Regulation
Regulation makes cryptocurrency markets more efficient – News
First-of-its-kind cryptocurrency research reveals that the most regulated coins create the most efficient markets.
This crypto regulation, often carried out by cryptocurrency exchanges like Binance, can also help protect investors by providing reliable public information.
“Small investors and institutional investors should be aware that if they invest in coins without any regulation, they may suffer from price manipulation or a serious lack of inside information,” said Liangfei Qiubusiness professor at the University of Florida and one of the authors of the new study.
“Instead, they may want to invest in coins listed on platforms that provide verified information, which is a kind of minimum regulation that protects investors and makes markets more efficient,” he said. declared.
The study is the first to examine how regulation affects the efficiency of cryptocurrency markets. The researchers analyzed a suite of cryptocurrency offerings – from largely unregulated ICOs, or initial coin offerings, to exchanges setting and enforcing their own rules – and compared digital currencies to traditional exchanges, which are heavily regulated by the government.
Unregulated ICOs were the least effective. But initial exchange offerings, another crypto offering known as IEOs, were almost as effective as traditional initial public stock offerings, or IPOs. In IEOs, exchanges set minimum standards and rules and commit to providing investors with reliable information about the value of the cryptocurrency.
Exchange-based regulation is entirely voluntary, but could provide guidance for lawmakers who increasingly want to regulate crypto in still-emerging markets.
“If policymakers want to make sure the market works well, they need to provide a structure to promote regulation,” Qiu said.
To assess the effectiveness of stocks and cryptocurrencies, Qiu’s team analyzed their variance ratios, a measure of the predictability of an asset’s future price. Economists have long argued that future asset prices are essentially unpredictable – as long as everyone has the same information about the underlying value of those assets. Market inefficiencies, such as insider knowledge, can begin to distort prices, usually to the detriment of uninformed investors.
Qiu collaborated with Mahendrarajah Nimalendran and Praveen Pathak, professors at the UF Warrington College of Business, as well as his former doctoral student Mariia Petryk, now a business professor at George Mason University. Their study is forthcoming in the Journal of Financial and Quantitative Analysis.
Éric Hamilton February 1, 2024