How regulation affects the crypto price


Jul 2, 2019
There’s been a lot of discussion around regulating crypto over the last couple of years, and strides have started being made. Keeping an eye on crypto news is a good idea for any trader, but news about regulations seems to be a pretty big one. So, how will new laws impact digital assets? Let’s take a look at how regulation affects the crypto price.

The research

The introduction of new regulations drives down the price of Bitcoin and other cryptocurrencies, says new research.

According to a 2020 paper published in the journal Research in International Business and Finance, news of increased cryptoasset regulations tends to have a negative effect on the price of Bitcoin. The report looks into five news categories: anti-money laundering, exchange controls, issuance (securities) regulations, and state-backed cryptocurrencies - all of which seemingly drive prices down.

The report looked at 120 regulation news events, reported on by traditional media outlets like Reuters, BBC, Bloomberg, and the Financial Times. All of the events were reported on during 2017 and 2018, and belonged to at least one of the five categories.

The study’s authors estimate that the effect of each regulatory event impacts the price of around 300 cryptocurrencies - mainly of Bitcoin, just because of its huge market cap. They discovered that four out of the five events had a significant effect on prices, with anti-money laundering and issuance regulation being the most significant. However, reports of risk concerns from government don’t seem to impact the prices.

Exchange regulations have caused prices to drop by around 1.78%. News of harsh AML regulations caused a dip of 2.46%, but the largest was issuance regulations, which caused prices to drop by an average of 2.67%.

Contrastingly, news of the relaxation of a specific regulatory policy is seen as good news by the markets and is generally followed by an appreciation in cryptocurrency value. Take President Xi Jinping’s October 2019 speech for example - Bitcoin’s price surged above $10,000 after the speech, a level it hadn’t reached for more than a month.

Why news about regulation?

Cryptocurrency holders generally value freedom above all. News of encroaching regulations of digital assets threatens the foundations of the entire cryptoasset industry. While regulations are meant to reduce risk and help wider adoption in the long run, early crypto holders often eschew government interference - and for good reason. Considering that the crypto industry is still in its early stages, we’ll have to see how it matures for us to gather the true impact of regulations on the market.

Overall, regulations are likely to drive mass adoption, and drive up prices in the long run. Still, it’s pretty clear that crypto holders aren’t happy about increased regulation. The findings of this study also have a pretty huge impact for investors, who should keep an eye out for regulatory news when trading Bitcoin and other crypto. Regulatory news could drive the price up or down, and knowing which way it’ll go is a huge boon.

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New regulations

We’re going to be seeing a lot more cryptoasset regulations in the future. The faster the industry advances, the sooner regulations will tighten. Still, we’ve seen how regulation affects the crypto price, and it’s not pretty. News of certain types of regulation drives down the crypto price, and others make it increase. Traders can be fickle - but it’s only natural that heightened regulation would make crypto stalwarts nervous. Cryptocurrency should be decentralized by nature, but governments and financial institutions are worried and are trying to gain some control. How they’ll continue to expand regulation remains to be seen, but the end result will probably turn the cryptoasset industry into something that it’s actively been trying to avoid. Either way, if you’re a trader, it’s probably best to keep a keen eye on regulatory news in the digital asset industry.