The European Union’s securities regulator has raised issues in regards to the excessive focus of buying and selling exercise on a restricted variety of crypto exchanges, with Binance controlling roughly half of your entire market. Evaluation from the European Securities and Markets Authority (ESMA) revealed that simply 10 exchanges deal with about 90% of all cryptocurrency trades, with bigger exchanges exhibiting greater ranges of liquidity. The ESMA raised issues in regards to the implications of a failure or malfunction at a serious asset or alternate for the broader crypto ecosystem.
An examination of fiat currencies used within the crypto market confirmed a powerful dependence on USD and the South Korean gained, with the Euro enjoying a relatively insignificant position, accounting for about 10% of transactions. Regardless of the Markets in Crypto Belongings (MiCA) regulation being in place, there has not been a noticeable improve in using the Euro throughout the cryptocurrency market. Nonetheless, the ESMA anticipates that MiCA may act as a catalyst for development upon its implementation in 2024 as a consequence of its concentrate on strengthening investor safety throughout the market.
The ESMA challenged the notion of crypto belongings performing as a protected haven in periods of broader market misery, because it recognized a level of co-movement between crypto belongings and equities, and an inconsistent relationship with gold, a conventional safe-haven asset. The regulator additionally highlighted the problem of monitoring the origin of crypto transactions as a consequence of their inherent opacity, with a major variety of crypto exchanges being situated in jurisdictions characterised as tax havens. Whereas roughly 55% of transactions are performed on crypto exchanges licensed beneath the EU’s VASP framework, a considerable portion of those transactions probably happen exterior the European Union.
Regardless of a rise within the variety of actively traded crypto belongings since 2020, the market stays extremely concentrated, with simply three cryptocurrencies – Bitcoin, Ether, and Tether – comprising a considerable 74% of the overall market capitalization and 55% of the annual buying and selling quantity as of December 2023. The ESMA’s report highlights the dominance of those three cryptocurrencies available in the market regardless of the proliferation of recent belongings. The regulator raised issues in regards to the lack of diversification available in the market and the potential dangers related to such excessive ranges of focus, notably concerning the influence of a malfunction or failure at a serious asset or alternate.
In conclusion, the ESMA’s report sheds gentle on the challenges and dangers posed by the excessive focus of buying and selling exercise on a restricted variety of crypto exchanges, the shortage of diversification available in the market, and the potential implications of a failure or malfunction at a serious asset or alternate. The regulator additionally highlights the position of the Euro within the cryptocurrency market, the influence of the MiCA regulation on market dynamics, and the problem of monitoring the origin of crypto transactions. Transferring ahead, the ESMA anticipates that MiCA may act as a catalyst for development and investor safety throughout the market upon its implementation in 2024.