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

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

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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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.

Original languageEnglish
Number of pages15
JournalJournal of Financial Regulation and Compliance
Early online date28 Jun 2024
Publication statusE-pub ahead of print - 28 Jun 2024

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