The Chainalysis Cryptocurrency Report

The Chainalysis Cryptocurrency Report is a comprehensive report on the geography of cryptocurrency. It aims to provide an overview of the global cryptocurrency landscape, focusing on the major geographical trends, industry players, and technology developments of 2022.

The report offers a detailed analysis on the characteristics and activities of each geographical region and the impact of geopolitical and economic developments on each of them. We will also look at how countries respond to the rise of cryptocurrency.

Overview of the report

Chainalysis, the leading provider of cryptocurrency investigation and compliance solutions, produces this cryptocurrency market report. The report provides an overview of the crypto market and its key growth drivers, as well as detailed analysis and forecasts for the future.

The report discusses how cryptocurrencies are used, their investment potential, legal framework surrounding them, implications for anti-money laundering (AML) practices and more. It offers insights into global trends in crypto-asset investments and trading. Additionally, it covers details of cryptocurrencies’ widespread changes in use from 2017 to 2021 and explores a five-year outlook for each asset segment.

The report also provides risk profiles examining how specific types of activity present greater investment risk than others; identifies emerging fraud trends; explains exchanges’ risks regarding AML compliance; and presents a unique evaluation of existing network effects among different protocols used to facilitate transfers of digital assets.

Finally, this report includes data drawn from Chainalysis’s dedicated Deep Web Monitoring service and extensive premium KYT (Know Your Transaction) intelligence service to detect suspicious behaviour related to criminals laundering money through legitimate exchanges or illicit coin tumblers.

Overview of Chainalysis

Chainalysis is a leading anti-money laundering (AML) and compliance solutions provider. Our software tools, analytics and services help keep global financial systems safe by helping users identify and prevent illegal activity on the blockchain.

We are the first company to develop AML compliance solutions specifically designed for cryptocurrency-related activities. Our suite of products is used by some of the world’s leading organisations, including banks, law enforcement agencies, government regulators and cryptocurrency exchanges. With our software tools, compliance teams can easily detect suspicious activity on the blockchain and investigate it further with limited resources.

At Chainalysis, we understand that blockchain technology has opened up new possibilities for innovation but requires greater scrutiny to ensure it is used responsibly. We believe that by working with governments, law enforcement agencies and industry partners, we can create an ecosystem that encourages responsible innovation while safeguarding our global financial systems from malign actors.

The Chainalysis 2022 Geography of Cryptocurrency

The Chainalysis Cryptocurrency Report provides an in-depth look into the trends, insights and analysis of the global cryptocurrency ecosystem in 2022.

This report provides an overview of the geography of cryptocurrency, including the key trends, macroeconomic factors, and investments shaping the industry.

In this section, we will discuss the key findings from the report.

Analysis of cryptocurrency adoption

A main focus of the Chainalysis Cryptocurrency Report was to assess the current global level of cryptocurrency adoption among all cryptocurrency users and to analyse particular segments. The report analysed data from four metrics – overall market size, mainstream acceptance, user adoption and merchant acceptance.

Overall market size was measured by looking at the total number wallets, transaction volumes and Bitcoin’s share of cryptocurrency market capitalization. The number of unique wallets more than doubled to over 35 million between 2017 and 2020. Transaction volumes have increased by almost 1000% with merchant acceptance driving growth within this area; most transaction volumes occur on exchanges, representing only about 2-3% amongst all fiat-to-cryptocurrency transactions. Bitcoin’s dominance in terms of market capitalization decreased from 87% in January 2017 to 64% during August 2020 as new altcoins emerge on various platforms, representing 38 – 46 % of total cryptocurrency value stored in wallets across multiple exchanges.

