Regulatory policy changes in the cryptocurrency market significantly impact its dynamics. Stricter regulations, like enhanced KYC/AML rules or bans on certain tokens, often trigger short-term price drops as investors react to uncertainty and reduced accessibility. For instance, when China banned crypto trading in 2021, Bitcoin fell nearly 10% overnight. Conversely, clear, supportive policies—such as the U.S. approving Bitcoin ETFs in 2024—can boost market confidence, driving bullish trends and mainstream adoption. Regulatory clarity reduces risks for institutional investors, often leading to increased capital inflows. However, inconsistent global policies create arbitrage opportunities and volatility, as seen with differing EU and U.S. approaches. While regulations aim to curb fraud and ensure stability, their immediate effect hinges on market sentiment—fear of restriction versus optimism for legitimacy. In 2025, evolving policies continue shaping crypto’s rollercoaster ride.