EU watchdog warns of high concentration in crypto markets, notes minimal euro usage News ▸ EU ▸ Regulation
EU watchdog warns of high concentration in crypto markets, notes minimal euro usage
According to ESMA, the industry is dominated by a handful of cryptocurrencies, exchanges and fiat currencies.
2 min read
Updated: Apr. 10, 2024 at 10:24 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
The European Securities and Markets Authority (ESMA) warned that crypto markets are highly concentrated on April 10.
ESMA said concentration is a concern because a single asset or exchange failure could broadly impact the crypto ecosystem.
According to the agency’s findings, market capitalizations and trading volumes are “significantly concentrated” in a small number of assets across the crypto market.
Bitcoin (BTC), Ethereum (ETH), and Tether (USDT) accounted for 74% of the crypto market cap in December 2023 and made up more than half of 2023’s annual trading volume.
Exchanges also demonstrated concentrated trading volumes, as just 10 platforms handled 90% of trading. Binance alone accounted for about half of all trading volume, though its dominance fell to 40% by December 2023 and has been on a steady decline overall since December 2022.
ESMA warned that individual cryptocurrencies are highly interconnected and show strong price correlations with each other. Furthermore, it described a positive correlation between crypto and equities, demonstrating risk plus a lack of a stable relationship with gold.
The agency said it does not consider crypto an effective “safe haven” in light of its analysis.
The EU perspective
Specific findings are particularly relevant to the EU’s regulatory activities. Of the 20% to 30% of crypto transactions involving fiat, 80% involved the US dollar or South Korean won. The euro played a “minor role,” accounting for about 10% of fiat transactions.
The euro’s involvement in fiat-crypto transactions did not increase even after the EU adopted the Markets in Crypto-Assets (MiCA) regulation in June 2023. However, ESMA said that MiCA rules could “constitute a potential growth driver” when implemented this year.
Exchange location is another issue. Although 55% of transactions occurred on exchanges with an EU Virtual Asset Service Provider (VASP) license, many of the same transactions occurred outside of the EU. About half of crypto trading volumes take place on exchanges based in tax havens, while Europe-based exchanges trading volume is almost non-existent.
ESMA said that MiCA will address location-related matters through disclosure requirements, improving transparency even as crypto exchanges expand to new jurisdictions.
The agency said that its research broadly “supports the implementation” of MiCA.
Mentioned in this article
Author 
Mike Dalton
Before transitioning to crypto writing in 2018, Mike studied library and information sciences. Currently, he resides on Canada's West Coast.
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In this article
Bitcoin, a decentralized currency that defies the sway of central banks or administrators, transacts electronically, circumventing intermediaries via a peer-to-peer network.
Ethereum
$3,474.10
Ethereum is a decentralized, open-source blockchain platform that enables the creation of smart contracts and decentralized applications (DApps).
Tether
$0.99952
Launched in 2014, Tether is a blockchain-enabled platform designed to facilitate the use of fiat currencies in a digital manner.
Binance
Binance is a global cryptocurrency exchange that provides a platform for trading more than 100 cryptocurrencies.
