Informational Efficiency of Cryptocurrency Markets

Mahendrarajah Nimalendran, Praveen Pathak, Mariia Petryk and Liangfei Qiu

Journal of Financial and Quantitative Analysis, 2025, vol. 60, issue 3, 1427-1456

Abstract: This study employs variance ratios (VRs) to assess the roles of regulation and liquidity on cryptocurrency market efficiency, focusing on crypto-assets subject to varying degrees of regulation. Our findings reveal that cryptocurrencies supervised by FinCEN-licensed exchanges (IEO-L) exhibit market efficiency similar to SEC-regulated traditional stock offerings (IPOs). Conversely, noncompliant crypto-assets display higher market inefficiency. We also establish a connection between regulatory compliance and issuing entity reputation mechanisms. Our results indicate that compliance with existing regulatory norms enhances efficiency and reduces investor risks in crypto-assets. Furthermore, assets voluntarily adhering to regulatory norms can attain efficiency akin to government-regulated assets.

Date: 2025
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