The concentration of cryptocurrency trading in Europe has been highlighted as a potential risk to the financial ecosystem by the European Securities and Markets Authority (ESMA). According to ESMA’s research, 90% of cryptocurrency transactions are processed by just 10 exchanges, with Binance holding the largest market share. While this concentration may improve efficiency, it also raises concerns about the impact of a significant exchange failure or malfunction. ESMA’s latest data shows that this concentration has increased from 54% in 2019 to 73% currently.
ESMA’s report, released on April 10, coincides with the European Union’s (EU) plans to implement MiCA, the world’s first extensive regulatory framework for crypto assets. MiCA aims to enhance investor protection and is expected to become a potential growth driver once implemented in 2024. Despite the announcement of MiCA, the report highlights that the euro has limited presence in cryptocurrency trading.
ESMA also challenges the notion that cryptocurrencies act as safe havens during market stress, citing their correlation with equities and lack of stability compared to gold. MiCA, which was first proposed in September 2020 and approved by the European Parliament in April 2023, seeks to establish a new era of regulation for all crypto assets, including securities and e-money that are not currently covered by traditional EU finance regulations.
In light of ESMA’s findings, it becomes even more crucial for the EU to implement comprehensive regulatory measures for crypto assets. This underscores the importance of oversight and risk management in this rapidly evolving sector.