Legitimacy, Government Regulations and the Emergence of the Market for Cryptocurrencies

Building on legitimacy in institutional theory research, we theorize how the perception of regulative legitimacy based on strong versus weak government regulations varies in conjunction with institutional voids, country level corruption and trust and its implications on the emergence of the market for cryptocurrencies (i.e. Bitcoin trading) from 2013 to 2017 in 45 countries. We find that strong regulations based on the declaration of Bitcoins as either legal or illegal makes Bitcoin trading in a country less attractive – even under high corruption. However, in the context of institutional voids strong regulations facilitate Bitcoin trading while in the context of high social trust, strong regulations hamper it. Our study contributes to a better understanding of new market emergence and the tension between (il)legality and (il)legitimacy in different institutional settings.