It is said that many nations and their federal reserves have a strong fear of anyone or entity that dares to challenge their fiat currency. For this reason, many speculate that price-trends can significantly affect the price of cryptocurrencies due to fear of anti-cryptocurrency regulations and laws.
It is no secret that most fiat currencies continue to lose value at striking rates, which for one reason or another is not treated with more urgency by the majority of the world.
Many nations have faced new presidents who have taken different approaches to direct their monetary systems but have all shared the same outcome; steep devaluation of their currencies. The unstoppable clench at the seats of power for governments provides incentives for them to control the influence of cryptocurrency.
In a new report titled, “Cryptocurrency Market Reactions to Regulatory News” the Federal Reserve Bank of Dallas outlined the effects of regulatory actions on cryptocurrency markets. The organization finds that the markets are highly responsive to news events that are related to the legality of cryptocurrencies.
According to the report,
“The market responds most strongly to news events regarding the legal status of cryptocurrencies. Besides general bans on their use for financial transactions, news events related to their possible treatment under securities market law have strongly adverse impacts, as do events explicitly signalling that cryptocurrencies will not be treated as a currency”
For the cryptocurrency markets, this likely means that laws, in most cases, can significantly affect the price trends of cryptocurrencies, including Bitcoin.
The post-crisis Dodd-Frank Act serves as a great example of how regulations can lead to sudden changes in the financial markets. Many financial institutions had no choice but to reduce their market-making activities in order to raise capital ratios required by regulators. As a result, they found it much harder to achieve price discovery. This is an example of the fears that people have when they find out or believe that regulations are being crafted for cryptocurrencies.
Over the past few years, it has become apparent that the short-term direction of prices can be significantly affected by the introduction of (or the belief in) new regulations in the markets. An equilibrium must be achieved for human development to be achieved.