Critical Research Method Journal Review

Introduction

The rise of cryptocurrency is traced backed to 2009 with the invention of Bitcoin by Saroshi Nakamoto – whose true identity is still a secret to date. The invention pegged on creating a decentralised payment system that could be used internationally without restrictions and bureaucracy from financial institution and regulatory bodies. Prior to the creation, financial crisis of 2008 that was blamed largely on the control the banking institution have over the entire financial system had resulted in a global economic meltdown affecting millions (Árnason, 2015). Therefore, the cryptocurrency is ideally developed to prevent another occurrence. Since then, virtual coins have revolutionised the financial and technological world with some companies and countries making them legal mode of exchange. With this, as indicated by Chohan (2017) and Sahoo (2017), the question of legality, sustainability, morality, and future digital currency has raised. The research paper by Feinstein and Werbach (2021) titled ‘The Impact of Cryptocurrency Regulation on Trading Market’ investigated ways in which announcement of cryptocurrency regulation would affect the trading market in terms of volumes and prices. In this essay, seeks to critically review the methodology employed by the articles in its attempt to attain its objectives, meeting its aim, and answering the stipulated research questions.

Theoretical Framework: Ontological and Epistemological

In research, knowledge development is based on assumption a researcher perceives the correlation of the core variables under investigation. The assumptions inform part of the social research in which a researcher views the variables within the given framework. It is usually viewed in terms of epistemology or ontology. Saunders et al. (2003) described ontology as concept that captures authenticity of the information and ways in which one understands its existence. Whereas, epistemology outlines the valid of the information as well as how it is obtained. In conducting a research, a researcher content with answering stipulated questions while at the same time seeing solution to the problem intended to be solved. In doing this, the basis of assumptions in which information is sourced determines it validity and authenticity.

Ontologically, the author based their arguments on showing correlation between the regulatory announcement and volume cryptocurrency traded. The framework, as pointed by Lee and Lings (2008), indicate correlation between concepts and core elements under the study. The interrelationships of two concepts was viewed as indicative of impacts on trading market once new regulatory terms are announced. The authors focused on the ways in which the market would respond to regulations announcement. With emergence of host of new and disruptive technologies in financial market, there is necessity to rethink regulations as well as understanding the response of the entire market (Alam et al., 2019). The challenges faced by regulatory bodies in every jurisdiction in regulating cryptocurrency include its existence in digital form, not based on any fiat currency or physical asset but having economic value. However, its trading is a case of spill-over going beyond national regulatory action. Unlike fiat or physical currency, cryptocurrency is not limited to geographical aspects and human capital or even capital controls of cross border movement. Trading markets of digital currency can be done through selection of preferred jurisdiction avoiding national regulation and other fiat limiting factors. As such, market participation is a global venture with conventional regulations not directly restricting trading. Therefore, the authenticity of the argument taken by the researcher based on the secondary date id founded on the emerging phenomena with little being understood. The understanding of the whole concept of cryptocurrency is arguably in its infancy stages, and hence the authenticity of the literature attracts several questions.

Epistemologically, the article based on both the existing literature and secondary trading data in developing knowledge on the research topic. As indicated Levers (2013), this philosophical stand concerned with knowledge development bases it argument on the existing information and argument. Building from the epistemological framework, the author used extensively theories and existing literature. Basing on theories that include Portfolio theory conceptualising that market and not the regulatory structures determines the value of assets, the authors argued that despite restrictive regulations and regulatory announcement, the particulars in digital market would find a way such as cross-border migration to trade. Moreover, they theorised that increase in worldwide trading would see one set traders rushing to unload their coins while others sensing the counter effect of selling would rush into buying. This, therefore, counters the overall effect of regulations particularly measured by price. Moreover, the research argued restrictive regulation would be dampened by the government wish to attract exchanges.

Following the literature review, the authors took a broader perspective examining all major exchange jurisdiction. Unlike previous studies, it focused on abnormal volume rather than the price movement and on a disaggregated national basis (Keating, 1995). The authors argued on the advantages taking a volume and national basis in assessing listing buyer-seller metric, difficulty in assessing prices, and cancelling out effect of positive and negative announcement. They held a view that analysing both cross-national and volume change, the study wold provide an insight on impact of regulations, type, and jurisdiction.

Collectively, the arguments drive on the issue answering the regulation impact on trading market. The authors based their perspective on literature and theorised concepts in building the argument of correlation between regulations and trading before collecting data to answer the research questions. The ‘how’ aspect of the knowledge development is fundamental in attaining the objectives. These was attained by reviewing literature then collecting data from several sources.

Methodological Choices

The research was grounded on two competing hypotheses. First, regulations influence economic activity and negative limiting innovation. On the other hand, a well-thought regulation such as consumer-protection measures would lead to more public participation in the trading. Cracking down on fraud and illicit activities associated with digital currency would make investors conformable trading as well as legitimising asset class. As such, building from arguments by Zickar and Carter (2010) on importance of organisational research, the authors argued regulatory activity in a jurisdiction would lead to either reduced or increased cryptocurrency trading volume. Based on categories grouping regulatory activities that include treating cryptocurrency as currencies, the researchers based 11 hypotheses that determine the impact of regulations. The use of hypothesis, that follows a deductive research design, allowed the researchers to move from generalised view of the correlations between the regulations and market trading of cryptocurrency to a particular point. The researcher aimed that confirmation or rebuttal of the hypotheses would be solution to the research problem. However, this approach is limited by failure to consider discovery of new answers or perspectives. In using the objectives based approach rather than hypothesis, the authors would have geared to proposing theorised concepts on the research topics.

