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When Bitcoin is high: cryptocurrency value, illicit markets and US marijuana bills

Author

Listed:
  • Savva Shanaev
  • Efan Johnson
  • Mikhail Vasenin
  • Humnath Panta
  • Binam Ghimire

Abstract

Purpose - The purpose of this paper is to estimate the implications of illicit market use for the value of Bitcoin in an event studies framework. Design/methodology/approach - This study uses a data set of 58 state-level marijuana decriminalisation and legalisation bills and referenda in the USA in 2010–2022. Findings - Decriminalisation is associated with a strong and consistent positive Bitcoin price response around the event, recreational legalisation induces a more ambiguous reaction and medical legalisation is found to have a negative albeit small impact on Bitcoin value. This suggests decriminalisation enhances shadow economy use value of Bitcoin, whereas recreational and medical legalisation are not consistently reducing illicit drug cryptomarket activity. The effects are robust to various estimation windows, in subsamples, and also when outliers, heavy tails, conditional heteroskedasticity and state size are accounted for. Originality/value - New to the literature, the choice of US marijuana bills, specifically as sample events, is based on both theoretical and empirical grounds.

Suggested Citation

  • Savva Shanaev & Efan Johnson & Mikhail Vasenin & Humnath Panta & Binam Ghimire, 2024. "When Bitcoin is high: cryptocurrency value, illicit markets and US marijuana bills," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 32(4), pages 501-515, June.
    • Handle: RePEc:eme:jfrcpp:jfrc-09-2023-0146
    DOI: 10.1108/JFRC-09-2023-0146
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    More about this item

    Keywords

    Event study; Cannabis; Bitcoin; Shadow economy; Illicit Market; G14; G18; K42;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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