If you ask any Bitcoin enthusiasts what Bitcoin is all about, they will definitely tell you that bitcoin is great because it lies outside of the regulatory control of centralized corporations, banks, and governments. A news report from BIS, however, shows that governments have substantial control over the price of bitcoin because crypto markets “react substantially” to regulatory news.
The report comes from the Bank of International Settlement, often referred to as the “central bank’s central bank,” drafted by Raphael Auer and Stijn Claessens and was published on September 23.
The report reads thus:
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
Cryptocurrency advocates frequently praise the industry for being an investment safe from government decision-making and regulatory policy. The BIS report, however, suggests otherwise.
The report also found that certain types of regulatory decisions had a particularly devastating impact on market prices:
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.
All three of these news topics push the price of cryptocurrency downward.
Meanwhile, other news stories push the price upward:
News pointing to the establishment of specific legal frameworks tailored to cryptocurrencies and initial coin offerings coincides with strong market gains.
In other words, regulatory decisions and governmental institutions can have a profound impact on cryptocurrency markets, even though crypto advocates claim that their coins are out of the reach of government authorities:
These results suggest that cryptocurrency markets rely on regulated financial institutions to operate and that these markets are segmented across jurisdictions, bringing cryptocurrencies within reach of national regulation.
BIS backs up its statements with facts which includes a number of news stories that significantly affected crypto prices.
In March 2017 the SEC rejected a bitcoin ETF proposal from Cameron and Tyler Winklevoss. That proposal would have created the first US-based exchange traded fund for bitcoin. In the five minutes surrounding the announcement by the SEC, the price of bitcoin dropped an incredible 16%.
A similar drop was seen in June 2018 when Japan’s Financial Services Agency (FSA) ordered six cryptocurrency exchanges to improve their money laundering procedures. Prices tanked shortly thereafter.