EU watchdog warns of small number of exchanges dominating crypto

ESMA has pointed out that crypto trading is heavily dominated by a few players, which could lead to significant risks for the entire financial market infrastructure.

On April 10, a new report was made public. This occurs as the European Union (EU) readies itself to enforce MiCA, an extensive regulatory structure intended for cryptocurrencies – a global first.

According to ESMA’s findings, approximately 90% of cryptocurrency transactions go through a mere ten exchanges. Among these, Binance holds the largest share, handling around fifty percent of the total market activity.

Concentrating in this manner could increase productivity, but it also brings up worries about the potential problems that come with a major system breakdown or malfunction.

ESMA expressed worry that a major incident involving a specific crypto asset or exchange could significantly affect the entire crypto market. According to their report.

“The top 10 exchanges execute around 90% of total trading volume and, with a volume of over USD 3.7 trillion or a market share of 49%, Binance is the largest exchange. The runner-up, Upbit, recorded only about a seventh of this volume.”

Over the years, the percentage has increased significantly. It was at 54% in 2019, but more recently, according to ESMA’s latest figures, it has risen to 73%.

The report points out that the euro plays a minor role in cryptocurrency transactions, even with the upcoming MiCA regulation announcement. Yet, since this regulation aims to bolster investor security, it may spark significant development when enacted in 2024. ESMA added:

“The distribution of involved fiat money reflects a high reliance on the U.S. dollar and the South Korean won as the market’s on- and off-ramp. The euro only plays a minor role and the announcement of the MiCA regulation has not caused an increase in euro transactions so far.”

Furthermore, ESMA disagrees with the notion that cryptocurrencies provide safety during financial turmoil. They argue that cryptos behave similarly to stocks, showing a high correlation, and offer less stability than traditional safe-haven assets like gold.

In simpler terms, MiCA (Markets in Crypto-Assets), introduced in September 2020 and endorsed by the European Parliament in April 2023, is designed to mark a new phase of crypto asset regulation, highlighting their increasing influence within the financial market.

MiCA (Markets in Crypto-Assets) regulation extends to all crypto assets, such as securities and e-money, that do not fall under the purview of existing EU financial regulations.

With the European Union implementing its extensive cryptocurrency regulations through MiCA, ESMA’s research highlights the significance of supervision and risk assessment in this fast-paced industry.

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2024-04-11 14:30