On Sunday, the Bank of International Settlements, a coalition of 60 central banks, released its most recent quarterly report. The report includes a section on cryptocurrency that features what is likely the most rigorous examination of the relationship between regulation and cryptocurrency prices to date.

In studying the issue, the researchers created what they call the cryptocurrency regulatory news index (CRNI), a metric for quantifying the effect of regulatory actions on cryptocurrency prices. In the context of this report, “regulatory news” does not exclusively refer to journalistic writing but also to public statements, warnings, announcements, etc., about insights, assessments, regulatory changes, and the like.

The researchers loosely categorized regulatory news into five groups: general warnings, authorities’ views of central bank digital currencies (CBDCs), crypto-exchange regulations, legal status of cryptocurrencies, and interoperability with banks and exchanges. The researchers then correlated regulatory actions (and the subsequent news reporting of them) with the prices of seven cryptocurrencies: Bitcoin, Bitcoin Cash, Ether, Litecoin, Monero, Zcash, and XRP.

Unspecific general warnings were found to have no statistically significant effect, as was news regarding CBDC issuance.

New regulations on exchanges, including more stringent anti-money laundering (AML) standards, tended to correspond with a drop in currency values. As examples, the researchers noted that, within five minutes of the SEC’s announcement of its decision to decline a Bitcoin exchange-traded fund (ETF) in March 2017, the price of Bitcoin dropped 16 percent. Similarly, that the Japanese Financial Services Agency ordered six exchanges to improve their AML procedures also led to a price dip.

However, the researchers identified 32 instances of favorable news regarding exchanges. Announcements that led to an increase in cryptocurrency prices include one from February 2018, “when officials from the SEC and the Commodity Futures Trading Commission (CFTC) issued statements before the US Congress that news agencies interpreted as ‘putting crypto-currencies on a relatively long leash.’”

In general, the researchers found that, regarding exchanges and the legal status of cryptocurrencies, “the introduction of a specific, non-security legal framework generates positive returns, most likely as those frameworks generally come with oversight rules that are milder than those under securities law.”

Perhaps surprisingly, news about increased interoperability, which could be seen as a prerequisite for widespread cryptocurrency adoption, was typically not a boost for cryptocurrency prices. According to the report, it was in fact the opposite:

“We look at 42 news events related to interoperability with regulated markets and entities, of which four pertain to the interoperability of cryptocurrencies with banks, four to taxation, 20 to decisions on ICO applications and 14 decisions to listing applications for ETFs or derivatives. Interoperability is on average also associated with a decline, of some 6.4 percentage points.”

Regarding the effect of regulation overall, the researchers concluded, “The price responses signal a clear market preference for a defined legal status, but under a light regulatory regime.”