Regulation, Tax, and Cryptocurrency Pricing

Abstract

This paper examines whether and how jurisdictional gaps in crypto regulations partially explain the persistent price differentials of the same cryptocurrency across different jurisdictions. Using Bitcoin prices from twelves exchanges located in eight jurisdictions, we discover that variations in both the regulatory framework and specific crypto policies have a significant incremental explanatory power for the cross-jurisdiction disparity in Bitcoin prices. First, greater uncertainty in the regulatory framework for cryptocurrencies is associated with lower Bitcoin prices (denominated in U.S. dollars). Second, Bitcoin prices are lower in jurisdictions that impose income taxes on crypto transactions and mandates banks’ real name verification of crypto accounts that removes anonymity. Bitcoin prices are, however, higher in jurisdictions that apply anti–money laundering laws directly to crypto exchanges and take strong exchange-related enforcement actions. Interestingly, Bitcoin prices are lower in jurisdictions with a larger supply of fiat currencies, suggesting the influence of monetary policies on Bitcoin pricing. Utilizing staggered adoptions of specific cryptocurrency polices, we identify the influence of regulation on crypto pricing using both the difference-in-differences design and the regulatory event study methodology.