The Impact of Regulatory Initiatives on Bitcoin: A study on the first regulated exchange in the United States

Abstract: This paper examines how the bitcoin market reacted to the opening of Coinbase, the first regulated bitcoin exchange in the United States. Despite existing controversies towards regulating cryptocurrencies, we conclude that the market reacts positively to the announcement, with statistically significant abnormal returns. Controlling for market wide stock spikes, we can exclude that the abnormal returns were due to market wide increases and limited to the bitcoin market. Further, we investigate if the Coinbase opening imposed any difference in abnormal returns for USD/bitcoin exchanges versus other bitcoin exchanges but do not find any evidence for this. Following up on the positive market reactions to the Coinbase opening, we investigate if this has imposed any immediate change in volatility, which would show sign of a stabilizing market. We find a minimal, yet statistically significant, decrease in volatility. Last, we set out to explain bitcoin abnormal returns and find that daily change in bitcoin trading volume has a significant, negative, impact on bitcoin abnormal returns. This paper offers initial evidence of semi-strong market efficiency and validation of the law of one price on the bitcoin market and opens up for further research on regulatory initiatives effects on the bitcoin market.