The European Securities and Markets Authority (ESMA) has drawn attention to the concentrated nature of cryptocurrency trading and the potential risks it poses to the wider financial ecosystem. The report, published on April 10, coincides with the European Union’s (EU) preparations to implement MiCA, the world’s first extensive regulatory framework for crypto assets.
ESMA’s research reveals that just 10 exchanges process approximately 90% of cryptocurrency transactions, with Binance, the largest exchange, holding a 50% market share. While this concentration may enhance efficiency, it also raises concerns about the impact of a significant exchange failure or malfunction.
ESMA highlights the concern that a failure or malfunction of a single asset or exchange could have broad repercussions on the crypto ecosystem. According to the report, this concentration has increased over time, rising from 54% in 2019 to the current level of 73%.
The report also points out that the euro has limited presence in cryptocurrency trading, despite the introduction of MiCA regulation. However, once implemented in 2024, the regulation, designed to enhance investor protection, could potentially drive growth. ESMA explains that cryptocurrencies do not serve as safe havens during market stress, as they are correlated with equities and lack stability compared to gold.
MiCA, which was first proposed in September 2020 and approved by the European Parliament in April 2023, aims to establish a new era of regulation for crypto assets, highlighting the increasing importance of the industry in the financial sector. The regulation applies to all types of crypto assets, including securities and e-money, which are currently not covered by traditional EU finance regulations.
As the EU introduces its comprehensive regulatory framework for crypto assets through MiCA, ESMA’s findings emphasize the significance of oversight and risk management in this rapidly evolving sector.
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