East Asia, China Crucial to Global Cryptocurrency Economy
Despite a dwindling share of global cryptocurrency activity over the last 12 months, East Asia – led by China – remains the world’s largest cryptocurrency market by transaction volume, a latest Chainalysis preview of its Geography of Cryptocurrency Report has hinted. The research firm also notes, in the case of China, the intersection between the cryptocurrency trade relationships and national projects like the Belt and Road Initiative which the Chinese government seeks to expand its global influence saying their data indicates that cryptocurrency may have a role to play in advancing that goal.
The trading volume, driven by professional and the retail markets, slowed because other regions are now catching up with East Asia and there were some stagnation in its professional market, the report states, as it brings to fore the various indicators to buttress its main finding.
East Asia sets pace for liquidity
44% of transactions by volume involving an East Asia-based address are still counter-partied with another East Asia-based address pointing at the region’s somewhat setting precedent as a likely self-sustaining market in terms of liquidity. Covering 31% of all cryptocurrency transacted in the last 12 months, East Asia-based addresses reportedly received $107 bln worth of cryptocurrency over the period – 77% more than Western Europe which trails as the second-highest receiving region.
The region’s grip on mining activity – China alone controls 65% of Bitcoin’s global hashrate — is a boost for market liquidity since the majority of all newly-mined Bitcoin starts out at Asia-based addresses. The mining dominance brings liquidity by contributing to the roughly 90% of all volume transferred by East Asia every month (attributed to professional-sized transfers such as above US$10,000 worth of cryptocurrency) as made by crypto investors who “appear to engage in more speculative trading of a wider variety of assets.”
With 78% higher trading volume than the next closest region, East Asia has liquidity to spare and send more cryptocurrency around the globe than any other region, though it also have the highest proportion of trading that occurs within the region.
East Asia has the lowest share of on-chain volume devoted to Bitcoin at 51% of transfers by volume whereas altcoins make up 16% – more than any other region – of trading volume for Eastern Asia addresses. Traders based in the region also appear to trade more frequently going by the observed trade intensity on exchanges in the region.
One-third users for stablecoin
The report states that stablecoin usage is especially high in East Asia making up 33% of all value transacted on-chain in the region. Tether make up 93% of all stablecoin value transferred by addresses in the region – over $18 billion worth moved in a 12-month period.
“Despite having the highest proportion of domestic activity, East Asia still sends more cryptocurrency to foreign addresses than any other region. Over $50 billion travelled from East Asia addresses to addresses in other regions, compared to just over $38 billion for Western Europe, the region next in terms of value sent out of region,” the report says as authors believe some of the activity represents capital flight from China.
It adds that stablecoins are particularly useful for capital flight as their fiat currency-pegged value means users selling off a large amount in exchange for their fiat currency of choice which is likely to make it lose its value as they seek a buyer.