On April 10, the European Securities and Markets Authority (ESMA) issued a warning about the high concentration in crypto markets.

ESMA expressed concerns about concentration, noting that the failure of a single asset or exchange could have widespread consequences for the entire crypto ecosystem.

The agency's analysis revealed that a small number of assets dominate the crypto market in terms of market capitalization and trading volumes, with Bitcoin (BTC), Ethereum (ETH), and Tether (USDT) representing 74% of the market cap in December 2023 and accounting for more than half of the annual trading volume that year.

ESMA highlighted the concentration of trading volumes on exchanges, with 90% of trades being conducted on just 10 platforms. Binance led the way with about half of the total trading volume, but its dominance has slightly decreased since December 2023.

ESMA emphasized the interconnectedness of individual cryptocurrencies, emphasizing strong price correlations among them. Additionally, it pointed out a positive correlation between crypto and equities, signaling risks and a lack of a stable relationship with gold, ultimately cautioning against viewing crypto as a reliable "safe haven."

Concerns specific to the EU include the observation that only a minor percentage of fiat-crypto transactions involve the euro, with the US dollar and South Korean won being the dominant fiat currencies. Despite the adoption of the Markets in Crypto-Assets (MiCA) regulation in June 2023, the euro's role in transactions has remained limited. However, ESMA anticipates that MiCA implementation could drive growth in the euro's involvement.

Another significant issue identified by ESMA is the location of exchanges, as a majority of transactions on EU-licensed Virtual Asset Service Providers (VASPs) occur outside the EU, with many trading volumes taking place in tax havens. With the upcoming MiCA rules addressing these location-related challenges, the agency sees enhanced transparency as exchanges continue to expand into new jurisdictions.

ESMA's overall analysis supports the implementation of MiCA regulation, anticipating that it will address critical issues and drive positive growth in the European crypto market.