Abstract
Since the launch of Bitcoin in 2009, the spectacular rise and fall of cryptocurrencies and the underlying blockchain technology have attracted global attention. While the application of distributed ledger technology presents great economic and business potential, significant volatility and speculative trading of cryptocurrencies have raised concerns over investor and consumer protection and prompted government interventions within their respective jurisdictions. This study focuses on the six Bitcoin trading markets comprising 99% of global trading volume as of February 2018. Adopting the event study methodology to newly compiled information about local regulation events, we find that the effect of government regulations on the Bitcoin price is only short-lived, but regulations discourage trading activities for a longer term in local markets. Interestingly, however, the repressive effect of domestic regulations on trading activities can be mitigated by the domestic financial market openness. Together, these findings are consistent with the view that Bitcoin markets are globally integrated and that, to uphold market integrity, international cooperation would be essential.
Highlights
Since the launch of Bitcoin in 2009, the spectacular rise and fall of cryptocurrencies and the underlying blockchain technology have attracted global attention
Do regulation events cause abnormal returns and volumes in the local Bitcoin trading market compared to other markets? If so, does the effect of these regulation events last long? Is the effect magnitude related to local financial market attributes? We present three sets of results
The local Bitcoin prices differ due to various market frictions
Summary
Since the launch of Bitcoin in 2009, the spectacular rise and fall of cryptocurrencies and the underlying blockchain technology have attracted global attention. Bitcoin uses the proof-of-work concept to achieve consensus among the nodes, with transaction confirmation through independent users who solve cryptographic problems to generate new blocks evidencing transactions, and these users are in turn paid in newly created Bitcoin (as well as applicable commissions). This process is called “mining.” The Bitcoin is designed to an ultimate number of 21 million and once mined, every Bitcoin (or a fraction) can be traded on exchanges operated and accessible 24 hours a day, 7 days a week
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