The Impact of Cryptocurrency Regulation on Trading Markets

Abstract

Some policymakers and scholars view cryptocurrencies as conduits of illegality and fraud, which therefore should be tightly regulated. Others warn that regulation could simply cause trading activity to cross borders into less-regulated jurisdictions—or even smother a promising new financial asset class. To assess these claims, we assemble original data on cryptocurrency regulations worldwide and use them to empirically examine global movement in trading activity following key regulatory announcements. A wide variety of models yields almost entirely null results. These findings call into question the notion that capital flight should be a first-order concern when designing a regulatory regime for cryptocurrencies.

Keywords: cryptocurrencies, cryptocurrency trading, regulation, bitcoin, capital flight, digital assets, securities regulation

JEL Classification: E42, F31, G12, G14, G15, G18, G28, K22, O38