This study examines the market impact of China's comprehensive cryptocurrency ban announced in May 2021, employing an event study methodology. The investigation is motivated by the need to understand how major regulatory interventions affect cryptocurrency markets, given their growing significance in the global financial ecosystem. Using daily price data for Bitcoin and Ethereum, we analyze abnormal returns (AR) and cumulative abnormal returns (CAR) around the announcement date. The analysis reveals significant negative market reactions, with Bitcoin experiencing a CAR of -70% and Ethereum -87% during the 30-day post-event window. Our findings suggest that this ban had a more severe and persistent impact compared to previous regulatory actions, reflecting the market's heightened sensitivity to comprehensive regulatory measures. The results demonstrate the substantial influence of major regulatory interventions on cryptocurrency market stability and provide important implications for policymakers considering cryptocurrency regulations. Furthermore, the study highlights how regulatory actions in one jurisdiction can generate significant spillover effects across global financial markets.
Pengjian Chen (Tue,) studied this question.