North America continues to hold its position as the world's largest cryptocurrency market, despite experiencing a decline in transaction volume between 2022 and 2023. This dip has been linked to various market events and ongoing regulatory uncertainties. The region's future standing in the industry will largely depend on how its constituent nations choose to regulate the digital asset space.
An Overview of North America's Cryptocurrency Landscape
From July 2022 to June 2023, North America received an estimated $1.2 trillion in on-chain value, making it the largest cryptocurrency market in our study. This total accounted for 24.4% of global transaction activity during this period.
The United States is the primary driver of this activity, ranking first globally. Canada also contributes significant transaction volume, securing the seventh position worldwide.
The North American cryptocurrency market is more institutionally driven than any other region, with a substantial 76.9% of its transaction volume propelled by transfers of $1 million or more. On-chain activity in this region is relatively evenly distributed between DeFi protocols and centralized exchanges.
Market Contraction and Recovery Patterns
Consistent with global trends, on-chain data indicates a decrease in cryptocurrency activity across North America over the past year. This decline was triggered by negative events, most notably the November 2022 collapse of FTX.
Interestingly, cryptocurrency activity contracted further following the March 2023 banking crisis, which led to the shutdown of crypto-friendly banks including Silicon Valley Bank, Signature, and Silvergate. These closures caused a temporary depegging of USDC from its dollar value on secondary markets.
However, by June, on-chain activity began to show signs of recovery. Transaction size data suggests that the retreat of institutional investors was the primary driver of the overall activity decrease, while activity from retail users and semi-institutional professional traders remained relatively consistent.
The Shifting Stablecoin Dynamics
In alignment with worldwide trends, we observed a relative decline in stablecoin usage compared to other digital assets in North America starting around February 2023. Between that time and June 2023, stablecoin's share of on-chain transaction volume in North America dropped from 70.3% to 48.8%.
Although the movement away from stablecoins began before the March banking collapses, investor concerns following these events likely contributed to the persistence of this shift. Correspondingly, the total stablecoin market capitalization fell to its lowest point in over two years during last summer.
Despite this decline, stablecoins remain the most widely used type of crypto asset. Chainalysis data shows that over half of all on-chain transaction volume to centralized services between July 2022 and June 2023 involved stablecoins, with more than 90% of stablecoin activity occurring in dollar-pegged variants.
The Regulatory Challenge for Stablecoins
Given the central role of dollar-denominated reserves backing these assets, U.S. regulators have a strong interest in exercising regulatory authority over stablecoins. Cryptographic assets have been used in criminal activities, including uniquely harmful forms that impact national security, such as thefts by North Korea-linked hackers that ultimately fund the country's nuclear programs.
If U.S. regulators can effectively limit stablecoins' role in such activities, it would have a tremendously positive impact on cryptocurrency-related crime given stablecoins' substantial share of overall crypto activity. Stablecoin regulation also presents regulators with an opportunity to help ensure the United States remains home to cryptocurrency businesses that will play an important role in expanding the dollar's global usage as the digital economy continues to grow.
However, data indicates that an increasing amount of stablecoin activity is being conducted through entities not licensed in the United States. We observe this trend by examining which services stablecoins are transferred to. Since spring 2023, the majority of stablecoins flowing to the 50 largest crypto services have shifted from U.S.-licensed services to non-U.S.-licensed services, reversing a shift in the opposite direction that occurred in late 2022 and early 2023.
As of June, 54.6% of stablecoins flowing to the top 50 services went to non-U.S. licensed exchanges. A similar trend emerges when we examine stablecoin on-chain transaction volume by whether the issuer is a U.S.-licensed entity.
The Consequences of Regulatory Delay
Although U.S. entities initially helped legitimize and cultivate the stablecoin market, a growing number of cryptocurrency users are conducting stablecoin-related activities through platforms and issuers headquartered abroad. This development means the U.S. government is increasingly losing its ability to conduct stablecoin regulation, and American consumers are losing access to the protections offered by the U.S. regulatory regime.
