Researchers from the Bank for International Settlements are finding that cryptocurrency markets actually react positively to news of clear regulations, though they drop when governments issue bans.
On April 18, it has been reported that crypto prices are more responsive to regulation than their reputation suggests as per a working paper released by the Dallas Federal Reserve Bank’s Globalization Institute. While news reports of government bans on cryptocurrencies resulted in price dips, markets jumped when the regulation was clear.
However, the paper suggests:
“At the current juncture, authorities around the globe do have some scope to make regulation effective.”
The researchers found categorizing different news and their effect on Bitcoin’s price.
In examining why cryptocurrencies that operate on borderless blockchains would see price action in response to governmental actions, the authors of the paper suggest that fiat on- and off-ramps, as well as traditional institutions remain important to crypto users.
“Why do news events about national regulations have such a substantial impact on cryptoassets that have no formal legal homes and are traded internationally? Part of our interpretation is that cryptocurrencies rely on regulated institutions to convert regular currency into cryptocurrencies.”
Likewise, Raphael Auer and Stijn Claessens, the authors of the paper, are both researchers within the Bank for International Settlements’ monetary and economic department.
Auer is the Principal Economist in the Innovation and the Digital Economy Unit, while Claessens is the head of Financial Stability Policy.
It has been analyzed that earlier in April, the BIS called for countries to work on issuing central bank digital currencies in response to a number of payment issues that have come into focus during the COVID-19 pandemic.
Thus, in February, the Bank appointed new leadership at two of its hubs for fintech research.