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The European Securities and Markets Authority (ESMA) has issued a warning in regards to the excessive focus of buying and selling exercise on a restricted variety of cryptocurrency exchanges.
According to the regulator’s analysis, a single platform, Binance, controls roughly half of your complete market, whereas simply 10 exchanges deal with about 90% of all cryptocurrency trades.
The ESMA’s report, launched on Wednesday, additionally highlighted vital variations in market liquidity, with bigger exchanges usually exhibiting increased ranges of liquidity. Whereas this focus could provide effectivity advantages as a result of economies of scale, the regulator expressed appreciable issues in regards to the potential implications of a failure or malfunction at a significant asset or alternate for the broader crypto ecosystem.
The ESMA’s examination of the fiat currencies used throughout the crypto market revealed a robust dependence on the US greenback and the South Korean gained, with the Euro enjoying a relatively minor function, accounting for under about 10% of transactions. The regulator famous that the Markets in Crypto Property (MiCA) regulation has not but resulted in any observable improve in the usage of the Euro throughout the cryptocurrency market. Nonetheless, the ESMA expects that MiCA may probably catalyze development upon its implementation in 2024, given its concentrate on strengthening investor safety throughout the market.
“Crypto not a protected haven”
The regulator additionally challenged the notion of crypto property serving as a protected haven in periods of broader market misery. The report recognized a level of co-movement between crypto property and equities, whereas additionally highlighting the absence of a constant relationship with gold, a historically acknowledged safe-haven asset.
The ESMA emphasised the inherent opacity of crypto transactions, which makes it difficult to pinpoint their origin. Nonetheless, a good portion of crypto exchanges are discovered to be located in jurisdictions characterised as tax havens. In accordance with the regulator, roughly 55% of transactions are carried out on crypto exchanges licensed below the EU’s VASP framework, though a considerable proportion of those transactions probably happen outdoors the European Union.
The report additionally discovered that regardless of a rise within the variety of actively traded crypto property since 2020, the market stays extremely concentrated. As of December 2023, simply three cryptocurrencies – Bitcoin (BTC), Ether (ETH), and the stablecoin Tether (USDT) – comprise a considerable 74% of the overall market capitalization and 55% of the annual buying and selling quantity.
The report follows Ripple CEO Brad Garlinghouse’s latest prediction that the overall market capitalization of the crypto business could double to $5 trillion by the top of 2023. In March, Bitcoin hit a brand new all-time excessive, surpassing $71,000 for the first time, following the UK’s Monetary Conduct Authority’s approval of cryptocurrency exchange-traded merchandise.
The upward development gained momentum in January when the US securities regulator approved spot Bitcoin ETFs, a catalyst for the cryptocurrency’s worth, which breached $70,000 final week. Ethereum additionally crossed the $4,000 mark on Monday.
Featured picture: Ideogram
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