Abstract
Purpose
The purpose of this paper is to estimate the implications of illicit market use for the value of Bitcoin in an event studies framework.
Design/methodology/approach
This study uses a data set of 58 state-level marijuana decriminalisation and legalisation bills and referenda in the USA in 2010–2022.
Findings
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.
Originality/value
New to the literature, the choice of US marijuana bills, specifically as sample events, is based on both theoretical and empirical grounds.
The purpose of this paper is to estimate the implications of illicit market use for the value of Bitcoin in an event studies framework.
Design/methodology/approach
This study uses a data set of 58 state-level marijuana decriminalisation and legalisation bills and referenda in the USA in 2010–2022.
Findings
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.
Originality/value
New to the literature, the choice of US marijuana bills, specifically as sample events, is based on both theoretical and empirical grounds.
| Original language | English |
|---|---|
| Pages (from-to) | 501-515 |
| Journal | Journal of Financial Regulation and Compliance |
| Volume | 32 |
| Issue number | 4 |
| DOIs | |
| Publication status | Published - 18 Jul 2024 |
| Externally published | Yes |