Researchers at the Bank for International Settlements (BIS) pointed out that the sensitive zone for cryptocurrency prices is regulatory policies.

People often believe that cryptocurrencies operate with censorship resistance, able to evade control from governments and central authorities. However, researchers at the Bank for International Settlements have found that in reality, both valuation, trading volume, and investors are quite sensitive to regulatory news.

Regulatory News: A Sensitive Zone for Cryptocurrencies

In a research report released on April 18 by the Globalization Institute of the Dallas Federal Reserve Bank, researchers pointed out that cryptocurrency prices are more sensitive to regulatory news than fundamental expectations. The study classified different regulatory news and their impact on Bitcoin prices, finding that when news of government bans on cryptocurrencies emerges, prices see a significant drop; conversely, when favorable and clear regulatory frameworks are introduced, the market quickly rebounds.

Why Are Cryptocurrencies Sensitive to Regulation?

Researchers believe that the reason why cryptocurrencies based on cross-border blockchain technology are so sensitive to government regulatory news is mainly due to the direct impact of regulatory policies on "fiat-to-crypto channels" and "institutional investor attitudes," which are currently the main focus of cryptocurrency investors:

"Why do news about national regulations have such a significant impact on cryptocurrency assets that have no formal legal basis and are traded internationally? Our partial explanation is that converting fiat currency to cryptocurrency relies on regulated institutions."

The Bank for International Settlements and Cryptocurrencies

The authors of the report, Raphael Auer and Stijn Claessens, are researchers at the Bank for International Settlements (BIS) in addition to being researchers at the Dallas Federal Reserve Bank. Auer is the Chief Economist of the Innovation and Digital Economy Department, while Claessens is responsible for Financial Stability Policy.

BIS maintains an open attitude towards blockchain and cryptocurrencies. In early April this year, BIS once again urged countries to issue central bank digital currencies to address many payment issues that have attracted attention during the COVID-19 pandemic. Former European Central Bank Board member and head of the BIS Innovation Hub, Benoît Cœuré, also emphasized the urgency for countries to develop central bank digital currencies in January:

"China's leading position in digital currency is the reason I call for unity among central banks worldwide. I hope this will not lead to fragmentation of the global financial system. Therefore, the development of digital currencies requires international cooperation, and research should start now."

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