Methods

Developing a deeper understanding requires gaining perspective and opinions of the involved correspondents, hence qualitative approach (Seale, and Silverman, 1997). This would make it difficult to answer questions: whether participants had information and knowledge of regulations prior to announcement; did the market set preparedness measures bracing for the actions; and did series of restrictive measures in-jurisdiction or other states have a lasting impact on trading? Therefore, a mixed research method would best fit.

In line with concept of action research (Eden, and Huxham, 1996), the research obtained trading volume data from Kaiko, a commercial market data provider. The total volume and volume-weighted average price (VWAP) from Kaiko’s daily files provided was aggregated at nation level by using online source to determine exchange location. Although the research focused exclusively on crypto/fiat trading of Bitcoin and ether (ETH) being the two prominent cryptocurrency in terms of market capitalisation and daily trading volume, increased popularity of the other cryptocurrencies makes their cumulative traded volume to have a significant effect on the larger market place. The approach was advantageous in that it allowed high level of practical relevance of the process and data.

By using volume event study to examine the impact of regulatory announcement on financial performance of cryptocurrency, the research would outline the trend discontinuity over a specified time period. However, the technique offering abnormal trading does not state the reasons for abnormalities unless followed by time correlation of actions. Even so, in the event there is more than one action corresponding to occurrence of abnormality, it would be difficult to establish which one caused the change. More so, assumption that investors are not subject to market parameters such as leaks, inside trading, and reported expected restructure prior to announcement fails to give a realistic perspective. Ideally, investors rely heavily on information and projection of the market trends, and thus, arguably any rumoured significant restructuring or reforms in the market would have a lasting impact prior to announcement. The estimation window of between 120 and 30 days prior to announcement date is relative short given that most significant reforms and regulations take longer owing to consultations, reviews, and, in some countries, parliamentary stages. Therefore, using a quantitative research method only fails to paint a full picture.

Data collection

In data collection, the research relied on news outlets (Reuters new database) on stories capturing announcements regulatory actions. However, this approach of using secondary data captures only what leading news outlets wrote and report. This can be misleading in the event that media report a biased report or controlled by state. In some countries with dictatorial governance, the media reports are manifestation of the state narrative. Mostly, it fails to give a complete picture of the situation. A government intending to ban cryptocurrency trading might feed news outlet with narrative portraying harmfulness and decline in volume traded while in reality, particularly due to globalised nature of digital space, there is an increase in trading. Ethically, the researcher observed data collection and presentation outlines, however, the question of researcher rigour rises (Tännsjö, 2013).

Additionally, being business-oriented, most journalists and editors cover stories and news that they deem significant to their readers. A political inclined news outlet tends to have very little technology or invention materials because of readers’ segmentation. Arguably, triangulation between the regulatory announcement and traded volume at a particular point in time would offer a better perspective of the correlation. The quantitative approach taken by the research embodied capturing the statistical trends before and after announcement (Saldana, 2011). Principally, the investigation was to establish correlation between regulatory announcement and cryptocurrency trading that is captured by quantifying data in different jurisdiction. However, the approach provided only a pin-pointed impact without analysing what happened before and after announcement (Bell et al., 2018). Going by the argument by Bryman (1984), quantitative research only tells numerical side of the factors affecting the variables in question.

From the findings, announcement of event that alters trading behaviour showed possibility of sellers rushing to unload while others buying coins on the news. However, this was based on several assumptions include traders not having prior knowledge of the regulation. Due to multitude of factors influencing trading and difficulty of having accurate traded volume, the findings would not reject the null hypothesis.

In calculating the daily trading volume in key jurisdiction such as China, Hong Kong, UK, and US, the research showed trends captured within 24 hrs. However, volatility of crypto market postulate that regulatory announcement might have a significant impact of traded volume then rippling to stability almost immediately after with no lasting effect. With this perspective, measuring traded currency over a longer time period might not offer a true picture of effect felt. Although the authors tried to address the issue of accuracy and validity of self-reported volume by running an online model, establishing a correct number can argue be difficult given that the trading market is decentralised with over 5,000 cryptocurrencies in traded in different jurisdiction. Therefore, as illustrated by Keating (1995), the researchers needed to answer the fundamental researcher questions.

Conclusion

The authors, to larger extend, embodied the textbook concept of conducting a research that include using a case study, building from existing knowledge, and employing a structured methodology. However, one can argue on the usefulness in solving research fundamental question. In such, realist philosophical framework would offer a platform where assumptions in which knowledge development was based on reality. In research design, the researchers employed a deductive approach built on the hypothesised concepts on impact of regulations announcement and market trading, however, combination of this with quantitative approach did not draw the full picture rather bring out correlation. Arguably, a mixed research approach would have led to answering research questions satisfactorily. Moreover, the decision to use secondary data from new media reporting draws the question of validity and authenticity of the conclusion made.

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