How regulatory uncertainty affects the crypto market

In Insights

Could the recent US hearings over Facebook’s Libra cryptocurrency have had a negative impact on Bitcoin’s price movement? Some observers believe so – and this wouldn’t be the first time Bitcoin’s price shows sensitivity to regulatory uncertainty.

  • In 2018, the price of Bitcoin fell from around 12,000 to 6,000 USD in the 10 days leading up to a congressional hearing on cryptocurrencies on February 6, 2018.
  • In July 2018, the price of Bitcoin fell from 6,820 to 6,070 USD in five days leading up to a series of hearings by the US House Committee on Financial Services on “crypto as a new form of money”.

However, regulatory action isn’t always a bad thing for Bitcoin. In November 2013, the price of Bitcoin rose over 600% from 85 to 650 USD in the six weeks leading up to the cryptocurrency’s first congressional hearing.

Regulatory uncertainty often precedes volatility.

A domino effect

It’s easy to forget that cryptocurrencies are still largely unregulated across the globe. This means that any time a government makes a decision on cryptocurrencies, we’re likely to see a direct effect on the market. This is especially true for powerful governments like the US that have the potential to catalyze or stagnate the development of all cryptocurrencies through policies on trading, investments and business practices.

In the recent congressional hearings over Libra, US lawmakers repeatedly asked David Marcus, CEO of Facebook’s subsidiary and crypto wallet, Calibra, to halt development on the project altogether. While many within the crypto community argue that Libra isn’t a cryptocurrency under strict technical definitions, these hearings certainly will affect how regulators approach other digital currencies.

These hearings came just days after President Donald Trump tweeted on July 12 that he is “not a fan of Bitcoin and other Cryptocurrencies, which are highly volatile and based on thin air”. These tweets were followed by a direct attack on Libra, where he stated that the virtual currency will have “little standing or dependability”.

As Trump’s comments were viewed across time zones, the price of Bitcoin actually began a slight climb. It’s difficult to attribute this kind of market response to a few tweets, but it is worth noting that just as Bitcoin was criticized throughout the heavy bull run of 2017, any recognition from the US president confirms the reality that Bitcoin and all cryptocurrencies are a legitimate threat to the traditional financial status quo.

The “threat” has been talked about for a long time, but with the amount of institutional investment that has been injected into cryptocurrencies, regulators now have their work cut out. Expect regulatory pressure to intensify over the next few months – and the crypto market to respond accordingly.

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This content is not financial advice and should not form the basis of any financial investment decisions nor be seen as a recommendation to buy or sell any good or product. Trading cryptocurrency is complex and comes with a high risk of losing money, particularly if you trade on leverage. You should carefully consider whether trading cryptocurrencies is right for you and take the time to learn how trading works and decide how much money you are prepared to lose.

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