Despite recent Congressional interest in stablecoin legislation, no comprehensive regulatory framework has been passed. Currently proposed stablecoin bills include:
- The Payment Stablecoin Clarity Act, introduced in July 2023, which aims to provide a clear regulatory framework for payment stablecoin issuance while protecting consumers and promoting innovation.
- The Responsible Financial Innovation Act, first introduced in June 2022 and reintroduced in July 2023. While not exclusively focused on stablecoins, part of this proposal would require stablecoin issuers to comply with new prudential financial regulations.
Regardless of which bill emerges successfully, policymakers face the challenge of striking the appropriate balance between protecting consumer safety and creating a framework that allows crypto markets to continue growing and encouraging innovation. Time is also of the essence.
👉 Explore regulatory strategies for stablecoins
DeFi Adoption Facing Headwinds
North America has historically been a significant adopter of decentralized finance protocols. However, although the region remains the world leader in DeFi usage by raw transaction volume, the share of North American cryptocurrency activity attributed to DeFi has decreased substantially over the past year.
The most likely explanation is last year's market turbulence. As reported by industry analysts, many DeFi protocols cater to trading of highly speculative, recently created assets that aren't available on centralized exchanges—these are typically the first assets investors withdraw from during market downturns.
Another potential driver of North America's DeFi decline is the regulatory uncertainty it faces in U.S. markets. Despite these challenges, establishing appropriate regulation is imperative, as DeFi offers numerous practical applications including trading, asset management, lending, and payments.
Industry leaders have highlighted several promising DeFi use cases beyond lending, payments, and staking. Many express optimism about Web3 innovations like decentralized identity frameworks that would allow users—rather than large tech companies—to own their digital identifiers.
The Path Forward: Regulation as a Growth Catalyst
The decrease in cryptocurrency activity across North America last year wasn't surprising, given that transaction volumes and grassroots adoption rates declined globally. Despite this contraction, North America still ranked fourth in the 2023 Global Crypto Adoption Index.
As the region emerges from the crypto winter, regulation will play a crucial role in its recovery. The U.S. Congress is working to advance promising crypto legislation, and established regulators have expressed commitment to safely growing the ecosystem.
Proactive approaches like these offer promise for cryptocurrency growth in North America and worldwide. The development of clear regulatory frameworks will provide the certainty needed for institutional participation and innovation to flourish.
Frequently Asked Questions
Why did North America's cryptocurrency transaction volume decline between 2022-2023?
The decline was primarily driven by negative market events including the FTX collapse and the March 2023 banking crisis that affected several crypto-friendly banks. Institutional investors particularly reduced their activity during this period.
What makes the North American cryptocurrency market unique?
North America's crypto market is more institutionally driven than any other region, with over 76% of transaction volume coming from transfers of $1 million or more. The region also shows relatively balanced activity between DeFi and centralized exchanges.
How has stablecoin usage changed in North America?
Stablecoin usage relative to other digital assets has declined significantly, dropping from 70.3% to 48.8% of on-chain transaction volume between early 2023 and June 2023. This shift began before the banking crisis but was likely accelerated by it.
Why is stablecoin regulation important?
Proper stablecoin regulation could significantly impact cryptocurrency-related crime given stablecoins' substantial market share. It also helps determine whether the U.S. will remain competitive in the growing digital asset economy and ensures consumer protections.
What is happening with DeFi adoption in North America?
Although North America remains the global leader in DeFi usage by volume, the percentage of crypto activity attributed to DeFi has decreased substantially, likely due to market turbulence and regulatory uncertainty.
How might regulation affect future cryptocurrency growth in North America?
Clear regulatory frameworks will provide the certainty needed for institutional participation and innovation. Properly balanced regulation that protects consumers while encouraging innovation could position North America for continued leadership in the digital asset space. 👉 Learn more about crypto market developments