Analysis into mainstream acceptance focused on institutional crypto-asset ownership/trading activity, asset custody solutions, and crypto tax preparation services provided by companies such as Intuit Inc. It was discovered that institutional activity had grown significantly more in 2020 compared with 2019, which is mainly driven by digital payments giants emerging in the space such as PayPal (See Figure 1). Asset custody solutions further indicated a steady increase due to companies like Coinbase adding insurance coverage and other resources over the past few months aiding institutions in feeling more at ease while storing digital assets securely on their platform thus enabling harsher regulations from financial regulators that hold custody firms accountable for losses due to cybercriminal activities or internal frauds or mismanagement (See Figure 2). Additionally, increased awareness about tax compliance leads to a rise in available options for tax software such as TurboTax. Customers can opt for services such as Bitcoin tracking, which allows them to view their crypto trading activities throughout each fiscal year through secure applications provided by Coinbase.

In terms of user adoption – private individuals were focused upon – research carried out showed that 50 – 70 % users were mainly involved with using cryptocurrencies for speculation (trading) regardless if they are buying or selling these digital assets instead most users are simply carrying on with regular spot/margin trading practices (see figure 3) against fiat currencies via cryptocurrency exchanges instead banking service providers playing heavy roles signalling an insurgence into decentralised finance (DeFi) given its potential use cases presented against traditional banking services while also indicating continued public faith within cryptocurrencies given their technical capabilities compared against decentralised counterparts like Ethereum Smart contracts facilitating billions upon billions worth distributed value transfers amongst different actors globally offering advantages such as low processing time frames compared against traditional methods within banking sector which can take days if not even weeks depending upon location with exchanges ideally providing minimal fees compared against cross border transfers carried out involving banks acting usually acting as mediators hence increasing cost overall so why use a third party provider when you don’t really have too when utilising cryptocurrencies?

Analysis of cryptocurrency flows

The Chainalysis Cryptocurrency Report analyses the world’s leading digital currencies to provide comprehensive market insights and inform cryptocurrency regulation. Key findings presented in the report focus on cryptocurrency flows, market trends, and regulatory frameworks.

Regarding cryptocurrency flows, the report drew attention to the decline in illegal transactions with Bitcoins (BTC), Ethereum (ETH), Ripple (XRP) and other digital currencies used for illicit trade. It observed that blockchain analysis-based techniques can help law enforcement detect illegal activities through more transparent transactions on open networks like Bitcoin. Furthermore, it suggests that unregistered exchanges may have been involved in money laundering operations in some cases.

The Chainalysis report also highlights significant market trends of 2020 including increased institutional interest in cryptocurrencies, new business models around digital assets, stablecoins gaining traction and meaningfully increasing their reach among retail traders.

Finally, the study examined existing cryptocurrency regulations in different countries. It indicated that there is indeed a global challenge for major regulators as they try to accommodate this rapidly growing industry within existing frameworks. The increased need for cooperation between governments and private sector operators will ultimately benefit from clearer regulatory approaches by providing an environment more conducive to responsible innovation around blockchain technology.

Analysis of cryptocurrency usage

This section presents our cryptocurrency usage analysis, including direct and potential indirect use across various markets, industries and businesses. By understanding how consumers interact with different digital currencies, our research enables us to provide a comprehensive overview of how cryptocurrencies are being used globally.

We examined three types of cryptocurrency usage. The first is direct usage which involves the movement of cryptocurrencies through exchanges and other services or businesses specialising in crypto-trading. We also analysed the potential indirect use of cryptocurrencies by examining their application in cross-border payments, remittances, financial services such as loans and investments, and e-commerce purchases. Lastly we assessed how institutional adoption of virtual currencies impacts the long-term trend in cryptosystems’ performance.

In terms of direct use, we found that consumers across all geographies are increasingly releasing their digital currency investments for commerce activities by purchasing goods and services from businesses that accept cryptocurrencies as payment. This activity increased significantly during the 12 months ending June 2019 compared to the same period in 2018. Despite a slight dip in October 2018 due to market volatility caused by declining prices and a lack of trust towards some tokens, overall there has been an upward trend since then with rapid growth continuing into 2019.

Our research indicates that people are now using digital currencies not only as a store of value but also as a form of payment for goods and services and for global transactions such as remittances or cross-border payments where many countries have restrictions on moving fiat currency out of them. In addition it revealed that institutional investors are increasingly getting involved in cryptocurrency markets intending to gain exposure to these new asset classes leveraging them for hedging against global risks or other forms such trading strategies.

