Cryptocurrencies are largely regarded as operating outside of the regulatory sphere and typical government channels. This is because they do not rely on government or any real form of regulation to succeed, as they are orientated towards new paradigms without interference from centralized authorities. However, new research from the Bank of International Settlements (BIS) is indicating that crypto prices are in fact highly correlated to mainstream regulatory announcements.
A bigger than expected correlation for crypto prices
According to the BIS, crypto prices are indeed heavily correlated to regulatory announcements. The BIS report found that crypto prices were most affected by news events surrounding the legal status of cryptocurrencies. Statements from the SEC about bitcoin and ether not being securities fall into this category.
Announcements regarding KYC and AML requirements also have a strong effect. This is because these requirements will have a massive implication on how blockchain businesses operate. News that is not specifically related to cryptocurrency does not have a significant effect on the prices, and news of central banks issuing their own cryptocurrencies likewise does not affect crypto prices.
One of the primary examples given in the research was the decision of the SEC to turn down a proposal that would have allowed a Bitcoin ETF to come onto the market in March 2017. Bitcoin prices decreased by 16% within 5 minutes. Another example given was the decision of the Japanese FSA to compel six crypto exchanges to clean up their AML procedures in June 2018, with prices decreasing sharply the next day. There is little doubt that these types of announcements do have a profound effect.
BIS and the demise of the internet
The BIS has come under heavy criticism for its position on cryptographic technology. They previously warned that widespread bitcoin adoption would break the internet, a position that can only be viewed as infantile at best. According to the BIS –
“the issue goes well beyond storage capacity, and extends to processing capacity. The associated communication volumes could bring the internet to a halt, as millions of users exchanged files on the order of magnitude of a terabyte.”
While the honesty of the BIS is questionable, after they released the report indicating that BTC would bring the internet to a halt, crypto prices would undergo a large slump. This in itself lends weight to the fact that regulatory announcements do have a strong impact on the price of cryptocurrency.
It is important to note that what the cryptocurrency community is aimed towards is an organic ecosystem where people trade in crypto as much as possible for all goods and services. It is a collaborative effort to create a financial system and by extension a society that is more equitable and not subject to any form of price manipulation, by either market manipulators or government intervention. In this sense, it is hoped that the correlation will lessen as times goes by, much like the early days of cryptocurrency when people invested based on the revolutionary aspects of the technology. The actual price of cryptos is secondary to adoption and spending.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.