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Binance’s dominance has reached an incredible level. And that’s bad news for traders

Igor Grigorchenko

News editor

Jan 5, 2023 at 04:22

Analysts at Arcane Research have found a big winner in this difficult crypto winter. It turned out to be the crypto exchange Binance, which displaced and absorbed its competitors and reached an impressive dominance of 92% on the spot market. In this article, we take an in-depth look at how the exchange is rapidly taking over the crypto market while others are counting their losses.

An incredible year of growth

Arcane Research has published a report that shows that Binance, already the world’s largest cryptocurrency exchange, has grown dramatically in 2022. The collapse of platforms such as FTX and Celsius helped a lot to achieve this. 

According to the latest data as of January 1, 2023, Binance holds 92% of the BTC spot market and 61% of the BTC derivatives market. Trading volumes of this exchange continue their growth.

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Arcane states that there is no one in the market right now who would even roughly compare with the cryptocurrency exchange Binance in terms of performance. In fact, analysts say, Binance itself is a market for digital currencies.

For comparison, in early 2022, the crypto exchange had only 45% of the spot market. It’s a most dramatic increase in market share in just one year — and the highest growth rate in the history of the exchange. Derivatives market share is also increasing rapidly, and Binance’s growth continues. 

Analysts say the growing dominance of the spot market began for Binance in late summer, when the cryptocurrency exchange canceled commissions for some trading pairs amid the collapse of FTX. Binance became a trader’s paradise, introducing zero commissions and providing enormous liquidity, while other exchanges were forced to survive, suffering from customer outflows due to panic.

Growth through acquisitions

Also, Binance’s global coverage continues to increase through aggressive acquisitions of successful regional exchanges. Among the recent and future acquisitions are:

  • Buying the Indonesian crypto brokerage company Tokocrypto.  
  • Acquiring Japan’s Sakura Exchange Bitcoin trading platform.
  • Binance.US’s plans to acquire Voyager Digital (under discussion with regulators).

Moreover, Binance was one of the few cryptocurrency companies that actively hired employees during the year instead of laying them off as all competitors did.

It is worth noting the successful entry into the market of payment systems in the midst of the crisis with Binance Pay, which is gaining momentum very quickly. What is interesting is that, while using almost no auxiliary marketing, it quite successfully promotes itself solely by the power of the ecosystem of Binance itself.

Why isn’t everything as good as it looks?

But there is bad news. Arcane believes that the famous crypto exchange will reintroduce trading fees in 2023. Such a price war with other exchanges is costly for Binance itself, and once the market capture is complete, the exchange will stop dumping and introduce back all standard commissions and fees.

It is also necessary to note that intensive spending of the exchange’s money on a falling market is rather risky; by investing huge amounts of money in further expansion and absorption of competitors, Binance loses liquidity. This is a very thin and dangerous game in which the exchange is going to go the way of creating an absolute monopoly while having a minimum margin of safety

There are indirect signals that Binance is already operating at its limits:

  • Earlier, the head of Binance wrote to his employees that they were facing a difficult 2023.
  • The press has discovered that Binance is in external financing talks with Berkshire Hathaway, which is surprising news to all experts. The head of that company, the iconic billionaire investor Warren Buffett, has previously referred to Bitcoin as “rat poison,” and attempts to negotiate financing with such a sophisticated investor implicitly suggest that Binance is desperate for outside financing.
  • The most dangerous thing is that with this level of monopoly, the market becomes potentially fragile; it loses stability. For example, the collapse of MtGox, which controlled 70% of the spot, once led to a record collapse of cryptocurrencies. Binance’s dominance of more than 90% makes the crypto market hostage to the sanity of just one player. The failure of such a super-player would be far worse than the collapse of FTX.

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