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North America tops crypto usage — But at what cost?

In this post:

  • North America leads in global cryptocurrency transactions, but this dominance is heavily influenced by large institutional investors, raising concerns about market equity and susceptibility to manipulation.
  • Regulatory scrutiny in the U.S. has led to a decline in stablecoin usage and a shift of crypto activity towards non-U.S. licensed exchanges, weakening America’s position as a crypto-friendly hub.
  • A decrease in decentralized finance (DeFi) activities suggests that the market is moving away from its original vision of financial decentralization, raising questions about its future direction.

According to a recent report from Chainalysis, North America spearheads the world in cryptocurrency activity. From July 2022 to June 2023, the United States, in conjunction with Canada, amassed over $1 trillion in transaction volume, making up nearly a quarter of the global crypto market. However, this so-called “leadership” comes with its own set of considerable challenges and questions and is perhaps not the triumph it might initially appear to be.

The illusion of market health driven by large transfers

Significantly, the report highlights that the North American crypto boom is largely driven by institutional investors. About 76.9% of the transaction volume in this region consisted of transfers exceeding $1 million. While on the surface, this might seem like an indication of a robust market, it raises some critical questions. Mainly, is this sort of economic activity beneficial for the market at large, or does it merely serve a select group of financial heavyweights?

Moreover, this concentration of crypto transactions among institutional investors demonstrates a concerning lack of diversity in market participation. As these larger players continue to dominate, the risks associated with market manipulation and financial inequity grow. Interestingly, after the collapse of the FTX exchange and the subsequent criminal investigation of its former CEO, Sam Bankman-Fried, the crypto market in North America took an anticipated hit. However, it’s worth noting that this impact was comparatively less severe than the jolt the industry felt following the banking crisis in March 2023, which led to the shutdown of crypto-friendly banks like Silicon Valley Bank.

Shrinking stablecoin use

Additionally, the report notes a considerable decline in the usage of stablecoins in North America, from 70.3% to 48.8% over the past year. This represents the lowest point for the sector’s market capitalization in more than two years. One plausible reason for this is the rigorous regulatory scrutiny stablecoins have come under. Consequently, more than half of all stablecoins are now flowing to non-U.S. licensed exchanges.

This shift highlights the increasing global discomfort with the strong-arm regulatory tactics employed by U.S. agencies. The apparent intent behind this oversight is to establish the U.S. as a hub for cryptocurrency businesses, thereby extending the reach of the U.S. dollar in the digital economy. However, the result seems to be quite the opposite: businesses are actively seeking jurisdictions with more favorable regulatory climates.

The diminishing role of decentralized protocols

Besides, it’s essential to address that North America’s grip on the global decentralized finance (DeFi) volume is loosening. Whereas the region once dominated this sphere, the share of decentralized protocols in overall transaction volume has declined. As of June, the on-chain activity in the U.S. and Canada was roughly evenly split between DeFi and centralized exchanges. This waning enthusiasm for decentralized protocols signals a step backward for the initial vision of cryptocurrencies — to create a financial system free from the clutches of centralized institutions.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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