On April 10, the European Securities and Markets Authority (ESMA) cautioned about the high concentration in crypto markets. It expressed concerns that such concentration poses risks, as the failure of a single asset or exchange could have widespread repercussions across the crypto ecosystem.

ESMA's findings revealed significant concentration in market capitalizations and trading volumes, with a small number of assets dominating the crypto market. Bitcoin (BTC), Ethereum (ETH), and Tether (USDT) collectively represented 74% of the crypto market cap in December 2023 and accounted for over half of the annual trading volume in 2023.

Trading volumes were also highly concentrated, with just 10 platforms handling 90% of trading. Binance was the dominant exchange, responsible for around half of all trading volume, though its dominance has been gradually decreasing.

ESMA highlighted strong price correlations among individual cryptocurrencies and their positive correlation with equities, indicating both risk and a lack of stability compared to gold. It concluded that crypto cannot be considered an effective "safe haven" based on its analysis.

In the context of EU regulatory activities, ESMA noted that a significant portion of crypto transactions involving fiat currencies primarily used the US dollar or South Korean won, with the euro playing a minor role. Despite the adoption of the Markets in Crypto-Assets (MiCA) regulation in June 2023, the euro's involvement did not increase substantially. However, ESMA believes that MiCA could drive growth once implemented this year.

Exchange location was identified as another concern, with many transactions occurring on exchanges based in tax havens rather than in Europe. ESMA stated that MiCA will address location-related issues through disclosure requirements, enhancing transparency as crypto exchanges expand into new jurisdictions.

Overall, ESMA's research supports the implementation of MiCA, underscoring the need for regulatory measures to address the concentration and other challenges observed in the crypto market.