US has Already Ceded Dominance in Bitcoin Trading

USbehind16 Nov 2013 / Coindesk – Expertise and dominance in a particular industry sector doesn’t come about by decree. It is achieved over years through repeated practice and creative experimentation.

During the first three-and-a-half years of bitcoin’s development from 2009 to 2012, a large portion of that technological experimentation had been occurring in the US with multiple bitcoin trading exchanges and bitcoin-related businesses.

Now, there exists only one functioning exchange in the US with diminishing volume compared to its competitors. The Atlanta-based exchange, Camp BX, had reached such a low point of average daily trading volume that it was removed from the CoinDesk BPI earlier this month.

Although the future may not look bright for the US jurisdiction, it does not appear to be a conscious decision on the part of legislators and regulators. The evolving body of law known broadly as “digital currency law” applies at both the federal level and the state level creating overlapping licensing regimes and a considerable compliance investment for new startups.

Senate hearings

A pair of Senate hearings will take place next week in Washington, DC, with the first hearing being held by the Committee on Homeland Security and Government Affairs and the second hearing being held jointly by the Banking Subcommittee on National Security and International Trade and Finance and the Banking Subcommittee on Economic Policy.

These government hearings will be largely educational briefings focusing on law enforcement, regulatory environment, national security, and the possible opportunities for bitcoin in payments and global transactions. Several bitcoin-related companies will be testifying along with the Bitcoin Foundation.

Of course, there isn’t a ban on bitcoin in the US. But there doesn’t have to be an outright ban when there is a chilling effect on banking that translates into an unwillingness for banks and credit unions to engage with bitcoin-related companies.

Given the labyrinth and ambiguity of state-by-state compliance issues, financial institutions conclude that it’s far safer and easier to ignore bitcoin-related opportunities. This is the largest single barrier to payments innovation in the US.

Adversely, the unintended consequence is that viable and innovative companies seek more hospitable locales in non-US jurisdictions. So, where is the bitcoin trading volume going? How does important price discovery occur for bitcoin?

Top exchanges

Currently, the top four bitcoin exchanges by volume are located outside of the US, with the world’s leading exchange based in China.

Less than 2% of worldwide bitcoin trading and real-time market making occurs within the US jurisdiction. (Coinbase provides only fixed-rate conversion with the US dollar and they do not hold any customer funds in US dollars.)

All four of the world’s leading exchanges have demonstrated a capacity for serious, engaged banking relationships that would have been unobtainable in the United States.

As of 14th November, here is the list in sequential order based on 30-day cumulative bitcoin trading volume (for single trading pair):

(1) BTC China traded $298.4m in XBT/CNY (based in China)

(2) Mt. Gox traded $232.8m in XBT/USD (based in Japan)

(3) BitStamp traded $200m in XBT/USD (based in Slovenia)

(4) btc-e traded $119.8m in XBT/USD (based in Bulgaria)

…….. Read More

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