Want to Understand Crypto Prices? Look to Asia
Every week the Mosaic research team will delve into important topics within the cryptoasset space.
Jason Yannos and Eliézer Ndinga
When reading daily crypto news coverage, it’s easy to get the impression that events in the United States and Europe are driving changes in cryptocurrency prices. In truth, headlines from Asia have a massive impact on the price of Bitcoin.
We analyzed the impact of key headline events from China, Korea, and Japan over the course of the last 9 years — going all the way back to January 3rd, 2009, the day of Bitcoin’s genesis block. Since 2013, there have been 11 major headline events from the Asian region that have been responsible for Bitcoin price movements. On average, these events have affected Bitcoin’s price by 18.61% (positively or negatively) within 10 calendar days of the headline release date: the largest move was a whopping -57.52% while the smallest was 0.51%. Given that the average daily volatility of Bitcoin over a 252-day period is 5.34%, these drastic changes in price are truly significant.
The Rise of the Asian Crypto Exchange
Asia also dominates the cryptocurrency exchange industry. As of late July 2018, there were 86 crypto exchanges that listed Bitcoin (BTC). Most exchanges have legal entities in a variety of countries, but 40 of them (or about 47%) are incorporated in the Asian region. Mainland China banned fiat-to-cryptocurrency exchanges last fall, and now Hong Kong, Japan, and Singapore are the most sought-after Asian destinations. Nine cryptocurrency exchange corporations have been constituted in Hong Kong, Japan, and Singapore, followed by South Korea.
Putting Asia on the Map
2017 was the year of widespread cryptocurrency adoption, demonstrated by an exponential increase of crypto’s overall market capitalization. 2017 was also the year of exchange creation. Indeed, of the 86 aforementioned exchanges, almost half of them (37) officially launched in 2017, and 31 released their product between the end of Q2, 2017 and the last month of Q4, 2017.
It’s important to note that among the 37 exchanges created in 2017, 20 were registered in Asian countries. Singapore was the leading destination (8), followed by Hong Kong (4), South Korea and Mainland China (2). 2018 is on pace to be another strong year for exchange proliferation. According to Coinmarketcap, there are already 9 new exchanges trading BTC. However, perhaps due to regulatory uncertainty or market saturation, the geographical incorporation appears more distributed and less concentrated in Asian countries. In fact, in 2018 only three exchange companies registered in mainland China, Hong Kong and Singapore, whereas the others chose locations like the United States, the Seychelles, Cyprus, Turkey and Russia.
The Prevalence of Asian Languages
We looked at languages across the 86 exchange websites to understand the potential target audiences of these companies. To do so, we visited the website of each of the 86 exchanges and found a total of 24 languages, 9 of which were Asian languages — Mandarin, Korean, Japanese, Cantonese, Vietnamese, Thai, Hindi, Indonesian and Malay.
While English is the main language provided by 83 of these exchanges (97%), 56 of them (65%) commonly use Mandarin as the default language or as a secondary language. Available in 28 exchanges (33%), Korean holds the third place, followed by Russian (30%) and Japanese (23%).
Among these 86 exchange companies, 67 added at least one and up to six Asian languages to their website. 46 of these 67 exchanges (69%) offer only one (45%) or two (24%) Asian languages, principally Mandarin, followed by Korean and Japanese. Regardless of their geographic location, exchanges clearly place great importance on their Asian-language audience, particularly Mandarin speakers.
Asia Rules the Mines
Approximately two-thirds of the world’s hashrate, or processing power behind Bitcoin, comes from Asian companies, with a particularly strong focus in China. Of the 17 largest mining pools distributed by Hashrate, 11 are based in Asia.
One of the major driving factors of the region’s dominance in cryptocurrency mining is that the cost of electricity in Asia is extremely low relative to other regions in the world. The cost of one kilowatt hour in China is on average 9 cents USD, while one kilowatt hour respectively in Germany and the UK is 33 cents and 24 cents USD. This helps explain why the region is a dominant player in cryptocurrency mining.
Asia undoubtedly has a strong presence in global mining today, but the government of China is beginning to crack down on illegal bitcoin mining operations, which will likely have a negative effect on the region’s dominance in mining activity going forward.
The above data paints a clear picture of the pivotal role that Asia plays in the crypto universe. Investors seeking a better idea of what drives crypto prices would do well to look East.
End of weekly research report
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This article is intended for informational purposes only. The views expressed herein are not and should not be construed as legal or investment advice or recommendations. Recipients of this article should do their own due diligence, considering their specific financial circumstances, investment objectives, and risk tolerance before investing. The individuals contributing to this article have positions in some or all of the assets discussed. This article is neither an offer, nor the solicitation of an offer, to buy or sell any of the assets mentioned herein.