Regulatory Events Always Return Positive for Bitcoin Except in China, Says New Study

In almost everywhere some sort of regulatory event was recorded, it come back with positive returns against Bitcoin averages in the six-month and one-year windows except in China, a US-based investment management firm for Bitcoin shown in a new report. NYDIG in its Quantifying the Benefits of Regulatory Clarity report notes it finds that the view of increasing regulatory clarity being supportive of price across most geographies holds true. The big exception has been China which has had outright hostility toward the digital asset ecosystem, it says.

China’s approach to crypto has always been different 

From 2013 through to the ban of trading and mining in 2021, the report says each successive regulation in China had further constricted cryptocurrencies leaving only peer-to-peer transactions which are difficult to clamp down by nature. These actions, it says, may have technically brought regulatory clarity but in a worst-case scenario environment.

“The results of the study are clear. Both on an absolute basis as well as a relative basis, increasing regulatory clarity is advantageous for the price of Bitcoin,” a section of the NYDIG report states. “The benefit of regulatory clarity is more evident as we move further from the event. Apart from in China, returns following events have positive returns against bitcoin averages in the six-month and one-year windows, while returns over shorter windows are more mixed. In China’s case, our data shows that their actions have not been supportive of prices, as one might guess.”

China’s extreme crypto regulation 

The large concentration of crypto investors, miners, and even Bitcoin hash rate production in China – up until 2021- made the country quite significant to the industry. Hence every policy aimed at the space is usually considered weighty and likely to have a wide-reaching effect on the global crypto ecosystem. Right from 2009 when Bitcoin became a name, the Chinese government and its officials have – in the name of regulation – made several untoward statements that have swayed market trends. On these separate occasions (about 19 and counting), though, the market gets to recover even until China’s crypto regulation in China which has somewhat become existential in nature, got extreme in 2021.

China banned both mining and trading of digital assets but the impact is still being felt within and beyond the country. A major victim is a global cryptocurrency exchange Huobi which announced recently that it will start layoffs that could exceed 30% of its current workforce. With more than $1 billion in profit in 2021, Huobi is considered the most profitable exchange for the year after Binance. Its recent woes, which have prompted the exchange’s founder, Li Lin, to consider selling the more than 50% share he holds in Huobi, have been attributed to the Chinese government’s ban on crypto-related activities. The exchange reportedly saw a sharp drop in its revenue after it removed all Chinese users who some reports say constitute a majority of its users.

The Chinese ban is also affecting the uniform growth of non-fungible tokens (NFTs) – renamed digital collectibles in China – across the globe.

Meanwhile, NYDIG finds that China’s regulation “has had a deleterious impact on prices” and more countries around the world, including the US, now appear to be taking a “supportive but with guardrails” approach to crypto oversight. Its analysis reinforces the belief that increasing regulatory clarity will benefit price and adoption and is likely to “provide a tailwind to Bitcoin prices going forward” as a lot of regulatory clarity is still left on the table.