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Cryptocurrency regulation and market quality

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  • Griffith, Todd
  • Clancey-Shang, Danjue

Abstract

We examine the effects of the 2021 Chinese cryptocurrency ban on several aspects of crypto market quality, namely, prices, volatility, and liquidity. We find that average crypto prices plunge and liquidity deteriorates, while volatility spikes in response to the announcement of the ban. While the volatility surge is short-lived, the fall in crypto values and liquidity persists. The results are robust across dollar trading volume sorts, and remain significant after taking into account the inter-connectedness between the market quality measures in a vector autoregressive framework. We present the results in comparison with the 2017 Chinese cryptocurrency ban, which did not result in the same broad changes in the crypto market. We also discuss the potential household ownership and environmental implications of the ban.

Suggested Citation

  • Griffith, Todd & Clancey-Shang, Danjue, 2023. "Cryptocurrency regulation and market quality," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:intfin:v:84:y:2023:i:c:s1042443123000124
    DOI: 10.1016/j.intfin.2023.101744
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    2. Dunbar, Kwamie & Owusu-Amoako, Johnson, 2023. "Predictability of crypto returns: The impact of trading behavior," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
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    More about this item

    Keywords

    Cryptocurrency regulations; Cryptocurrency market quality; Environmental impacts;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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