Regulation will make crypto markets more efficient, says study

An unprecedented study of cryptocurrencies finds that the most regulated coins create the most efficient markets.

This crypto regulation, often provided by crypto exchanges like Binance, also helps protect investors by providing reliable public information.

“Small investors and institutional investors alike should be aware that investing in coins without any regulation can suffer from price manipulation and a severe lack of insider information,” University of Florida Management said. said Liangfei Qiu, an undergraduate professor and one of the authors. new research.

This work will be done in the future Financial and Quantitative Analysis Journal.

“Instead, they may want to invest in coins that are listed on platforms that provide some degree of vetted information. “It acts as a limit regulation,” he said.

This study is the first to examine how regulation affects the efficiency of virtual currency markets. Researchers analyzed a range of virtual currency offerings, from essentially unregulated ICOs, or initial coin offerings, to exchanges that set and enforce their own rules, and found that digital currencies are highly regulated by governments. compared to traditional stock exchanges, which are regulated by

Unregulated ICOs were the least efficient. However, another cryptocurrency initial public offering known as an IEO, an initial exchange offering, was almost as efficient as a traditional initial public offering (IPO) of stock. In an IEO, exchanges set minimum standards and rules and strive to provide investors with reliable information about the value of cryptocurrencies.

Exchange-based regulations are completely voluntary, but could provide guidance to lawmakers who are increasingly interested in establishing crypto regulations in emerging markets.

“If policymakers want to ensure the healthy operation of the market, they need to provide some structure to facilitate regulation,” Chiu said.

To assess the efficiency of stocks and cryptocurrencies, Chiu's team analyzed the variance ratio, a measure of how predictable an asset's future price is. Economists have long held that an asset's future price is inherently unpredictable as long as everyone has the same information about the asset's fundamental value. Market inefficiencies, such as insider information, can begin to distort prices, usually at the expense of outside investors.

Chiu will be joined by fellow professors Mahendraraja Nimalendran and Praveen Pathak from the Warrington College of Business at the University of Florida, and his former doctoral student Maria, who is now a professor of management at George Mason University. Collaborated with Mr. Petric.