A recent study conducted by the European Securities and Markets Authority (ESMA) has shed light on a concerning trend within the crypto trading sphere. According to the study titled “Crypto assets: Market structures and EU relevance,” a mere 10 crypto exchanges handle nearly 90% of all trades, revealing a high degree of concentration in the market. Notably, Binance emerges as the dominant player, accounting for nearly half of global trading volumes.

Dominance and Market Share

Binance, UPbit, and OKX collectively wield significant influence, commanding over 60% of the market share. Bybit has notably experienced a remarkable 380% surge in trading volume year-over-year, contrasting with Coinbase's 44% decline for the same period. ESMA underscores the potential risks associated with such concentration, expressing apprehensions about the systemic implications of a major asset or exchange failure on the broader crypto ecosystem.

Market Liquidity and Interconnectedness

ESMA's study also highlights the varying levels of market liquidity across exchanges, with liquidity tending to be higher in the largest platforms. Contrary to popular perception, cryptocurrencies do not consistently function as a safe haven during market turmoil. Instead, they exhibit strong interconnections with equities and lack a stable relationship with gold, according to ESMA's findings.

Regulatory Challenges and International Transactions

Despite regulatory initiatives such as the EU Virtual Asset Service Provider (VASP) license, a substantial portion of transactions executed on EU-licensed exchanges likely occur outside the EU. This underscores the ongoing challenges faced by regulators in monitoring and regulating the crypto market effectively. The study emphasizes the necessity for continued vigilance and regulatory intervention to mitigate potential risks and safeguard market integrity.