North America cryptocurrency activity analyzed

This post is an excerpt from our 2023 Geography of Cryptocurrency report. Download your copy now!

North America is the largest cryptocurrency market we study, with an estimated $1.2 trillion in value received on-chain between July 2022 and June 2023. This total represents 24.4% of global transaction activity during the period studied.

Most of this activity is driven by the United States, which is the world leader. Canada also contributes significant transaction volume, ranking seventh globally.

North America’s crypto market is driven more by institutional activity than any other region’s with a whopping 76.9% of transaction volume driven by transfers of $1 million or more. The region’s chain activity is relatively evenly split between DeFi and centralized exchanges.

As we have seen in other regions, on-chain data suggests that North American crypto activity has declined over the past year, following negative developments such as the explosion of FTX in November of 2022. Interestingly, crypto activity has shrunk more in the months immediately following the March banking crisis which led to Silicon Valley Bank and crypto-friendly banks Signature and Silvergate shutting down, and the subsequent temporary drop in USDC’s value in secondary markets. However, operations in the chain start to decrease again in June. As we can see on the chart below, deal size data suggests that withdrawal from institutional investors was the primary driver in the overall decline in activity, as retail users and sub-institutional pro-traders estimated activity remained consistent.

Consistent with a general trend seen around the world, we also observed a relative decline in North America’s stablecoin usage, compared to other digital assets, from February 2023. Between then and June 2023, stablecoins from 70 .3% down to 48.8%. of North America’s transaction volume on the chain.

While the shift away from stablecoins was already underway before the bank failures in March, it is possible that investor concerns about stablecoins after the incident played a role in its continuation. Relatedly, stablecoin market capitalization has fallen to its lowest point in more than two years this past summer.

US may lose regulatory oversight of stablecoin market

Despite the declines described above, stablecoins are the most widely used type of crypto-asset – Chainalysis data shows that more than half of all on-chain transaction volume to or from centralized services between June 2023 and July 2022 took place in stablecoins – and more as 90% of stablecoin activity takes place in stablecoins pegged to the US dollar. US regulators have a strong interest in exercising some regulatory authority over stablecoins, given the central role of USD-denominated reserves for these assets. For one, crypto-assets have been used for crime, including uniquely harmful forms of crime that affect national security, such as theft by North Korea-linked hackers which ultimately funds North Korea’s nuclear program. If US regulators can work to limit stablecoins’ role in such activity, it will have huge, positive impacts on cryptocurrency-related crime given the large portion of overall crypto activity that stablecoins represent. Stablecoin regulation also gives regulators a chance to help ensure the US is home to the cryptocurrency businesses that will play a major role in expanding how the US dollar is used globally as the digital economy continues to grow . However, data suggests that more and more stablecoin activity is taking place by entities that are not licensed in the United States.

One way we see this is by looking at the services that stablecoins are transferred to. Since spring 2023, the majority of stablecoin inflows to the 50 largest cryptoservices have shifted from US-licensed services to non-US-licensed services, reversing a shift in the opposite direction that occurred during late 2022 and early 2023 took place. of June, a 54.6% share of stablecoin inflows to the top 50 services went to non-US licensed exchanges.

We can see similar trends in looking at stablecoin on-chain transaction volume by whether or not the issuer is a US-licensed entity.

Although American entities originally helped legitimize and launch the stablecoin market, more crypto users are engaging in stablecoin-related activities with trading platforms and issuers headquartered abroad. Unfortunately, this means that the US government is increasingly losing its ability to conduct stablecoin oversight and US consumers are missing out on opportunities to engage with stablecoins with the safeguards provided by the US regulatory regime.

While Congress has recently shown interest in stablecoin legislation, it has yet to pass comprehensive regulation. Here is an overview of the proposed stablecoin accounts currently in play:

Clarity for Payment Stablecoins Actlaunched in July 2023, aims to provide a clear regulatory framework for the issuance of payment stablecoins, as well as to protect consumers and promote innovation.
Responsible Financial Innovation Actintroduced in June 2022 and reintroduced in July 2023: although not exclusively dedicated to stablecoins, part of the proposal would subject stablecoin issuers to new prudential financial regulations.

Regardless of which bill emerges, the challenge for policymakers in passing stablecoin legislation will be to strike the right balance between keeping consumers safe and creating a framework that allows crypto markets to continue to grow and innovate to encourage Time is also of the essence.

Jason Somensatto, head of North America public policy at Chainalysis, agrees. “There are still important debates about the regulation of stablecoins, such as the appropriate role of state regulators in the registration and oversight of stablecoin issuers. These debates are resolvable and should be resolved soon in the interest of global competition and necessary regulation,” he told us.

Somensatto also discussed a distinct advantage that stablecoins — and all crypto — offer compared to fiat currency. “The inherent transparency of blockchain technology empowers global regulators, including those in the US, to effectively investigate and combat illegal activity,” he said. “This transparency can also improve sanctions enforcement, allowing participants to look throughout the crypto-ecosystem for activities involving and detect sanctioned entities.”

DeFi usage is generally declining

North America historically have has been a big adopter of DeFi. Although the region continues to lead the world in DeFi usage by raw transaction volume, the share of North American crypto activity attributed to DeFi has declined significantly over the past year.

The most likely explanation is the turmoil in the market over the past year. As CoinDesk reported in s recent piece, many DeFi protocols allow for the trading of highly speculative, recently created assets that are not available on centralized exchanges – these are typically the first assets that investors will withdraw from when markets decline. Another potential driver of DeFi’s North American slump is the regulatory uncertainty it faces in the US market.

Although challenging, the development of such regulation is essential as DeFi is very useful real applications such as trading, asset management, lending and payments, to name just a few. Coinbase CEO Brian Armstrong shared a few DeFi use cases he is excited about. In addition to the benefits seen with borrowing, lending, payments and staking, Armstrong is optimistic about web3 innovations such as decentralized identity frameworks, which allow users (rather than large tech companies) to own their digital identifiers.

Regulation will be key to crypto’s continued growth in the region

Not surprisingly, crypto activity has declined in North America over the past year as both transaction volume and grassroots adoption have declined globally. Yet, despite declines in transaction volume, North America still placed fourth in the ranking 2023 Global Crypto Adoption Index. As the region recovers from the crypto winter, regulation will play an important role in its recovery. The US Congress is working to advance two promising pieces of crypto legislation, and prominent regulators are committed to growing the ecosystem safely. CFTC Commissioner Caroline Pham recently shared that her organization could launch a program to “support the development of compliant digital asset markets and tokenization.” Proactive approaches like these show promise for the growth of crypto in North America and the world as a whole.

This material is for informational purposes only and is not intended to provide legal, tax, financial or investment advice. Recipients should consult their own advisors before making these types of decisions. Chainalysis has no responsibility or liability for any decision made or any other acts or omissions in connection with the Recipient’s use of these materials.

Chainalysis does not warrant or guarantee the accuracy, completeness, timeliness, suitability or validity of the information in this report and shall not be responsible for any claim attributable to errors, omissions or other inaccuracies of any part of such material.