The EU watchdog warns that a handful of exchanges may control the crypto market

The European Securities and Markets Authority (ESMA) has highlighted the nature of crypto trading and the risks it could pose to the wider financial ecosystem.

According to ESMA research, around 90% of cryptocurrency transactions take place on just 10 exchanges, with Binance, the largest of them, commanding half of the market.

The report, released on April 10, comes as the European Union (EU) prepares to implement the MCA, the world's first comprehensive regulatory framework for crypto assets.

While such attention may improve efficiency, it also raises concerns about the consequences of a significant exchange failure or crash.

ESMA said the focus is worrisome because the failure of a single asset or exchange can have a wider impact on the crypto ecosystem. In the report, the officer said:

“The top 10 exchanges account for 90% of the total trading volume and with a volume of more than $3.7 trillion, or a 49% market share, Binance is the largest exchange. Second-placed Upbit only recorded a seventh of this volume.”

However, over time, this focus has grown. In 2019, it stood at 54%, and according to ESMA's latest data, it rose to 73%.

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The report highlights that the euro has limited presence in cryptocurrency trading despite the MICA regulation. However, once implemented by 2024, it could be a growth driver as it aims to strengthen investor protection.

“The involved circulation of fiat money shows a heavy dependence on the US dollar and the South Koreans have won on and off the market. The euro plays only a minor role and the announcement of the MiCA regulation has not yet led to an increase in euro transactions.

Additionally, ESMA rejects the idea that cryptocurrencies act as safe havens in times of market stress, citing their correlation to equities and lack of stability relative to gold.

The MCA, first proposed in September 2020 and approved by the European Parliament in April 2023, aims to usher in a new era of crypto asset regulation, reflecting the industry's growing importance in the financial sector.

MiCA will apply to any crypto-assets, including securities and e-money, which are not currently covered by traditional EU financial regulations.

As the EU draws up its comprehensive regulatory framework for crypto assets – MCA, ESMA's findings highlight the importance of regulation and risk management in this rapidly growing sector.

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