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% 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.
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 United States 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.
'Centre Of Gravity'
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 centre of gravity is tilting towards 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 to 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% 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.
US Investors Dive In
Those interviewed by Reuters 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 https://www.justice.gov/ag/page/file/1326061/download 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% from September. Its bitcoin fund is up 85%.
"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 United States, 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."
Retail Army Steps Back
Another factor behind the 2020 trend, crypto experts said, is a decline of 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 headquartered 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.
OKEx resumed withdrawals on November 26, and its reserves fully covered deposits so users could withdraw funds with no restrictions, said Lennix Lai, director 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."