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Report Predicts an ‘Oligopoly of Crypto Exchanges’ as Market Consolidates

2 mins
Updated by Geraint Price
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In Brief

  • A report by CryptoCompare found that top exchanges have managed to up their market share to 96%.
  • The research remarked that the change is brought by both retail and professional traders moving to lower-risk exchanges.
  • The market is consolidating as top crypto exchanges have been aggressively undertaking M&A.
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The biggest crypto exchanges have achieved an all-time high market share highlighting that the crypto exchange sector is consolidating, says a report.

The CryptoCompare report found that top exchanges have managed to up their market share from 89% in Aug 2021 to 96% by Feb this year.

And in the last six months, these top-tier exchanges have maintained an average trading volume of around 88%.

The research revealed that this change is brought about by both retail and professional traders moving to lower-risk exchanges. Especially when lower-tier exchanges may not have registered entities or offer some form of crypto insurance. 

Report says biggest exchanges offer lowest risk

Meanwhile, global exchanges like Coinbase, Gemini, Bitstamp, and Binance have been considered the lowest risk options with AA rankings on the CryptoCompare report.

All in all, there are now only 78 exchanges, led by the four mentioned above, that have snatched market share from lower-tier exchanges. There were 87 exchanges in Aug 2021, according to CryptoCompare. 

The report also highlighted that with stricter benchmark standards, more regulatory scrutiny, and higher security standards, smaller players have struggled to stay afloat. 

Even as the number of top exchanges has gone down, 15 exchanges have met the high threshold of AA-A status. There were nine such exchanges in Aug last year.

Adjusting to legislative shakeups

There is evidence that exchanges have been adjusting their processes with the changing legislative atmosphere. For instance, registered exchanges now come under the umbrella of anti-money laundering and counter-terrorism finance laws (AML-CTF). 

And watchdogs have also laid down strict Know-Your-Customer (KYC) rules to follow. 

Indeed, lower-tier exchanges might lose trading volumes as a consequence of a regulatory shakeup. Recently, it was found that trading volumes in India have taken a hit since the start of April as a consequence of the government’s new crypto taxation policy. 

And the National Payments Corporation of India (NPCI) announced that no crypto platform had permission to use its instant payment mechanism. 

Therefore, unsurprisingly, CryptoCompare found that while top-ranked exchanges traded a total of $1.5 trillion in Feb, lower-tier exchanges traded just around $62 billion that month. 

In China, around 50 exchanges have shut shop since June 2019 after legislative changes. While weaker businesses closed down, bigger platforms like Huobi quit China and set up shop elsewhere.

Aggressive M&A 

Top crypto exchanges have also established a major presence in the acquisitions (M&A) market since Aug 2021. Big names like Binance, Gemini, and FTX have acquired competitors through their venture arms, or even invested in other areas of business. And these platforms have also been poaching the best staff for the jobs. 

For example, as Binance was being pulled up by watchdogs globally, it went on a hiring spree to fill in its top positions. It reportedly appointed a former official from the UK’s Financial Conduct Authority (FCA) as its global director of regulatory policy recently. This was while the FCA was tightening its grip on exchange licensing in the country.

CryptoCompare remarked that the consolidation of exchanges has important implications for the future of the crypto industry, and may well show signs of moving towards an oligopoly.

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Shraddha Sharma
Shraddha is an India-based journalist who worked in business and financial news before diving into the crypto space. As an investment enthusiast, she has also has a keen interest in understanding crypto from a personal finance standpoint.