Why North American investors are gobbling up booming bitcoin

Workers at the bitcoin mining company Bifarms in Saint Hyacinthe, Quebec. Bitcoin volumes have doubled at four major North American platforms this year. (AFP)
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Updated 04 December 2020

Why North American investors are gobbling up booming bitcoin

Why North American investors are gobbling up booming bitcoin
  • Digital currency soars to record high amid dramatic $3.4bn global market shift

LONDON: Bitcoin has grabbed headlines this week with its dizzying ascent to an all-time high. Yet, under the radar, a trend has been playing out that could change the face of the cryptocurrency market: 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 virtual currency as a “risk-on” asset, a hedge against inflation and a payment method gaining mainstream acceptance.

But the boom represents a shift in the market, which has typically been dominated by investors in East Asian nations like 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 bigger winners in the 165 percent rally this year.

Weekly net inflows of bitcoin — a proxy for new buyers — to platforms serving mostly North American users have jumped over 7,000 times this year to over 216,000 bitcoin worth $3.4 billion in mid-November, data compiled for Reuters shows.

East Asian exchanges have lost out.

HIGHLIGHTS

  • North American exchanges win out in bitcoin boom.
  • Huge bitcoin flows to that region from East Asia.
  • Market players cite demand from large US investors.
  • Fewer retail punters in Asia another factor at play.

Those serving investors in the region bled 240,000 bitcoin worth $3.8 billion last month, versus an inflow of 1,460 in January, according to the data from US blockchain researcher Chainalysis.

The change is being driven by an increasing appetite for bitcoin among bigger 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 allocations across different exchanges and platforms,” said Ciara Sun of Seychelles-based Huobi Global Markets, whose parent company has roots in China and operates in several Asian markets.

East Asia, North America and Western Europe are the biggest bitcoin hubs, with the first two alone accounting for about half of all transfers, according to Chainalysis, which gathers data by region with tools such as tagging cryptocurrency wallets.

Industry experts caution it is 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 are not necessarily “an indication that the center of gravity is tilting toward the US,” said James Quinn of Q9 Capital, a Hong Kong cryptocurrency private wealth manager.

Others also point out that cryptocurrency trading is highly opaque compared with traditional assets and patchily regulated, making comprehensive data on the emerging sector rare.

Nonetheless, Chainalysis found North American trading volumes at major exchanges — those with the most blockchain activity — had eclipsed East Asia’s this year. This is not unheard of, with North America having moved ahead on occasions in the past, but never by such a large margin.

Volumes at four major North American platforms have doubled this year to reach 1.6 million bitcoin per week at the end of November, while trading at 14 major East Asian exchanges have risen 16 percent to 1.4 million, according to the data.

By comparison, a year before, East Asia led the way with 1.3 million a week versus North America’s 766,000.

Those interviewed said compliance-wary US investors, many of whom had been deterred by the opaque nature of the market in the past, are being attracted by the tightening oversight of the American crypto industry.

US exchanges are in general more tightly regulated than many of those in East Asia, and there have been several moves by American regulators and law-enforcement agencies this year to clarify how bitcoin is overseen.

A leading banking regulator said in July, for instance, that national banks could 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,” said Curtis Ting of major US exchange Kraken.

“Larger institutions seek the predictability that a regulated venue offers.”

Assets under management at New York-based Grayscale, the world’s largest digital currency manager, have soared to a record $10.4 billion, up more than 75 percent from September. Its bitcoin fund is up 85 percent.

“A lot of US funds are trading with large US counterparties,” said Christopher Matta of 3iQ, a Canadian digital asset manager with clients in the US, citing exchanges such as 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.”

Another factor behind the 2020 trend is a decline in the armies of retail investors in Asia who drove bitcoin’s 2017 boom, which pushed it to its previous peak.

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

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

In October, for instance, Malta-headquartered OKEx, which was founded in China, suspended crypto withdrawals for nearly six weeks because an executive was cooperating with an investigation by Chinese law enforcement.


France wants end to US-Europe trade spat

France wants end to US-Europe trade spat
Updated 17 January 2021

France wants end to US-Europe trade spat

France wants end to US-Europe trade spat
  • All eyes on President-elect Biden to resolve disputes between partners

PARIS: The EU and the incoming administration of US President-elect Joe Biden should suspend a trade dispute to give themselves time to find common ground, France’s foreign minister said in remarks published on Sunday.

“The issue that’s poisoning everyone is that of the price escalation and taxes on steel, digital technology and Airbus,” Jean-Yves Le Drian told Le Journal du Dimanche in an interview.

He said he hoped the sides could find a way to settle the dispute. “It may take time, but in the meantime, we can always order a moratorium,” he added.

At the end of December the US moved to boost tariffs on French and German aircraft parts in the Boeing-Airbus subsidy dispute, but the bloc decided to hold off on retaliation for now.

The EU is planning to present a World Trade Organization (WTO) reform proposal in February and is willing to consider reforms to restrain the judicial authority of the WTO’s dispute-settlement body.

The US has for years complained that the WTO Appellate Body makes unjustified new trade rules in its decisions and has blocked the appointment of new judges to stop this, rendering the body inoperable.

The Trump administration, which leaves office on Wednesday, had threatened to impose tariffs on French cosmetics, handbags and other goods in retaliation for France’s digital services tax, which it said discriminated against US tech firms.

Overturning decades of free trade consensus was a central part of Trump’s “America First” agenda. In 2018, declaring that “trade wars are good, and easy to win,” he shocked allies by imposing tariffs on imported steel and aluminum from most of the world.

While Trump later dropped tariffs against Australia, Japan, Brazil and South Korea in return for concessions, he kept them in place against more than $7 billion worth of EU metal. The bloc retaliated with tariffs on more than $3 billion worth of US goods, from orange juice and blue jeans to Harley Davidson bikes, and took its case to the WTO.

While Biden promises to be more predictable than Trump, he is not expected to lift the steel tariffs immediately. Even if he wants to, he could run into reluctance from producers in “rust belt” states such as Michigan and Pennsylvania that secured his election win.

Hosuk Lee-Makiyama, director of trade think tank ECIPE, said the US was unlikely to award Europe a “free pass,” noting that countries that had offered concessions to have their tariffs lifted could complain if Europe won better treatment.

Resolving future trade disputes could become easier, if Biden reverses Trump policy that paralyzed the WTO by blocking the appointment of judges to its appellate body.