Bitcoin has grabbed headlines this week with its dizzying ascent to an all-time high. Yet, under the radar, a tendency was playing that could alter the surface of the cryptocurrency marketplace: a massive flow of coin to North America from East Asia.
Bitcoin, the biggest and original cryptocurrency, soared to a record $19,918 on Tuesday, buoyed by demand from investors who variously view the digital currency as a “risk-on” advantage a hedge against inflation and a payment system gaining mainstream acceptance.
However, the boom represents a shift in the current market, which has generally been dominated by European investors in East Asian countries like China, Japan and South Korea because the digital currency was devised by the mysterious Satoshi Nakamoto over a decade ago.
It is North American investors who have been the larger winners in the 165% rally this year.
Weekly net inflows of bitcoin – a proxy for new buyers – to platforms serving largely North American consumers have jumped over 7,000 times this year to over 216,000 bitcoin worth $3.4 billion in mid-November, data compiled for our content partners at Reuters shows.
East Asian markets have lost out.
Those working investors in the area bled 240,000 bitcoin worth $3.8 billion final month, versus an inflow of 1,460 in January, according to the statistics from US blockchain researcher Chainalysis.
The change is being driven by an increasing appetite for bitcoin among bigger US investors, according to interviews with cryptocurrency investors and platforms in the United States and Europe to South Korea, Hong Kong and Japan.
‘CENTRE OF GRAVITY’
East Asia, North America and Western Europe would be the biggest bitcoin hubs, with the first two alone accounting for about half of all transfers, based on Chainalysis, which gathers data by region with tools like tagging cryptocurrency wallets.
Industry experts caution it is too early to predict a basic shift in the market, particularly in an unprecedented year of pandemic-induced fiscal chaos.
Growing flows into North America this season are not necessarily “an indication that the centre of gravity is tilting towards the US,” said James Quinn of Q9 Capital, a Hong Kong cryptocurrency personal wealth manager.
Others also point out that cryptocurrency trading is highly opaque in comparison with conventional assets and patchily regulated, making comprehensive data on the emerging sector rare.
Nonetheless, Chainalysis discovered North American trading volumes in major exchanges – those with the most blockchain action – had eclipsed East Asia’s this year. This is not unheard of, with North America having moved forward on occasions in the past, but never by such a huge margin.
Volumes at four leading North American platforms have dropped this season to reach 1.6 million bitcoin per week in the end of November, while investing at 14 leading East Asian markets have climbed 16% to 1.4 million, according to the data.
In contrast, a year before, East Asia led the way with 1.3 million a week versus North America’s 766,000.
US INVESTORS DIVE IN
Those interviewed by Reuters said compliance-wary US investors, a lot of whom were deterred by the opaque nature of the marketplace in the past, are being drawn from the tightening supervision of their American crypto industry.
US exchanges are in general more tightly regulated than many of these in East Asia, and there have been several moves by American authorities and law-enforcement bureaus this year to describe how bitcoin is modulated.
A major banking regulator said in July, for example, that national banks may provide custody services for cryptocurrencies. The justice department also outlined an enforcement framework for digital coins in October.
“You’re increasingly starting to see distinctions in the market between those that have no regulatory or little regulatory clarity, versus those that do,” explained Curtis Ting of major US trade Kraken.
Assets under management at New York-based Grayscale, the world’s biggest digital currency manager, have soared to a record $10.4 billion, up more than 75% from September. Its bitcoin finance is up 85%.
“A lot of US funds are trading with large US counterparties,” explained Christopher Matta of 3iQ, a Canadian digital asset manager with clients in the United States, citing exchanges like California’s Coinbase that are overseen by New York financial regulators.
“It tells you right there how important the regulatory nature of the space is, and having venues to trade on that are regulated – it’s definitely something that institutional investors are thinking about.”
RETAIL ARMY STEPS BACK
Another factor behind the 2020 trend, crypto specialists said, is a decrease of those armies of retail investors in Asia who drove bitcoin’s 2017 boom, which pushed to its previous peak.
In South Korea, strict regulations are discouraging for example shareholders, according to In Hoh of Korea University’s Blockchain Research Institute.
Concerns that major retail exchanges related to China but headquartered elsewhere could be caught up in a crackdown by Beijing might have pushed down demand, said Leo Weese, co-founder of their Hong Kong Bitcoin Association.
In October, for instance, Malta-headquartered OKEx, that was founded in China, suspended crypto withdrawals for nearly six months because an executive has been cooperating with the investigation by Chinese law enforcement.
OKEx declared refunds on Nov. 26, and its own reserves completely covered deposits so users can withdraw funds with no limitations, said Lennix Lai, manager of financial markets.
While Asia remains a major centre for crypto trading, some exchanges see a more profound shift happening.
“Nowadays, I think the influence is coming from North America,” said Yuzo Kano, co-founder of bitFlyer in Tokyo, which runs exchanges in Japan, Europe and the United States.
“There are a lot of funds buying there.”
The team at Platform Executive hope you have enjoyed this news article. Initial reporting via our official content partners at Thomson Reuters. Reporting by Tom Wilson in London and Alun John in Hong Kong. Additional reporting by Cynthia Kim in Seoul. Editing by Pravin Char.
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