BIS study finds global regulatory standards would help stabilise crypto market

September 23, 2018
Chris Wheal

The Bank for International Settlements (BIS) published research on Sunday showing how prices of cryptocurrencies are affected by news of regulatory actions.

Bank for International Settlements, Basel, Switzerland: BIS

Addressing the disjointed nature of regulatory approaches to cryptocurrencies by differing nations, the BIS – often called the central bank’s central bank – published some interesting findings.

Cryptos immune

Many crypto enthusiasts assert that because of the sector’s mostly decentralised nature – with no institutional controls and no jurisdictional links that often beset traditional assets or currencies – cryptocurrencies are generally immune to the daily newsflow.

“This raises the question of whether one can expect regulation – in particular national regulation – to be effective,” say authors Paphael Auer and Stijn Claessens.

Key findings

Their key takeaways, following close study of the regulatory newsflow across jurisdictions and the corresponding price movements of the main digital assets, were as follows:

  • Cryptocurrencies have attracted much attention because of their “meteoric” prices swings, but have also raised concerns for regulatory authorities
  • While they are often thought to operate out of the reach of national regulation, their values, transaction volumes and user bases, in fact, react substantially to news of regulatory actions
  • Because they rely on regulated financial institutions to operate and markets remain segmented across jurisdictions, cryptocurrencies are within the reach of national regulation

Furthermore, the research found that certain types of news produced effects of varying severity on cryptocurrencies.

The news that moves

Events related to general bans on cryptocurrencies or to their treatment under securities law had the greatest adverse impact – BIS noted the large negative impact to news of China’s ban and South Korea’s considering a ban.

News indicating possible novel legal frameworks tailored to cryptocurrencies and initial coin offerings were found to coincide with strong market gains, such as those seen recently after a spate of calls for global standards in the approach to crypto regulation.

While regulatory news concerning anti-money laundering or combating the financing of terrorism had some negative impacts, unspecified general warnings on the safety of investment in digital asset or ICOs had little or no impact.

International consistency

The authors concluded that their findings suggested that authorities around the globe had scope to make regulation effective, but that the “boundaries among national regulatory bodies may need to be redrawn to clarify responsibilities”.

Indeed, the BIS added: “To maximise impact and avoid leakages, internationally consistent approaches should be used for cryptocurrencies as well.”

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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