US dollar may actually be dominating global bitcoin trading volumes
Isn’t Japan the leading cryptocurrency powerhouse?
While new data collected from CoinDesk suggests otherwise, currently, data from Coinhills and CryptoCompare has shown that Japan is the leading country in terms of bitcoin trading volume. This data, cited by major outlets such as Bloomberg and the Wall Street Journal, indicates that over 50% of bitcoin trading is denominated in Japanese yen.
The problem is that the vast majority of yen-denominated transactions are not “spot” trades of actual bitcoin for yen. Instead, an overwhelming percentage of trades are derivative products (i.e. futures contracts).
In other words, the prices shown are for the “anticipated price” of bitcoin, not the “current price” of bitcoin. In these trades, no bitcoin is exchanged, just contracts for the future sale of bitcoin.
While there’s nothing inherently wrong with these contracts, selectively mixing derivative and spot volumes can paint a misleading picture.
As a result, the yen and dollar totals on these sites were not an apples-to-apples comparison, since derivative and spot volumes were included in the calculation.
CoinDesk offers an apples-to-apples comparison
After acknowledging inconsistencies in how trading volumes are counted across different exchanges, CoinDesk conducted a 5-day analysis on the top crypto exchanges and found that USD underpins most bitcoin and cryptocurrency trading.
During the time period of CoinDesk’s analysis, Bitflyer’s Lightning FX derivatives service processed the equivalent of nearly $2 billion in daily yen-denominated trades. These derivative trades accounted for 90% of CryptoCompare’s observed yen trading and 85% of Coinhills’ yen trading.
So where do the discrepancies between commonly used data sources (CryptoCompare and Coinhill) and CoinDesk come from?
- CryptoCompare and Coinhill includes yen-denominated derivative trading from Bitflyer (roughly $2 billion daily)
- CryptoCompare and Coinhill excluded US-denominated derivative trading from Bitmex (roughly $8 billion daily)
To create a more balanced comparison of global trading activity, CoinDesk conducted two price studies. The first study looked only at spot price trading and removed all derivative trading. The second study compiled all spot price and derivative trading volumes (including yen-denominated derivative and US-denominated derivative volumes).
The findings are notable as regulatory officials are most concerned about spot prices when it comes to potential illicit uses of cryptocurrency, since any crypto-related criminal activities (money laundering in particular) must rely on spot exchanges to convert cryptocurrencies into fiat currency.
Just as the dollar’s dominance in the international financial system gave U.S. regulators the leverage to shape global anti-money laundering (AML) practices after the 9/11 attacks, the dollar’s importance in global fiat-to-cryptocurrency trade could give them ammunition when it comes to new regulatory frameworks for cryptocurrency.
To put this all into perspective, Japanese officials have thus far led the push for global cryptocurrency AML standards in international forums like the G20 and the Financial Action Task Force because it is widely believed that Japanese yen dominates global bitcoin trading volumes.
Since CoinDesk’s data only covers a five-day period, it isn’t 100% conclusive that the U.S. dollar underpins most cryptocurrency trading.
However, after CoinDesk’s public acknowledgement of the aforementioned data inconsistencies, CryptoCompare changed its methodology, and its data now shows the dollar out-trading the yen. A representative from Coinhill has also stated that the company is exploring adding other major derivatives markets such as Bitmex.
Overall, the inconsistencies in how different types of transactions are counted across exchanges, and the wildly different results when these are addressed, underscore how young the cryptocurrency market is and the need for better industry-wide data practices.
For a glimpse on how mature (or not) the crypto space is: Korean Crypto Exchange Bithumb Hack Reveals Signs of a Strong Market
For more reading: HybridBlock Blog
“B2B reporter – Content Manager – Contributor – Fintech – Blockchain – Cryptocurrency”
Simon Chou is a B2B reporter and content manager specializing in technology and finance. He has worked with many clients in the fintech and blockchain space. He holds investment positions in bitcoin and other large-cap cryptocurrencies, and has been reporting on cryptocurrency since 2017. Currently, Simon is the content manager for a major cryptocurrency exchange @HybridBlockHQ.