Investor Reactions to Crypto Token Regulation

42 Pages Posted: 21 Mar 2019 Last revised: 15 May 2021

See all articles by Jeroen Koenraadt

Jeroen Koenraadt

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Edith Leung

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: May 14, 2021

Abstract

Crypto tokens are mostly issued and traded in unregulated environments. Despite calls for regulation in this market, it is unclear how crypto investors value current regulatory proposals. We examine crypto token price responses to regulatory news and whether they vary cross-sectionally with crypto token quality and transparency. Using 1,300 crypto tokens and 145 regulation news events, we find that on average, investors react negatively to news that increases (the likelihood of) regulation. We find that this negative reaction is mainly driven by news about securities regulation of ICOs and crypto exchanges. The reaction is attenuated for tokens with higher expert ratings of token quality and transparency, and for crypto token issuers that engage more with followers on social media. We conclude that current crypto token investors perceive regulation to be net costly on average, but less so for higher quality tokens with a better information environment.

Keywords: Regulation, Transparency, Cryptocurrencies, Crypto Tokens, ICOs, Financial Markets

JEL Classification: G10, G18, M41

Suggested Citation

Koenraadt, Jeroen and Leung, Edith, Investor Reactions to Crypto Token Regulation (May 14, 2021). Available at SSRN: https://ssrn.com/abstract=3339197 or http://dx.doi.org/10.2139/ssrn.3339197

Jeroen Koenraadt (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Edith Leung

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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