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Cryptocurrency Market Reactions to Regulatory News

Author

Listed:
  • Raphael A. 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.

Suggested Citation

  • Raphael A. Auer & Stijn Claessens, 2020. "Cryptocurrency Market Reactions to Regulatory News," CESifo Working Paper Series 8228, CESifo.
    • Handle: RePEc:ces:ceswps:_8228
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp8228.pdf
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    References listed on IDEAS

    as
    1. Raphael Auer, 2019. "Embedded supervision: how to build regulation into blockchain finance," BIS Working Papers 811, Bank for International Settlements.
    2. Raphael Auer & Stijn Claessens, 2018. "Regulating cryptocurrencies: assessing market reactions," BIS Quarterly Review, Bank for International Settlements, September.
    3. Sean Foley & Jonathan R Karlsen & Tālis J Putniņš, 2019. "Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed through Cryptocurrencies?," The Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1798-1853.
    4. Raphael Auer & Rainer Boehme, 2020. "The technology of retail central bank digital currency," BIS Quarterly Review, Bank for International Settlements, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Auer, Raphael & Tercero-Lucas, David, 2022. "Distrust or speculation? The socioeconomic drivers of U.S. cryptocurrency investments," Journal of Financial Stability, Elsevier, vol. 62(C).
    2. Xinwen Ni & Wolfgang Karl Hardle & Taojun Xie, 2020. "A Machine Learning Based Regulatory Risk Index for Cryptocurrencies," Papers 2009.12121, arXiv.org, revised Aug 2021.
    3. Igor Makarov & Antoinette Schoar, 2022. "Cryptocurrencies and Decentralised Finance," BIS Working Papers 1061, Bank for International Settlements.
    4. Ni, Xinwen & Härdle, Wolfgang Karl & Xie, Taojun, 2020. "A Machine Learning Based Regulatory Risk Index for Cryptocurrencies," IRTG 1792 Discussion Papers 2020-013, Humboldt University of Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series".
    5. Feyen,Erik H.B. & Kawashima,Yusaku & Mittal,Raunak, 2022. "Crypto-Assets Activity around the World : Evolution and Macro-Financial Drivers," Policy Research Working Paper Series 9962, The World Bank.

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    More about this item

    Keywords

    digital currencies; cryptocurrencies; bitcoin; ethereum; distributed ledger technology; regulation; financial markets; event studies;
    All these keywords.

    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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