Regulatory News Have Biggest Impact On Crypto Prices: Report

When media outlets report regulatory news such as bans on crypto (think China, Venezuela and South Korea) and treatment of initial coin offerings (ICOs) under securities laws (think U.S.), these have the greatest negative effect on valuations, according to Sept. 23 report by Bank for International Settlements (BIS) titled "Regulating cryptocurrencies: assessing market reactions." Other news that have adverse consequences on crypto prices (but not as impactful) pertain to money laundering, terrorist financing and restrictions in regulated markets. However, there are news coverage that lead to strong, positive gains. These include establishment of legal frameworks and ICOs. These findings reflect cryptocurrency's dynamic of being social tools that require favorable perception in order to increase adoption. Today's media suffer from several criticisms, the first of which is that modern news organizations are nothing more than "echo chambers" of each other. That is, when a news entity conducts original reporting on a story, other media sites simply echo (repeat) the same talking points which can diminish independent viewpoints and which creates an inertia in the day's news cycle that's difficult to overcome. A second criticism is that journalists, news-makers and bloggers are incentivized to sensationalize what would otherwise be ordinary developments — leading to the accusatory term "fake news" — in order to gain valuable clicks and page views which in turn increase advertising revenue. However, such sensationalist (fake) headline-making can exacerbate the price implications of what is already an extremely volatile $210 billion cryptocurrency market. Moreover, the big impact of news reporting on crypto prices give large investors and their public relations (PR) agents the motivation to "influence" (bribe) the media — especially influencers, second-tier outlets, bloggers and YouTube celebrities — to suit an agenda.

"While cryptocurrencies are often thought to operate out of the reach of national regulation, in fact their valuations, transaction volumes and user bases react substantially to news about regulatory actions," according to BIS's authors. "Because they rely on regulated financial institutions to operate and markets are (still) segmented across jurisdictions, cryptocurrencies are within the reach of national regulation."

It should be pointed out that many crypto enthusiasts view Bank for International Settlements with a skeptical eye because of what it represents: traditional, old-world finance. BIS is comprised of 60 of the world's central banks hailing from countries that have 95% of global GDP. Its June 2018 report "Cryptocurrencies: looking beyond the hype" argued that cryptocurrencies cannot act as new form of money.

"[There are] economic limitations inherent in the decentralised creation of trust which they entail. For the trust to be maintained, honest network participants need to control the vast majority of computing power, each and every user needs to verify the history of transactions and the supply of the cryptocurrency needs to be predetermined by its protocol," according to BIS's authors. "Trust can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded. Not only does this call into question the finality of individual payments, it also means that a cryptocurrency can simply stop functioning, resulting in a complete loss of value."

BIS also contends that cryptos are inefficient and require vast energy. Moreover, digital coins cannot scale with transaction demand, are prone to congestion and greatly fluctuate in value.

"Overall, the decentralised technology of cryptocurrencies, however sophisticated, is a poor substitute for the solid institutional backing of money."