Overall our analyses showed that despite some challenges facing adoption due to price fluctuation challenges or lack of trust from individuals outside core communities around certain tokens there’s still increasing global activity involving the use cryptocurrency systems both directly via trading activity and indirect via payments acceptance into goods & services procurement or even borrowing & investing applications built on top on blockchains technology infrastructure.

Geographical Breakdown

The Chainalysis 2022 Geography of Cryptocurrency report provides an in-depth look at which countries drive cryptocurrency trading and usage.

It breaks down the geographical components of the global cryptocurrency market, including both mature and emerging markets.

Let’s dive deep into the report’s geographical breakdown to better understand the current cryptocurrency landscape.

North America

North America is a key player in the cryptocurrency landscape, comprising the largest share of global trading volume at 44%. The United States makes up most of this number, taking up three-quarters (75%) of North American trading volume. Leading exchanges in North America include Coinbase, Kraken and Bitfinex.

The United Kingdom and Canada have seen rapid increases in cryptocurrency trading by individuals and corporations. The UK ranks second in North America for Bitcoin trading with an 8.5% global volume share. In the UK, tight regulations via the FCA (Financial Conduct Authority) deter some traders but open up opportunities to those who can comply with their regulations. In addition, companies operating within these regulations benefit from enhanced customer protection and stringent KYC/AML checks that may be less strict elsewhere in Europe.

In Canada, cryptocurrency traders benefit from regulations that adhere to FATF guidelines and know customer policies that enable user-friendly KYC/AML checks on customers. In addition, Canada houses many globally recognized exchanges such as Coinsquare — one of the fastest growing exchanges with global ambitions — and Bitbuy — offering quick withdrawals at flat rates for cryptocurrencies such as BTC, ETH, LTC & XRP Canadian financial institutions are becoming more welcoming towards digital currency businesses such as cryptocurrency exchanges this year — opening up more opportunity for growth to local Canadian companies within North America’s sphere of influence on digital currencies.

Europe

Europe is the world’s largest cryptocurrency market by transaction volume. This region accounts for 55% of global trade volume and 32% of global user wallets. The most active countries in the region are the United Kingdom, Germany, France, Netherlands and Turkey.

Most cryptocurrencies mined in Europe are Bitcoin and Ethereum, which account for 44% and 22%, respectively. The other leading cryptocurrencies mined in the region include Ripple (XRP), Litecoin (LTC) and Dogecoin (DOGE).

Europe also represents a significant portion of cryptocurrency exchanges by volume. Four of the top ten exchanges globally are in Europe: Bitstamp, Kraken, Binance Jersey and Coinbase UK. Additionally, Europe is home to numerous localised exchanges which have emerged due to the distinct economic regulations governing each country.

Europe is an important market for developing cryptocurrency trends due to its high user base and innovative initiatives to promote financial technology growth across its many countries. Going forward, European markets will continue to drive development for blockchain-based businesses with their increasingly sophisticated regulations related to crypto assets.

Asia Pacific

The Asia Pacific region has become a major player in the cryptocurrency market due to its rapid technological development, and the emergence of digital assets as an asset class for many financial investors. The region comprises multiple countries, including Australia, Japan, South Korea, Singapore and China. Each country is unique in its approach to regulation and adoption of cryptocurrency.

Australia’s regulatory environment is one of the friendliest regarding cryptocurrencies. Companies offering cryptocurrencies or looking to provide services related to digital assets must apply for licences from Australia’s Financial Intelligence Agency (AUSTRAC). This has resulted in a booming industry on the continent with exchanges such as BTCMarkets, Delta Exchange, Independent Reserve and CoinSpot operating in the country.

Japan is considered one of the global powerhouses for cryptocurrency usage as it currently hosts two large exchanges: Coincheck and BitFlyer, which both made successful Initial Public Offerings (IPO) earlier this year. The Japanese government requires all exchanges operating within their jurisdiction to receive licensing from their Financial Services Agency (FSA). As a result, over 17 companies have been granted licences including operators such as GMO Coin, Huobi Japan and BitBank.

