Australian cryptocurrency investors gained nearly $3 billion (US$2.1 billion) during a hot market in 2021, according to estimates from blockchain analysis company Chainalysis.
That puts Australian-realised crypto gains as the 17th highest in the world based on Chainalysis data, just ahead of Switzerland and just behind Vietnam.
At the top of the table is the US which saw an estimated $65.6 billion (US$46.9 billion) gained – well ahead of the second place UK on $11.3 billion (US$8.1 billion).
Germany, Japan, and China rounded out the top five.
Last year was a bumper year for cryptocurrency as the rise of non-fungible tokens (NFTs) brought attention to a new, if not entirely speculative, set of digital assets for trading during lockdowns.
Bitcoin hit its all-time high of $83,000 (US$67,000) in August 2021 while meme coins like Dogecoin and Shiba Inu saw surges of their own.
It was also a big year for Ethereum smart contracts and decentralised finance (DeFi) protocols which, Chainalysis noted in its data, saw $2.8 billion (US$2 billion) more in gains compared to the original cryptocurrency Bitcoin.
“We believe this reflects increased demand for Ethereum as the result of DeFi’s rise in 2021, as most DeFi protocols are built on the Ethereum blockchain and use Ethereum as their primary currency,” the report said.
As DeFi became more popular for retail investors, it is also being used to launder money at a rate that is frustrating law enforcement, after 2021 saw an increase in the estimated proportion of cryptocurrency money laundering transactions from two per cent in 2020 to 17 per cent last year.
Rise of Ethereum
Like most countries, Australia’s split between Ethereum and Bitcoin was pretty even in the Chainalysis data.
Data from comparison site Finder’s cryptocurrency adoption index suggests Australians are more interested in Bitcoin than Ethereum with 72 per cent of crypto owners saying they had the former in their wallets and just under 43 per cent saying they held Ethereum.
Only Japan showed a marked difference between the two major cryptocurrencies with $5.6 billion (US$4 billion) worth of gains coming from Bitcoin and only $1.1 billion (US$790 million) from Ethereum.
The methodology for Chainalysis’s Cryptocurrency Gains by Country 2021 report involved calculating the total gains from cryptocurrency exchange transactions – done by comparing the US dollar value of asset withdrawals with their value at time of deposit – and distributing it based on web traffic.
The more web traffic is attributed to a country, the larger its estimated share of cryptocurrency gains.
“It’s not perfect,” Chainalysis admits.
“Ideally, we’d be able to calculate gains at the individual or wallet level rather than at the service level, but this methodology still gives us a reasonable estimate of total gains for cryptocurrency users in a given country.”
China backs out of crypto
Despite its flaws, the data does show some interesting insights for individual countries – especially China which began cracking down on the production and use of cryptocurrencies last year.
China still had growth in its cryptocurrency gains compared with 2020, but the rate of that growth is more than half that of other countries and is likely to decline further in 2022.
Other countries performed higher on the cryptocurrency gains ranking than their gross domestic product (GDP) might suggest, such as Turkey, Vietnam, the Czech Republic, and Venezuela which all saw higher rankings on crypto gains compared with their GDP.
Chainalysis suggests this is due to people in these countries adopting cryptocurrency for remittances along with responding to devaluations in the local fiat currency.
These were similar reasons for El Salvador choosing to make Bitcoin legal tender last year.