How American investors are devouring booming bitcoin

LONDON / HONG KONG (Reuters) – Bitcoin hit the headlines this week with its dizzying rise to an all-time high. However, under the radar, there has been a trend that could change the face of the cryptocurrency market: a massive flow of coins to North America from East Asia.

Bitcoin, the largest and most original cryptocurrency, climbed to a record $ 19,918 on Tuesday, buoyed by demand from investors who in various ways view the virtual currency as a “risky” asset, a hedge against inflation and a payment method that gets major acceptance.

But the boom represents a shift in the market, which has typically been dominated by investors in East Asian nations such as China, Japan and South Korea since the digital currency was invented by the mysterious Satoshi Nakamoto over a decade ago.

It is North American investors who have been the biggest winners in the 165% rally this year.

Weekly net inflows of bitcoin – a proxy for new buyers – to platforms serving primarily North American users increased more than 7,000 times this year to over 216,000 bitcoins worth $ 3.4 billion in mid-November, data compiled for Reuters show.

East Asian trade has lost.

According to data from US researcher Chainalysis, those serving investors in the region bled 240,000 bitcoins worth $ 3.8 billion last month, up from an inflow of 1,460 in January.

The change is driven by a growing appetite for bitcoin among major US investors, according to Reuters interviews with cryptocurrency platforms and investors from the US and Europe to South Korea, Hong Kong and Japan.

“The sudden influx of institutional interest from the North American region is driving a shift in bitcoin trading, which is rebalancing asset allocation across multiple exchanges and platforms,” ​​said Huobi Global Markets, based in Seychelles’ Ciara Sun, the whose parent company has roots in China and operates in several Asian markets.

‘CENTER OF GRAVITY’

East Asia, North America, and Western Europe are the largest bitcoin hubs, with the top two alone accounting for roughly half of all transfers, according to Chainalysis, which collects data by region with tools like tagging. of cryptocurrency wallets.

Industry insiders warn that it’s too early to call a fundamental shift in the market, particularly in an unprecedented year of pandemic-induced financial turmoil.

Growing flows to North America this year aren’t necessarily “an indication that the center of gravity is tilting towards the United States,” said James Quinn of Q9 Capital, a Hong Kong-based private cryptocurrency manager.

Others also point out that cryptocurrency trading is very opaque compared to traditional assets and piecemeally regulated, making complete data on the emerging sector rare.

Nonetheless, Chainalysis found that North American trading volumes on major exchanges, those with the largest blockchain activity, eclipsed East Asia this year. This is not unheard of, with North America having advanced on a few occasions in the past, but never by such a wide margin.

Volumes on four major North American platforms doubled this year to reach 1.6 million bitcoins per week at the end of November, while trading across 14 major East Asian exchanges increased 16% to 1.4 million, according to the data.

By comparison, a year earlier, East Asia was leading with 1.3 million per week compared to 766,000 in North America.

US INVESTORS DIVE

Respondents from Reuters said compliance-conscious U.S. investors, many of whom had been put off by the opaque nature of the market in the past, are drawn to the tight supervision of the U.S. crypto industry.

U.S. exchanges are generally more tightly regulated than many of those in East Asia, and there have been several moves by U.S. regulators and law enforcement agencies this year to clarify how bitcoin is supervised.

A major banking regulator said in July, for example, that domestic banks could provide custody services for cryptocurrencies. The Justice Department also outlined an enforcement framework here for digital coins in October.

“You are starting to see more and more distinctions in the market between those that have no regulation or little regulatory clarity, compared to those that do,” said Curtis Ting of the major US exchange Kraken.

“Larger institutions seek the predictability offered by a regulated venue.”

Assets managed by New York-based Grayscale, the largest digital currency manager in the world, jumped to a record $ 10.4 billion, up more than 75% since September. Its bitcoin fund rose 85%.

“Many US funds are traded with large US counterparties,” said Christopher Matta of 3iQ, a Canadian digital asset manager with clients in the US, citing exchanges such as Coinbase of California that are overseen by New York financial regulators.

“It immediately tells you how important the regulatory nature of space is, and having venues in which to trade that are regulated – is definitely something institutional investors are thinking about.”

The retail army takes a step back

Another factor behind the 2020 trend, crypto experts said, is a decline in the armies of retail investors in Asia that drove the 2017 bitcoin boom, which propelled it to its previous peak.

In South Korea, strict regulations have discouraged such investors, according to In Hoh of Korea University’s Blockchain Research Institute.

Leo Weese, co-founder of the Hong Kong Bitcoin Association, said concerns that major retail exchanges linked to China but based elsewhere may be involved in a crackdown by Beijing may have pushed demand down.

In October, for example, Malta-based OKEx, founded in China, suspended cryptocurrency withdrawals for nearly six weeks because an executive was cooperating with a Chinese law enforcement investigation.

OKEx resumed withdrawals on November 26 and its reserves fully covered deposits so that users could withdraw funds without restrictions, said Lennix Lai, director of financial markets.

While Asia remains a major center for cryptocurrency trading, some exchanges are seeing a deeper shift happen.

“Nowadays, I think the influence comes from North America,” said Yuzo Kano, co-founder of bitFlyer in Tokyo, which operates exchanges in Japan, Europe and the United States.

“There are a lot of funds they buy there.”