A new report from the Bank of International Settlements (BIS) contends that bitcoin markets are swayed by news events related to regulation.

“While cryptocurrencies are often thought to operate out of the reach of national regulation, in fact their valuations, transaction volumes and user bases react substantially to news about regulatory actions,” argues the report, which was drafted by Raphael Auer and Stijn Claessens and was published on September 23.

The full report adds to the growing body of research conducted by the BIS – considered by some to be the “central bank’s central bank” – on the subject of cryptocurrencies and blockchain.

Among the examples cited by the BIS: the news from March 2017 that the U.S. Securities and Exchange Commission (SEC) had shot down a proposal from investors Cameron and Tyler Winklevoss to create what would have been the first U.S.-based exchange-traded fund for bitcoin.

“In the five minutes around the announcement, the price of bitcoin dropped by 16 [percent],” Auer and Claessens note. “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…”

Included in the report (and posted below) is a graph detailing market developments in the wake of both the SEC and FSA announcements.

But why?

The BIS report goes on to outline other effects that regulation-related news has had on the market, but the data itself begs the question: why is this the case?

Auer and Claessens posit that, in part, this is because of the reliance on regulated exchange points when moving funds from cryptocurrencies to government-issued ones.

“Part of our interpretation is that cryptocurrencies rely on regulated institutions to convert regular currency into cryptocurrencies. Their cumbersome setup also means that many consumers hold and transact in cryptocurrencies through more interfaces, such as online crypto-wallets that are often regulated, or can be regulated in principle,” the two wrote, going on to state:

“And international arbitrage is still limited. Agents cannot easily access cryptocurrencies’ markets offshore – because they may need to have a bank account in the foreign jurisdiction. Factors such as these create market segmentation and fragmentation, which currently make national regulatory actions bind to some degree.”

Simply put, the report contends that such an impact suggests that regulations themselves can have an effect on the cryptocurrency space.

“Our analysis shows that despite the entity-free and borderless nature of cryptocurrencies, regulatory actions as well as news regarding potential regulatory actions can have a strong impact on cryptocurrency markets, at least in terms of valuations and transaction volumes,” the authors later conclude.

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