Written by Hugh Jones
LONDON (Reuters) – High concentration of cryptocurrency trading on a few exchanges, with Binance alone accounting for about half of the market, raises concerns about the impact of the failure on the sector, the European Union securities watchdog said on Wednesday.
The European Union is rolling out the world's first comprehensive set of rules to regulate trading in crypto assets such as Bitcoin, Ether and Tether, requiring exchanges to be allowed.
The European Securities and Markets Authority's detailed analysis of what is being traded and by whom has found that the euro has so far only played a secondary role.
Trading volumes are highly concentrated, with ten exchanges processing about 90% of trades, and the largest, Binance, accounting for about half of the market.
“While this may be beneficial from an efficiency point of view due to economies of scale, it raises significant concerns about the implications of failure or disruption of a major asset or exchange for the wider cryptocurrency ecosystem,” the ESMA said.
“We note that market concentration between exchanges has increased over time, and Binance alone accounts for more than 50% of trading volume.”
Binance had no immediate comment.
Bitcoin 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 small fraction of the global financial system.
Determining the origin of order flow or the geographic location of cryptocurrency exchanges remains an issue, as about 55% of current global trading volumes are executed on exchanges that hold an EU license, the Securities and Markets Authority said.
The Securities and Markets Authority said most transactions take place outside the bloc on exchanges located in tax havens.
“Contrary to the repeated claim that crypto assets can represent a safe haven in times of broader market stress, we find a certain co-movement with stocks and no stable relationship with gold,” the Securities and Markets Authority said.
ESMA is holding a webinar on April 25 to discuss its findings.
(Reporting by Elizabeth Howcroft; Editing by Alex Richardson and Jan Harvey)
