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Regulating cryptocurrencies: assessing market reactions

Author

Listed:
  • Raphael Auer
  • Stijn Claessens

Abstract

Cryptocurrencies are often thought to operate out of the reach of national regulation, but in fact their valuations, transaction volumes and user bases react substantially to news about regulatory actions. The impact depends on the specific regulatory category to which the news relates: events related to general bans on cryptocurrencies or to their treatment under securities law have the greatest adverse effect, followed by news on combating money laundering and the financing of terrorism, and on restricting the interoperability of cryptocurrencies with regulated markets. News pointing to the establishment of specific legal frameworks tailored to cryptocurrencies and initial coin offerings coincides with strong market gains. 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.

Suggested Citation

  • Raphael Auer & Stijn Claessens, 2018. "Regulating cryptocurrencies: assessing market reactions," BIS Quarterly Review, Bank for International Settlements, September.
  • Handle: RePEc:bis:bisqtr:1809f
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Julián A. Parra & Carlos Arango & Joaquín Bernal & José E. Gómez & Javier Gómez & Carlos León & Clara Machado & Daniel Osorio & Daniel Rojas & Nicolás Suárez & Eduardo Yanquen, 2019. "Criptoactivos: análisis y revisión de literatura," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, issue 92, pages 1-37, November.
    2. Raphael Auer, 2019. "Beyond the Doomsday Economics of “Proof-of-Work” in Cryptocurrencies," Globalization Institute Working Papers 355, Federal Reserve Bank of Dallas.
    3. Raphael Auer, 2019. "Embedded supervision: how to build regulation into blockchain finance," BIS Working Papers 811, Bank for International Settlements.
    4. Helmut Stix, 2021. "Ownership and purchase intention of crypto-assets: survey results," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(1), pages 65-99, February.
    5. Lyócsa, Štefan & Molnár, Peter & Plíhal, Tomáš & Širaňová, Mária, 2020. "Impact of macroeconomic news, regulation and hacking exchange markets on the volatility of bitcoin," Journal of Economic Dynamics and Control, Elsevier, vol. 119(C).
    6. Stolbov, Mikhail & Shchepeleva, Maria, 2020. "What predicts the legal status of cryptocurrencies?," Economic Analysis and Policy, Elsevier, vol. 67(C), pages 273-291.
    7. Raphael A. Auer & Stijn Claessens, 2020. "Cryptocurrency Market Reactions to Regulatory News," CESifo Working Paper Series 8228, CESifo.
    8. Bank for International Settlements, 2019. "Proceeding with caution - a survey on central bank digital currency," BIS Papers, Bank for International Settlements, number 101.
    9. Borri, Nicola & Shakhnov, Kirill, 2020. "Regulation spillovers across cryptocurrency markets," Finance Research Letters, Elsevier, vol. 36(C).
    10. Shanaev, Savva & Sharma, Satish & Ghimire, Binam & Shuraeva, Arina, 2020. "Taming the blockchain beast? Regulatory implications for the cryptocurrency Market," Research in International Business and Finance, Elsevier, vol. 51(C).
    11. Douglas Arner & Raphael Auer & Jon Frost, 2020. "Stablecoins: risks, potential and regulation," Revista de Estabilidad Financiera, Banco de España, issue Autumn.
    12. Douglas Arner & Raphael Auer & Jon Frost, 2020. "Stablecoins: potential, risks and regulation," BIS Working Papers 905, Bank for International Settlements.
    13. Emanuele Borgonovo & Stefano Caselli & Alessandra Cillo & Donato Masciandaro & Giovanno Rabitti, 2018. "Cryptocurrencies, central bank digital cash, traditional money: does privacy matter?," BAFFI CAREFIN Working Papers 1895, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    14. Julián A. Parra & Carlos Arango - Joaquín Bernal & José E. Gómez - Javier Gómez & Carlos León - Clara Machado & Daniel Osorio - Daniel Rojas & Nicolás Suárez - Eduardo Yanquen, 2019. "Criptoactivos: análisis y revisión de literatura," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República - ESPE, issue 92, pages 1-37, November.
    15. Carlo Gola & Andrea Caponera, 2019. "Policy issues on crypto-assets," LIUC Papers in Economics 2019-7, Cattaneo University (LIUC).

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    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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