China banned all crypto transactions last week, in the country’s latest crackdown on digital currency activities. But according to new data from blockchain analysis firm Chainalysis, China's growth in crypto trading by volume was falling well before last week's restrictions.

Meanwhile, most of Europe (excluding its Eastern portion) constitutes the world’s largest crypto economy, receiving $1 trillion over the last year, or 25% of all crypto activity worldwide, the Chainalysis report found.

The data shows that global crypto transaction volume in North America and a portion of Europe outpaced East Asia, a region that in the past has drawn the majority of its volume from China. To be sure, trading in East Asia did grow but at a much lower rate than other regions. Between January 2020 and July 2021, its growth slid from 31% to 14%, partly due to other countries outpacing the East Asia market.

Drawing on data collected “on-chain” from Chainalysis’ own internal software, as well as external sources such as interviews with regional experts and web traffic via IP addresses, the report’s findings serve as a best estimate currently available for measuring cryptocurrency adoption by geography. A recent story by Coindesk provided more transparency into one of the ways Chainalysis collects IP addresses, by scraping user information from websites like walletexplorer.com. Chainalysis also categorizes crypto transactions in Eastern Europe separately.

While East Asia’s decline in crypto trading can be attributed to China’s past regulatory crackdowns – particularly the crypto mining ban in May – the surge seen in parts of Europe corresponds with the rise in crypto investment across the world over the last year, according to a Chainalysis spokesperson.

Unlike North America, which accounts for about 20% of worldwide crypto trading and has remained relatively flat by comparison, Europe’s higher growth appears linked to a wave of institutional investors seeking exposure to the crypto space, especially in DeFi protocols.

Large institutional transactions in parts of Europe such as France, the Netherlands, Germany and the U.K, most of all, grew from $1.4 billion in July 2020 to $46.3 billion a year later. The majority of this capital flow was paid in Ethereum (ETH) or wrapped Ethereum (wETH), an Ethereum equivalent traded on DeFi platforms.

Matthew Nemer, co-founder and CEO of the U.S.-based crypto startup Linus, isn’t surprised by the rise in DeFi in this part of the world. For a time in 2019, Nemer worked in Berlin and said he was originally attracted to the city for its robust crypto scene and open banking laws.

“I think European investors have been at least a year ahead of American investors when it comes to participating in DeFi,” Nemer told Yahoo Finance.

As an entrepreneur, Nemer and his co-founder eventually presented their crypto app Linus at the Paris Fintech forum in January 2020. They took home the prize for Best Innovation where the judges were mostly EU-based venture capitalists focused on investing in fintech companies. By contrast, it took almost a year before Nemer saw U.S. equivalent firms show interest in investing in the crypto space outside of a few large firms and those with a crypto focus, he said. Now he thinks U.S. venture firms are playing catchup with their competitors across the Atlantic.

Open banking

Another reason why this part of Europe experienced such high crypto volume in the past year might be regulation. While many have argued that regulation can't kill crypto, there's no doubt open banking regulation in the UK and EU has created an environment where crypto trading can more easily thrive.

In particular, sources Yahoo Finance spoke to pointed to the EU’s most recent open banking regulation update, PSD2, which came into full force in January 2018. The law forced banks to share information upon customer request with other banks through application programming interfaces (APIs). In short, it created a more robust framework for the region’s digital banking by allowing people to transfer money between different banks with far less administrative hassle. On a user experience level, the law made interacting with traditional banks similar to how users interact with the majority of crypto apps, one source argued.

“The open banking movement has forced a wholesale re-architecting of both their [banks] core products, and how firms interact with the wider economy," Josh Goodbody, COO of the decentralized infrastructure protocol Qredo, told Yahoo Finance. Goodbody’s previous experience included overseeing institutional growth in Europe for the crypto exchange Binance, as well as heading institutional business and serving as general counsel for the crypto exchange Huobi.

“This environment has created an easier path towards adoption of digital asset services, meaning that taking the simple step to give their users the ability to buy crypto assets is less of a conceptual leap for firms to understand,” said Goodbody. However, he continued, “no one should be under any illusions that this adoption is fully predicated on the presence of clear laws and regulations.”

The other major reason why this part of Europe has seen so much growth in crypto volume is that it serves as the largest trading partner or counter-party for other regions across the world. That makes it the key hub for crypto assets flowing around the world. The U.S. is its largest trading partner followed by East Asia, Central and Southern Asia and Eastern Europe, according to Chainalysis data.

David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.