The ESMA study revealed a high degree of concentration in the cryptocurrency market, with 10 cryptocurrency exchanges and 3 coins dominating the industry.
The cryptocurrency market has a high level of concentration, with the three largest cryptocurrencies—Bitcoin (BTC), Ether (ETH), and stablecoin Tether (USDT)—accounting for 74% of the total market capitalization and 55% of annual trading volume for 2023. At the same time, 90% of all transactions are processed by just 10 largest crypto exchanges. To such conclusions The European Securities and Markets Authority (ESMA) arrived after analyzing the state of the cryptocurrency market.
The department notes that such concentration may turn out to be a double-edged sword. On the one hand, it gives leading players the advantage of economies of scale and accelerates their development. On the other hand, it increases the risk of manipulation and threatens the stability of the entire industry. If a major disruption occurs at a large site, the entire ecosystem will suffer.
10 exchanges control the market
According to the study, the 10 largest exchanges account for 90% of all trading volume. Binance is in first place with an annual volume of $3.7 trillion – 49% of the total. In second place is South Korean Upbit, which controls only 7% of trading volume.
Moreover, the Herfindahl-Hirschman Index (HHI), which measures the degree of industry concentration, showed a rather sharp transition of the market from a “competitive” state in the period from 2018 to 2021, to a “highly concentrated” state in 2023. In fact, the market share of the five largest exchanges has increased by 5% over the past five years to reach 73%.
ESMA noted that in recent years, Binance has partially lost its position due to legal problems in several regions at once. However, it is unlikely that anyone will be able to displace her from the position of leader in the foreseeable future.
There are more coins
Over the period from 2020 to 2023, the number of actively traded cryptocurrencies increased from 2,000 to 3,700, but the main volumes are concentrated in three assets: Bitcoin (BTC), Ether (ETH) and the stablecoin Tether (USDT). They account for 74% of total cryptocurrency market capitalization and 55% of annual trading volume for 2023. In comparison, the top ten crypto assets account for 86% and 64% respectively.
The top ten at the end of 2023 also included Binance Coin, Solana, Ripple, USD Coin, Cardano, Dogecoin and Toncoin.
ESMA experts also drew attention to the high correlation between cryptocurrency assets. This means that the entire market is moving in one direction – mainly following Bitcoin. This correlation makes it difficult to hedge risks.
In addition, contrary to the popular belief that cryptocurrencies can act as safe-haven assets during market crises, ESMA pointed out a direct correlation with stocks (risky assets) and no clear correlation with gold (safety asset).
What else is interesting in the ESMA report
- Only 20-30% of transactions involve fiat currencies.
- 80% of crypto-fiat transactions are in US dollar and Korean won.
- Stablecoins are involved in 60% of all transactions.
- 90% of all stablecoin transactions are in USDT.
ESMA noted that it is closely monitoring the state of the cryptocurrency market and assessing the associated risks for consumers and the traditional financial system.
Source: Cryptocurrency
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