Non-Technical Summary
This study explores how national regulations affect Bitcoin prices across different countries. Although Bitcoin is a global digital asset, its price often varies significantly between countries, even after adjusting for exchange rates. This challenges the economic principle known as the Law of One Price, which states that identical goods should cost the same everywhere when expressed in a common currency.
To understand why these differences occur, the paper analyses a unique dataset of cryptocurrency regulations implemented in 28 countries since 2009 and compares them with Bitcoin price data from 2013 onward. The research focuses on actual enforcement dates of regulations rather than regulatory announcements, as enforcement may also change market conditions.
The study shows that regulation plays a crucial role in shaping Bitcoin markets and reducing price disparities across countries. In general, countries with stronger regulatory frameworks tend to have Bitcoin prices that align more closely with the U.S. dollar benchmark, indicating that regulation fosters market integration. However, the type of regulation matters significantly. Measures that enhance transparency and reliability—such as banking and payment laws, securities regulations, and the introduction of regulatory sandboxes—are particularly effective in narrowing price gaps and creating a more stable trading environment. These policies build trust, encourage innovation, and facilitate cross-border arbitrage. In contrast, restrictive measures like partial bans, especially those preventing banks from engaging in cryptocurrency transactions, have the opposite effect. They increase price divergence and isolate local markets, making them less connected to global trends. Anti-money laundering and counter-terrorism financing laws also influence market dynamics by lowering local Bitcoin prices. This suggests that Bitcoin’s appeal often lies in its anonymity and potential use for illicit activities, which these regulations aim to curb.
Overall, the paper concludes that well-designed regulations can make Bitcoin markets more stable and integrated internationally. However, this also means that local markets become more exposed to global shocks, creating a trade-off for policymakers between integration and vulnerability.
Keywords: Cryptocurrency, Cryptocurrency Regulation, Price Convergence, Law of One Price, Financial Institutions, Anti-Money Laundering, Regulatory Impact.
Codes JEL : G15, G18, E42, K22.
