world central banks from nations that collectively contribute almost 95% of the global GDP.
The Precise Findings of the Research
In the research, the data presented depicts that though crypto markets do not generally react to news of central banks developing their cryptocurrencies or giving general warnings concerning digital currencies, they express a remarkable reaction to regulatory declarations concerning the legal status of digital currencies and Initial Coin Offerings (ICOs). Besides, the crypto markets also express a great response about likely growth and enforcement of AML, KYC, and CFT guidelines.
The Four Key Findings of the Research
First, cryptocurrency markets were established to be swayed more by social media reports and activities about bans, restrictions, or lawsuits on digital currencies and ICOs. Social media reports concerning regulatory policies or actions concerning the legal status of digital assets affected the cryptocurrency prices more.
This also comprises matters of security regulation, like the current ambiguity regarding the United States Security Exchange Commission (SEC)’s pending verdict on the legality of a Bitcoin Exchange-Traded Fund (ETF). This does not only have negative impacts, as according to the research, crypto markets also respond positively to news concerning new legal guidelines meant to accommodate digital currencies and ICOs.
The second key finding of the research is that regulatory reports about AML/CFT actions and restrictions on crypto’s capacity to incorporate traditional banking systems because of regulatory action or non-action also influences cryptocurrency prices remarkably. For instance, reports that a certain crypto exchange is starved of access to banking services in a regulated banking system has a conspicuously negative impact on the local crypto market. Equally, reports about regulatory green approval for cryptocurrency start-ups to partner with regulated banking institutions, like the fruitful New York BitLicense bid, has a significantly positive impact on crypto markets.
Thirdly, non-specific general cautions regarding the negative sides of crypto investment and transaction have an insignificant impact on crypto prices. The same is true for reports from financial regulators and central banks declaring their intentions to produce Central Bank Digital Currency (CBDC).
Crypto markets basically overlook such reports. This was illustrated in the first quarter of 2017 when the EU turned down Estonia’s plan to develop a national digital currency. The report had a negligible negative impact on cryptocurrency prices.
Lastly, the research found that despite crypto’s transnational availability and use, remarkable value differences are still visible across dominions, depicting that there is a great level of market breakdown. Regarding this point, a section of a compiled report of the study reads:
“These results suggest that cryptocurrency markets rely on regulated financial institutions to operate and that these markets are segmented across jurisdictions, bringing cryptocurrencies within reach of national regulation. Since they rely on regulated financial institutions to operate and markets are still segmented across jurisdictions, cryptocurrencies are within the reach of national regulation.”