How Bitcoin Regulation Affects Its Price: New Research

With Bitcoin regulation now a hot subject around the world, it is a good time to see how it affects the price of the currency. A new study in the Research in International Business and Finance journal shows us some interesting figures.

The possible effects of Bitcoin regulation
Image courtesy of Pxhere

The Study’s Results

It is no big surprise that Bitcoin regulation brings down the coin’s price. This also applies to other cryptocurrencies that are subject to new laws. The negative effect occurs even when the legislation being introduced is believed to be beneficial for the market.

The research team looked at the impact of 120 different regulatory events as they were reported by the media. They then studied the daily price data on 100 coins. This work was done in the period from Jan 2017 through to March 2019.

Four of the five types of news story covered were those involving anti-money laundering, exchange controls, issuance regulations and state-backed cryptocurrencies. They found that all of them pushed down prices.

The biggest falls came when anti-money laundering laws and issuance regulation were introduced. The only area where prices weren’t affected was where there were risk concerns from government officials.

In terms of exchange regulations, the drop in price tends to be an average of 1.78%. With anti-money laundering laws, the fall was 2.46% on average. However, the biggest effect was seen with issuance regulations, which caused an average drop of 2.67%.

What Does This Mean?

The summary of this report suggests that “tighter regulation of cryptocurrencies is undesirable”. Cryptocurrency users like to see freedom to operate in the market and new laws are generally greeted without much enthusiasm.

It is clear that the market prefers a hand-off approach in terms of regulation. However, it seems likely that investors need to accept tighter laws. This is exactly what we are seeing in different countries, as more new laws are expected to be introduced in 2020.

For example, the US is looking at a new cryptocurrency act while South Korea is said to be considering the idea of taxing crypto profits. With more new regulations expected over the world, there is no avoiding the risk of prices dropping as a result.

This will be a worry for investors. On the other hand, it could also benefit traders who get their timing right. Knowing that new Bitcoin regulation has a negative effect on the price could help them to time their moves better.

Either way, it appears that tighter regulation is something that we are going to have to learn with. 2020 sees new laws in Germany, while Japan’s regulator has recently approved 21 exchanges.

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