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Institutional Legitimacy and New Market Emergence: the Case of Bitcoin Trading

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  • Isaak, Andrew Jay
  • Bort, Suleika
  • Woywode, Michael

Abstract

Research has shown that cognitive, normative, and regulative legitimacy are important for new market emergence. Little known, however, are the conditions and dynamics under which these three forms of legitimacy interact over time and in different institutional settings. In this study, we investigate the emergence and development of the new market for cryptocurrencies (i.e., Bitcoin) using a comprehensive dataset on trading in 49 countries between 2010 and 2020. Our study reveals that all three forms of legitimacy drive Bitcoin trading. Surprisingly, we also found increases in trading volume when Bitcoin was declared illegal and when normative support preceded, rather than followed, regulative legitimacy. Our results shed light on the relationship between cognitive, normative, and regulative legitimacy and their interactions in the emergence and development of a new contested market over time.

Suggested Citation

  • Isaak, Andrew Jay & Bort, Suleika & Woywode, Michael, 2021. "Institutional Legitimacy and New Market Emergence: the Case of Bitcoin Trading," EconStor Conference Papers 338890, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esconf:338890
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    References listed on IDEAS

    as
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    2. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    3. Geroski, Paul, 2003. "The Evolution of New Markets," OUP Catalogue, Oxford University Press, number 9780199248896.
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    Keywords

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    JEL classification:

    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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