According to a recent report by Chainalysis, Europe is growing, probably thanks in part to MiCA, so much so that it has become the second largest crypto economy in the world after North America.
Chainalysis’ crypto report: Europe is growing thanks to MiCA
Chainalysis’ report, titled 2023 Geography of Cryptocurrency Report, contains a chapter expressly dedicated to the CNWE area.
This area includes the Central and Western states of the European Union, but also non-EU European states such as Great Britain, Norway, Iceland, and Balkan countries such as Serbia and Albania. Since Eastern European countries such as the Baltic countries and Finland have also been included, only Russia, Belarus, Ukraine, and neighboring countries such as Poland, Hungary, Romania, etc., as well as Greece remain excluded.
The report shows that the CNWE region accounted for as much as 17.6% of the trading volume of the entire crypto market globally between July 2022 and June 2023, with a total on-chain value of about $1 trillion.
What’s more, the world’s first region by crypto trading volume, namely North America, of which the U.S. is a part, turns out to have a volume not much higher than 20%, so quite close to the CNWE region. In third position, of course, is the CSAO region, i.e., South Central Asia and Oceania, with a volume just below the CNWE region.
Note that if Western Europe and East Asia are extrapolated from these regions, for example, the latter is slightly beaten by the former, despite the presence of China within it.
These two sub-regions alone post higher on-chain volumes than both Latin America and sub-Saharan Africa, of which Nigeria, for example, is a part.
Note that in terms of on-chain data, the most popular category of services in the CNWE region is DeFi, which alone accounts for more than half of the total transaction volume.
Particularly successful have been decentralized exchanges, so-called DEXs, with most of this activity driven by retail exchanges. European institutions, however, are only now opening the door to DeFi, thanks to regulatory frameworks that support Web3 initiatives.
So from this point of view the new EU legislation, MICA, has not yet made major changes or a decisive push, but it should do so from now on by encouraging further growth.
It should be remembered that most of the CNWE region’s trade volume takes place in Western Europe, which is where the EU states are most concentrated.
MICA is a regulation valid only in the EU member states, and it will come into force next year. However, it has already been finally approved, so the EU already has de facto regulatory clarity in crypto.
Note that in second place after DeFi are the centralized exchanges, the so-called CEXs.
It must be kept in mind, however, that Chainalysis’ report analyzes only on-chain data, that is, data recorded on public blockchains. Exchanges inside CEXs, those from one user to another, are not included, so this data should be taken with a grain of salt, as it does not take into account the larger exchange volumes that are produced inside CEXs, off-chain.
Therefore, the report only looks at crypto deposits and withdrawals to and from CEXs, and despite this the overall volume of that type of transaction turns out to be only slightly less than that of all exchanges of any type on the DeFi protocols.
Moreover, there are also regions, such as Latin America, where deposits and withdrawals on CEXs far exceed DeFi. Only the CSAO region has a higher percentage of DeFi-related exchange volumes than the CNWE region.
The dominance of institutional users
However, it must be clarified that institutional investors and institutions are two different things. In fact, by institutional investors we really mean only the whales, that is, those who move large sums of money (over a million dollars), while institutions are the public entities, or those that are fully regulated and non-commercial.
Indeed, the category of investors and speculators responsible for the largest percentage of on-chain volumes are the large institutions, those who move more than ten million dollars. The fact is that these, of course, include exchanges, which often move huge amounts perhaps even just to move funds from one wallet to another.
What is striking is the near irrelevance of the volumes transacted on-chain by retail, that is, ordinary citizens, relegated well below 10%. This is true for all regions, not just Europe.
Note that in North America the role of institutions is even greater, probably because many large crypto companies are concentrated there.
In contrast, while still marginal, the percentage of retail is greater in the MENA region, or Middle East and North Africa, which includes, for example, Dubai.
MiCA: crypto regulation in Europe
Although MiCA regulations will only come into effect in mid-2024, the report reveals that the new regulation has already created favorable environments for crypto innovation.
It is possible that MiCA will be a real driving force for the growth of the crypto ecosystem in the European Union, perhaps even paving the way for new ways to integrate cryptocurrencies into mainstream finance.
The idea is that MiCA will be able to pave the way for broad acceptance of cryptocurrencies and digital assets through clear and uniform rules, and a focus on consumer protection. Doing so creates a safe environment that builds trust in the market and opens the door for cryptocurrencies for both individual investors and institutions.