European Watchdog Raises Concerns Over Dominance of Few Exchanges in Crypto Market

The European Securities and Markets Authority (ESMA) has flagged the concentrated nature of cryptocurrency trading as a potential risk to the broader financial system.

ESMA’s analysis reveals that merely 10 exchanges process approximately 90% of cryptocurrency transactions, with Binance emerging as the dominant player, commanding nearly half of the market share.

Released on April 10, the report arrives amidst the European Union’s (EU) preparations to enforce MiCA, an extensive regulatory framework aimed at governing crypto assets worldwide.

While this concentration may streamline operations, it also amplifies concerns regarding the repercussions of a significant exchange failure or disruption.

ESMA underscores the potential systemic impact of such concentration, cautioning against the vulnerability inherent in a scenario where one asset or exchange failure could reverberate across the entire crypto ecosystem.

Over time, this concentration has intensified, rising from 54% in 2019 to a staggering 73% as per ESMA’s latest data.

Moreover, the report sheds light on the limited role of the euro in cryptocurrency trading, despite the forthcoming MiCA regulation. Nonetheless, once implemented in 2024, MiCA could stimulate euro transactions, given its aim to bolster investor protection.

ESMA dismisses the notion of cryptocurrencies serving as safe havens during market turmoil, citing their correlation with equities and relative instability compared to gold.

MiCA, introduced in September 2020 and ratified by the European Parliament in April 2023, seeks to establish a comprehensive regulatory framework for crypto assets, recognizing their growing significance in the financial landscape.

Encompassing all crypto assets, including securities and e-money, not covered by traditional EU financial regulations, MiCA highlights the imperative of robust oversight and risk management in navigating the evolving crypto landscape.