When Bitcoin is high: cryptocurrency value, illicit markets and US marijuana bills.

Shanaev, Savva; Johnson, Efan; Vasenin, Mikhail; Panta, Humnath; Ghimire, Binam

Abstract

The purpose of this paper is to estimate the implications of illicit market use for the value of Bitcoin in an event studies framework. This study uses a data set of 58 state-level marijuana decriminalisation and legalisation bills and referenda in the USA in 2010–2022. Decriminalisation is associated with a strong and consistent positive Bitcoin price response around the event, recreational legalisation induces a more ambiguous reaction and medical legalisation is found to have a negative albeit small impact on Bitcoin value. This suggests decriminalisation enhances shadow economy use value of Bitcoin, whereas recreational and medical legalisation are not consistently reducing illicit drug cryptomarket activity. The effects are robust to various estimation windows, in subsamples, and also when outliers, heavy tails, conditional heteroskedasticity and state size are accounted for. New to the literature, the choice of US marijuana bills, specifically as sample events, is based on both theoretical and empirical grounds.

Citation

SHANAEV, S., JOHNSON, E., VASENIN, M., PANTA, H. and GHIMIRE, B. 2024. When Bitcoin is high: cryptocurrency value, illicit markets and US marijuana bills. Journal of financial regulation and compliance [online], 32(4), pages 501-515. Available from: https://doi.org/10.1108/JFRC-09-2023-0146

• Journal Article Type: Article
• Acceptance Date: Apr 29, 2024
• Online Publication Date: Jun 28, 2024
• Publication Date: Jul 18, 2024
• Deposit Date: Jul 4, 2024
• Publicly Available Date: Jul 18, 2024
• Journal: Journal of financial regulation and compliance
• Print ISSN: 1358-1988
• Electronic ISSN: 1740-0279
• Publisher: Emerald
• Peer Reviewed: Peer Reviewed
• Volume: 32
• Issue: 4
• Pages: 501-515
• DOI: https://doi.org/10.1108/JFRC-09-2023-0146
• Keywords: Bitcoin; Cannabis; Marijuana; Black markets; Shadow economies; Illicit markets
• Public URL: https://rgu-repository.worktribe.com/output/2403690