New Research Suggests Bitcoin Price Responds Well to Regulation News
April 21, 2020 – Research from Dallas Federal Reserve Bank’s Globalization Institute suggests the price of cryptocurrency responds well to regulation.
Per its findings, it was revealed that news of crypto bans by the government are reflected in the crypto markets with prices dipping. Conversely, positive news, such as reports of clear regulation results in prices increasing.
Clear regulations would see positive price action because, for crypto users, fiat-on and off-ramps remain very important. In some countries like the Philippines, regulated institutions are relied on when converting fiat to crypto and vice versa? The regulator is the Bangko Sentral ng Pilipinas (BSP), the country’s monetary body.
On the paper, the researches assessed how prices on average adjust across news events while differentiating between favorable and unfavorable news. When it comes to intraday trading, the research finds out that favorable events coincide on average with 0.333% return in the 120 minutes around the events and a 1.52% return within the 24-hour period around them. Unfavorable events are associated with 0.32% and 3.12% lower return over similar windows.
Also, events appear to already affect prices several hours before the news release, suggesting the news is in fact released gradually and information flows via other channels.
The markets, crypto or otherwise, have almost always responded favorably on positive news. In the crypto markets, for example, news that China will officially adopt blockchain and crypto prompted a market rally in June 2019.
The Financial Action Task Force (FATF) has issued its directives that seeks to establish regulation to the cryptocurrency sector like how banks are regulated. The so-called Travel Rule states that countries must ensure that “…beneficiary VASPs (Virtual Asset Service Providers) must obtain and hold required originator information and required and accurate beneficiary information on virtual asset transfers and make it available on request to appropriate authorities.” There is a requirement to disclose personal information for transactions that are equal or more than US$1,000
Sources: Cointelegraph, Cryptocurrency Market Reactions to Regulatory News Paper from the Federal Reserve Bank of Dallas
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