Crypto Prices React Strongly to Regulatory News, BIS Analysis Shows

News about regulatory activities exerts a significant influence on cryptocurrency prices, the Bank of International Settlement (BIS) said in an analysis published on Sunday. The reason is that virtual coins are generally within reach of national laws as they rely on financial institutions, which are overseen by various regulatory bodies, BIS explained.

The paper is co-authored by Raphael Auer, an economist at the monetary and economic department, and Stijn Claessens, head of the financial stability policy division. The duo analyzed 151 regulatory events and concluded that news about a general ban on cryptocurrencies and their treatment under existing securities laws had a negative impact on prices. Reports about tackling money laundering and terrorist financing problems linked to cryptos also led to price plunges.

To illustrate these findings, Claessens and Auer gave two examples, the first being the March decision of the US Securities and Exchange Commission not to greenlight the exchange-traded Bitcoin fund proposed by the Winklevoss twins.

“In the five minutes around the announcement, the price of bitcoin dropped by 16%. Another event is the Japanese Financial Services Agency (FSA) ordering six cryptocurrency exchanges to improve their money laundering procedures (June 2018). Again, prices tanked – although it seems to have taken several hours, until the start of the US trading day, for this measure to have its full effect,” the pair wrote.

In contrast, news about a potential introduction of non-securities legislation had a positive impact on Bitcoin (BTC) and altcoin prices as investors view this framework more favorably. News about central bank digital currencies (CBDCs) has no impact on crypto markets.

National regulatory boundaries may need to be redrawn to clarify responsibility and “internationally consistent approaches should be used for cryptocurrencies” because the analysis showed that regulatory activity in one country affects the whole market, Claessens and Auer explained. They noted:

“A loss of public trust in cryptoasset markets could translate into distrust in the broader financial system and its regulators. While cryptoassets thus do not, at this point, pose a global financial stability risk, it is important to remain vigilant, monitor developments and respond to potential threats.”

BIS’s opinion is highly-valued since the organization comprises around 60 central banks. In July, BIS general manager Agustín Carstens said cryptocurrencies were a bubble and advised young people against investing in these assets.