According to a report, the “top-tier” crypto exchanges increased their market share to 96 percent in February 2022.
This year, the top centralized cryptocurrency exchanges have reached all-time highs in terms of market share, as crypto trading volume consolidates onto the platforms of only a few trusted companies.
According to data published on Monday by the United Kingdom analytics firm CryptoCompare, these “top-tier” crypto exchanges increased their market share from 89 percent in August 2021 to 96 percent in February 2022.
The firm analyzed over 150 active centralized exchanges, ranking them from AA to F based on security, several assets available, regulatory compliance, Know Your Customer checks, and other factors, with “top tier” receiving a grade of B or higher.
A total of 78 exchanges received a “top tier” rating, with Coinbase, Gemini, Bitstamp, and Binance receiving the highest AA rating.
According to the report, top-tier exchanges traded $1.5 trillion in February 2022, compared to $62 billion in “lower-tier” exchanges. According to CryptoCompare, this metric shows that “both retail and professional traders are moving to lower risk exchanges.”
Exchange consolidation has occurred through both exchange closure and acquisitions from larger exchanges. Top crypto exchanges seeking overseas expansion may acquire already licensed smaller exchanges operating in the country of interest, as was the case with FTX’s February 2, 2022 acquisition of the Japanese Liquid Group exchange.
Since June 2019, 54 exchanges have closed due to being uncompetitive in the market, causing further user consolidation to top-ranking exchanges, according to the firm. Furthermore, as a result of China’s crypto crackdown, six Chinese-based exchanges have closed, according to analysts.
“As we have seen, volumes have started to become concentrated amongst the top tier exchanges, and this is a trend which is bound to continue. As the industry matures, we expect there to be an oligopoly of exchanges dominating trading volumes as their traction accelerates and smaller players are left behind.”
The report outlined some of the challenges that the cryptocurrency exchange industry would face in the future, highlighting political pressure placed on exchanges to enforce Russian sanctions as one area that could see more action.
“While many exchanges have resisted this pressure,” the analysts wrote, “this political factor is an important risk to consider for exchanges’ future.”
The report also mentioned the movement of crypto users who prefer self-custody of assets. “The mantra of ‘not your keys, not your coins’ is growing stronger amid political pressure on exchanges,” the report says, before adding that it is a “movement that could harm exchanges’ business model.”
