Working Paper: CEPR ID: DP14602
Authors: 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.
Keywords: digital currencies; cryptocurrency regulation; valuations; event studies
JEL Codes: E42; E51; F31; G12; G28; G32; G38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| regulatory actions (G18) | cross-border implications (F55) |
| regulatory news events (G18) | cryptocurrency market responses (G13) |
| general bans on cryptocurrencies (E42) | market valuations (G19) |
| general bans on cryptocurrencies (E42) | transaction volumes (G15) |
| securities law treatment (G18) | market valuations (G19) |
| AML measures (C22) | cryptocurrency valuations (G13) |
| restrictions on interoperability (L15) | cryptocurrency valuations (G13) |
| specific legal frameworks for cryptocurrencies (E42) | market performance (G14) |