According to Reuters, crypto trading concentration is a “significant problem,” EU regulator says

By Huw Jones

LONDON (Reuters) – The high concentration of crypto trading on a handful of exchanges, with Binance alone accounting for about half of the market, is raising concerns about the impact of failure on the sector, the EU securities regulator said on Wednesday.

The bloc introduces the world's first comprehensive set of rules to regulate trading in crypto assets such as Bitcoin, Ether and Bitcoin, with exchanges requiring authorization.

The European Securities and Markets Authority's detailed analysis of what is being traded and by whom has shown that the euro has so far only played a minor role.

Trading volume is highly concentrated, with 10 exchanges handling around 90% of trades and the largest, Binance, accounting for around half of the market.

“While this could be advantageous from an efficiency perspective due to economies of scale, it raises significant concerns about the impact of a failure or malfunction in a key asset or exchange on the broader crypto ecosystem,” ESMA said.

“We observe that market concentration among exchanges has increased over time and that Binance alone accounts for more than 50% of trading volume.”

Binance said in a statement that it believes the healthy and sustainable growth of the crypto industry is a key responsibility for the company and other market participants.

“Our focus remains on continuing to invest in compliance processes for a new era of regulatory security,” Binance said.

reached an all-time high of $73,803.25 in March, but the total value of all cryptocurrencies — $2.7 trillion, according to CoinGecko — still represents a tiny fraction of the global financial system.

According to ESMA, identifying the origin of order flow or the geographical location of crypto exchanges remains problematic as approximately 55% of current global trading volume is conducted on exchanges that have an EU license.

According to ESMA, most transactions outside the Union take place on exchanges based in tax havens.

“Contrary to the common assertion that crypto assets can provide a safe haven in times of major market stress, we note some co-movement with equities and no stable relationship with gold,” ESMA said.

ESMA will hold a webinar on April 25 to discuss its findings.