The concentration of crypto trading and its potential risks to the financial ecosystem have been highlighted by the European Securities and Markets Authority (ESMA).
In a report released on April 10, ESMA emphasizes the highly concentrated nature of cryptocurrency transactions, with approximately 90% of these transactions being processed by just 10 exchanges. Binance, the largest exchange, commands half of the market.
While this concentration may improve efficiency, it also raises concerns about the potential consequences of a significant exchange failure or malfunction. ESMA has expressed concern that a single asset or exchange failure could have a broad impact on the entire crypto ecosystem. According to ESMA’s research, this concentration has grown over time, increasing from 54% in 2019 to 73% as per the latest data.
The report also highlights that despite the announcement of the MiCA regulation, the euro has a limited presence in cryptocurrency trading. However, once MiCA is implemented in 2024, it is expected to enhance investor protection and potentially act as a growth driver.
ESMA refutes the idea that cryptocurrencies act as safe havens during times of market stress. It cites their correlation with equities and lack of stability relative to gold.
MiCA, which was first proposed in September 2020 and approved by the European Parliament in April 2023, aims to introduce a new era of regulatory framework for crypto assets. It covers all types of crypto assets, including securities and e-money, that are not currently regulated by traditional EU finance regulations.
ESMA’s findings emphasize the importance of oversight and risk management in the rapidly evolving crypto sector as the EU prepares to implement its comprehensive regulatory framework for crypto assets through MiCA.
Magazine: Big Questions: How can Bitcoin payments stage a comeback?