The Dynamic crypto transition from China to the West
Cryptocurrencies have greatly redefined our perception of finance. From being largely dependent on banks and other traditional financial institutions before carrying out our transactions, we have evolved to enjoy anonymity, an affordable cross-border payment option, and decentralization through crypto trading powerhouses like Coinbase.com, KuCoin.com and Redot.com
This wave has ravaged the world, spreading like wildfire through Europe, China, Africa, and the United States. The improvements in the form of DeFi and NFTs are sure to lure more Gen Z and the ever-cautious millennials into the ever-growing cryptocurrency market.
There seems to be a recent change in investment pattern as analyzed crypto market volume shows a shift from Asia to the West. Due to government regulations in China, the largest crypto market in Asia, and financial, technological advancement in the west crypto market, it is looking like a new trend has been established and is not changing soon. Let’s look at the technical analysis of this.
Kaiko’s analysis of trading activity on centralized exchanges from different days and different time zones
Kaiko is a well-recognized blockchain market data and research provider. They are a Paris-based company founded in 2017. Much more than the reliability of their data, they are famous amongst big market players for enabling interoperability between the blockchain institutions and our known traditional finance institutions.
A recent blockchain analysis from Kaiko has shown a steep change in crypto trading patterns. More crypto market volume has been coming from Europe and the United States of America and lesser from the crypto powerhouse, Asia.
Kaiko tracked trading activities on exchange platforms such as Gemini, Coinbase, Redot, and Kraken, on different days and times zones. The results showed that BTC/USD trading ratio on weekends to weekdays has doubled from the first quarter of 2020. Since the three exchanges tracked are the most popular in the West, what these findings mean in simple terms is that more crypto weekend trends have been on a steady increase relative to the weekdays in West crypto.
Meanwhile, analysis of the top three crypto exchanges in Asia (Huobi, OKEx, and Binance) showed that the volume of users trading crypto on weekends (BTC/USDT majorly) and weekdays are relatively unchanged compared to last year.
When we moved to the derivatives markets, the two biggest derivatives exchanges, Binance and FTX, showed a surge in the trading volume for Bitcoin perpetual futures at around 16:00 UTC. This time is an overlap between the European and American trading hours, with a falling put-call ratio showing signs of renewed optimism to shift the coin’s price.
Why is this important?
With Xi Jinping and China’s crackdown on cryptocurrency trading, the three-braided cord in crypto market volume has been reduced to two. The future of cryptocurrency and centralized cryptocurrency exchanges hinges on US jurisdictions and the European Union laws.
Kevin Kang, the founding principal of a US-based quant hedge fund, sums it up beautifully with the words, “China’s crackdown of crypto trading and business has shifted crypto market volume to North America.”
Another important piece of information from Kaiko’s analysis is the underestimated influence that retail investors bring to the crypto market. Much emphasis has been put on Bitcoin and the overwhelming influence of institutional buyers to shift the coin’s price. With an increase in the number of retail investors, it would be interesting to see how the next few months play out.
Later in this article, we will see how the crypto mining ban in China affects energy consumption in the West. Before then, let’s see how traditional finance tools have influenced crypto trading behaviors.
The role of TradFi in trading behaviors
With more investors crossing over from traditional investing, we are seeing some new features in the crypto market, and these features are redefining trading behaviors. Institutional investors who were once wary of cryptocurrency have started opening up their investment funds to a level of crypto exposure. This has been key to shift crypto trading patterns, crypto charts, and behaviors in recent months.
Kaiko’s findings try to attribute the increase in weekend trading volumes to Automated trading tools. The use of algorithm trading in cryptocurrency, widely used for traditional securities, has reached heights never before seen. Our likely guess is that large volume traders are mitigating price impacts and execution costs by splitting their orders into bits.
In the words of Kang, “The more we see traditional investors entering the cryptocurrency space, the higher the weekend liquidity we should expect to see.”
Joel Kruger, who works at the institutional cryptocurrency exchange, LMAX Digital, as a cryptocurrency strategist, also gave his opinion after a weekend buying volume on LMAX digital increased by 85% over the space of one weekend. In his words, the increase we currently see is expected. New cryptocurrency investors are leveraging the round-the-clock investment pattern of cryptocurrency. They can shift crypto tokens and adjust positions to suit blockchain patterns or with the hope of major news, unlike the traditional methods they were familiar with where they have to wait till Monday before making changes.
Crypto Energy transition to the West
With the earlier discussed ban from China, it would be equally fair to move from technical analysis and blockchain patterns to explaining the energy consequences of China’s crypto ban on the West crypto markets.
China cited environmental concerns as to its major reason for banning crypto mining in what is seen as the toughest measure on crypto. This means that over 60% of the world’s mining input coming from China would have to be spread across the world. Europe looks like a very likely destination, with Texas coming closely behind not only because it’s the largest energy-producing state in the USA but also because it has both clean energy alternatives and a cryptocurrency-friendly government.
This would come as a very great development because of job creation in these areas and the hype of clean blockchain. Still, a stiff regulation from either of these parties would put more pressure on crypto mining and subsequently cause a reduction in crypto mining operations.