The Impact Of Central Banks Actions On Cryptocurrency Prices

The Impact Of Central Banks Actions On Cryptocurrency Prices

Although Cryptocurrencies are known to operate outside the existing financial regulations, a recent study by Bank for International Settlements (BIS) has established a relationship between the central banks’ actions and the prices of the virtual currencies. The report claims that some actions have positive impacts while others lead to a reduction of Cryptocurrency prices. Whereas some actions by the regulatory bodies have a strong impact on the Crypto market, others have little or no impact at all. For instance, some news such as the central banks creating their own Cryptos has little impact on the market.

Restrictions Reports Have Adverse Effects On Cryptocurrency Prices

A recently published report by the Bank for International Settlements (BIS) has established that some news reports and events have a strong impact on Cryptocurrency prices. The association controlled by 60 central banks from countries that contribute 95 percent of the world’s GDP found that whenever news emerges about regulatory decisions, the prices change depending on whether the decisions affect the market positively or negatively. For instance, news about Cryptocurrency restrictions and bans lead to a reduction in their prices. News about legal battles on the virtual currencies and ICOs also have a negative impact on the price.

Some actions and decisions by the regulatory have a positive impact on the Crypto market according to the study. For instance, when news emerges that the existing legal framework will be adjusted to accommodate the digital assets and ICOs, the prices of most Cryptocurrencies increases. Whenever a certain jurisdiction introduces incentives for Cryptocurrency firms, the market also responds positively.

AML/CFT Measures And Restrictions

Different countries have their own AML/CFT measures and restrictions guiding the incorporation of the Cryptocurrencies in the traditional financial systems. Cryptocurrency market will respond depending on whether the move favors it or not. For instance, whenever news emerges about a certain jurisdiction denying Crypto exchanges from accessing banking services, there is a noticeable negative effect on the prices of the virtual currencies. Whenever a regulator allows Crypto startups to access services offered by the regulated financial institutions, the market responds positively.

Non-specific General Warnings

The study by BIS also established that continued issuance of non-specific general warning about Cryptocurrencies by the various financial regulatory bodies has a negligible impact on the market. For instance, in the past, numerous regulatory agencies have warned the public about dealing with Cryptocurrencies. The EU recent downplayed Estonia’s effort to issue a national virtual currency but the Crypto market was not affect. Such warnings do not restrict the people in those places to invest in the Crypto space hence they have little impact.

According to the report, announcements about the central banks or the financial regulators issuing their own Cryptocurrencies have a negligible impact on the Crypto market. For instance, the market did not have any noticeable effect when Venezuela announced it would issue its own oil-backed Cryptocurrency.

The study also established that, although Cryptocurrencies are known to be bounder-less, there is a significant difference in their prices across jurisdictions. These findings indicate that the Cryptocurrency market has achieved a certain level of segmentation. According to the report, these findings demonstrate that the regulated financial institutions affect the Cryptocurrency markets. Given that different markets are regulated differently, this has led to the segmentation of the Crypto market.

September 25, 2018

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Samantha Mitchell

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