Author: Tom Wilson & Alun John
Translator: Nian Yin Si Tang
Bitcoin climbed to an all-time high on Monday, making headlines. However, under people’s attention, a trend that may change the face of the cryptocurrency market is taking place: a large amount of Bitcoin flows from East Asia to North America.
Boosted by investor demand, Bitcoin surged to a record $19,918 on Tuesday. These investors view virtual currencies as “risky” assets, hedge against inflation, and payment methods that are accepted by the mainstream.
But this prosperity is also accompanied by a shift in the market. Since the mysterious Satoshi Nakamoto invented Bitcoin more than 10 years ago, investors in East Asian countries such as China, Japan, and South Korea have been dominating the market.
In this year’s 165% rise, North American investors have become the biggest winners.
Data compiled by Reuters shows that since the beginning of this year, the weekly net inflow of bitcoins to platforms dominated by North American users has jumped more than 7,000 times, reaching 216,000 bitcoins in mid-November, worth $3.4 billion.
The situation with East Asian exchanges is the opposite.
According to data from Chainalysis, a US blockchain research organization, there were 240,000 bitcoins worth 3.8 billion U.S. dollars outflow from the region last month, while the number of bitcoins that flowed in in January was 1,460.
According to Reuters interviews with cryptocurrency platforms and investors from the United States, Europe, South Korea, Hong Kong and Japan, this change is driven by the growing demand for Bitcoin from large US investors.
“The sudden influx of institutional interest from North America is driving the transformation of Bitcoin trading, that is, rebalancing the asset allocation of different exchanges and platforms.” Ciara Sun of Seychelles-based Huobi Global Markets Explained. Huobi has established business in multiple Asian markets.
Pictures about Bitcoin’s new round of bull market:
Has the center of gravity shifted?
According to Chainalysis, East Asia, North America, and Western Europe are the largest Bitcoin centers, and the first two regions alone account for about half of all Bitcoin transactions. Chainalysis uses tools such as tokenized cryptocurrency wallets to collect data by region.
Industry experts warn that it is too early to say that the market has undergone a fundamental shift, especially in the context of unprecedented financial turmoil caused by the coronavirus pandemic this year.
James Quinn of Q9 Capital, a private wealth management firm in Hong Kong’s cryptocurrency, said that the increasing amount of funds flowing to North America this year does not necessarily “show that the center of gravity is tilting toward the United States.”
Others also pointed out that compared with traditional assets, cryptocurrency transactions are highly opaque and imperfect supervision, which makes it difficult to obtain comprehensive data on this emerging industry.
However, Chainalysis found that major North American exchanges (the exchange with the highest blockchain activity) have surpassed East Asia in trading volume this year. This is not unheard of. This has happened in North America in the past, but there has never been such a big gap.
Data shows that this year’s Bitcoin transaction volume on the four major platforms in North America doubled, reaching 1.6 million Bitcoins per week as of the end of November, while the Bitcoin transaction volume of 14 major exchanges in East Asia only increased by 16% to 1.4 million Bitcoin.
In contrast, a year ago, East Asia topped the list with 1.3 million bitcoins per week, while North America only had 766,000 per week.
U.S. investors flocked in
Those interviewed by Reuters said that many of the U.S. investors who are cautious about compliance have been deterred by market opacity in the past, but are now attracted by the strengthening of the encryption industry in the United States.
In general, the US exchanges are more strictly regulated than many East Asian exchanges. This year, U.S. regulators and law enforcement agencies have taken several actions to clarify how Bitcoin is regulated.
For example, a major banking regulator stated in July that the National Bank can provide custody services for cryptocurrencies. In October, the Ministry of Justice also outlined the enforcement framework for digital currencies.
“You will gradually find that the difference between unregulated or unclearly regulated markets and clearly regulated markets becomes more apparent,” said Curtis Ting of Kraken, a major US exchange.
“Larger institutions will look for the predictability provided by regulatory venues.”
The scale of assets managed by Grayscale, the world’s largest digital currency management company headquartered in New York, has soared to a record of 10.4 billion U.S. dollars (the latest data is 12.6 billion U.S. dollars), an increase of more than 75% from September. Its Bitcoin fund rose 85%.
“A lot of US funds are trading with large US counterparties,” said Christopher Matta of 3iQ, a Canadian digital asset management company with US clients. He mentioned some exchanges regulated by the New York financial regulator, such as Coinbase in California.
“The development of Coinbase tells you how important the regulatory nature of this field is, and having a regulated trading venue-this is definitely something that institutional investors are considering.”
The retail army retreats
Crypto experts said that another factor behind this trend in 2020 is that the army of Asian retail investors that drove the Bitcoin bull market in 2017 has declined, when Bitcoin prices were pushed to historical highs.
According to In Hoh of the Korea University Blockchain Research Institute, in South Korea, strict regulations discourage such investors.
Leo Weese, co-founder of the Hong Kong Bitcoin Association, said the market is concerned that large retail exchanges related to China but headquartered in other regions may be hit, which may depress demand.
For example, in October this year, OKEx, which is headquartered in Malta and established in China, suspended its withdrawal operations for nearly six weeks because an executive is cooperating with an investigation by Chinese law enforcement agencies.
OKEx Financial Markets Director Lennix Lai said in this regard that OKEx has resumed withdrawals on November 26 and provided 100% reserves, so users can withdraw without restrictions.
Although Asia is still the main center of crypto trading, some exchanges have seen a more profound shift.
“Now, I think the influence comes from North America,” said bitFlyer co-founder Yuzo Kano. bitFlyer operates exchanges in Japan, Europe and the United States.
“There are a lot of funds buying there.”
