The U.S. is at risk of losing a leading position in the global crypto ecosystem to countries including the United Arab Emirates, South Korea, Australia and Switzerland, Ark Invest analyst Yassine Elmandjra wrote in a note on Monday.
In the analysis, Elmandjra pointed to a significant drop in crypto liquidity in the country.
"Once populated by well-established and credible institutions, the crypto ecosystem in the US now faces a void that is likely to put interest among other institutional investors on hold," he said, pointing to trading firms Jane Street and Jump Trading that have reduced participation in the domestic U.S. market.
Citing data from CoinMetrics, Elmandjra noted that bitcoin trading volume in the country has fallen 75% from $20 billion per day in March to just around $4 billion last week. He said that the price of bitcoin was $600 higher on Binance.US than on other exchanges last week, which points to weaker price discovery in America.
"In the US, regulatory uncertainty seems to be discouraging both existing firms and new entrants in the crypto space," he wrote.
The executive team at crypto exchange Coinbase, which has been critical of U.S. regulators, visited the UAE earlier this month and said there was no doubt that the country has "the potential to be a strategic hub" for the company.
Back in the U.S., Coinbase has mounted an aggressive lobbying campaign, creating an advisory council with former U.S. lawmakers and running TV ads in the nation's capital.
The UAE has also been drawing attention from miners, with Marathon Digital saying earlier in the month that Abu Dhabi will host the first large-scale bitcoin mining operations in the Middle East.
The company's CEO Fred Thiel told The Block last week that a proposed tax on miners sought by President Joe Biden would push firms to start looking outside of the country.
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