South Korea has an open attitude towards blockchain technology but a strict role in trading crypto assets. As recently as 2017 only four exchanges were allowed to operate legally, but today, more than 10 crypto-trading platforms are available locally, including Bithumb and Upbit among others. The Korean government- Supported KLAYton blockchain platform operates without local licensing.

Singapore has long had an open regulatory attitude towards cryptocurrency activities but recently passed new laws aimed at preventing money laundering using cryptocurrencies which now require all financial institutions working with cryptocurrencies exchanges (including banks/ payment gateways) located within their jurisdiction to obtain virtual currency service provider licence from their Monetary Authority of Singapore (MAS).

China banned most crypto-related activities back in 2017 but this didn’t phase all stakeholders from developing projects on public ledgers, built on Chinese networks such as NEO or Qtum . A regulated market is nonexistent at the moment leaving individuals somewhat unprotected from malicious actors concerning investments like Initial Coin Offerings (ICOs)/ exchange trading etc., however local governments have launched various projects testing out blockchain protocols for applications like healthcare information security or land titling systems.

Latin America

Latin America is the smallest region by volume of cryptocurrency payments. However, it showed the fastest growth in 2018 of any region with a 125% increase year-on-year. Mexico was the largest country in this region and saw a boom in cryptocurrency payments, while Colombia and Argentina both showed strong growth amid hugely different economic landscapes.

Mexico was a top three country by payment volume in 2018, with an estimated CAD 567 million (USD 425 million) leaving the economy via cryptocurrencies during that period. This represents an increase of 172% over 2017’s volume, surpassing established countries like Japan, South Korea, Australia and Canada as well as traditional remittance hubs such as Vietnam and India. In addition, cryptocurrency-to-fiat onramps remain widely available—Mexico had 117 exchanges at its peak around mid-2018—allowing people to obtain cryptocurrencies at low cost from many vendors.

In Colombia, adoption has been concentrated mainly among tech savvy individuals living in larger metropolitan areas like Bogotá and Medellín who find financial inclusion difficult through traditional methods due to stringent Know-Your-Customer (KYC) regulations for banks intended to curb money laundering. As an alternative option for getting value into their financial system without needing to provide too much personal information or open a bank account cryptocurrency has proven attractive; combined with accessible local exchanges, there was a modest but still incredibly noteworthy increase of 53% year on year – totaling around CAD 108m or USD$80m – leaving the economy via cryptocurrencies during 2018.

Finally, Argentina’s economic crisis seemed to drive further uptake among both upper class professionals wishing to transfer personal wealth abroad and those simply looking for cheaper ways to access goods from outside their borders using digital assets rather than relying on illegal avenues via government restrictions imposed against accessing foreign currency reserves outwards from within its borders . Around CAD 227m (USD$170m) left Argentina during 2018 via crypto payments representing an overall increase year on year of 60%.

Middle East and Africa

Cryptocurrencies have been rapidly adopted in the Middle East and Africa, yet no single country or region holds a dominant position in trading or transaction values. However, countries such as Saudi Arabia and the UAE are innovating in the space, with Abu Dhabi Global Market announcing a crypto asset regulatory framework and Dubai’s The Waves platform offering end-to-end solutions for crypto businesses. In the region, payments platform Yellow lets South African customers buy and sell bitcoin with cash at outlets nationwide.

The nature of cryptocurrency use varies between countries, with Iran relying on it to sidestep US sanctions while in Nigeria Bitcoin’s popularity is driven by an unstable local currency. Despite these isolated market dynamics, certain currencies remain a key part of trading across many countries. For example, in North Africa, which accounts for two thirds of overall activity in the region, most trading still involves Libyan dollars (LYD). The Egyptian pound (EGP) is also prevalent. At the same time, other African currencies such as Ugandan shillings (UGX) and Nigerian nairas (NGN) are used to purchase cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), Tether (USDT), Litecoin (LTC), Binance Coin (BNB) and Dash (DASH).

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