The top centralized cryptocurrency exchanges have reached all-time highs for market share this year as trading volume in crypto consolidates onto the platforms of only a few trusted companies.
So named “top-tier” crypto exchanges have increased their market share from 89% in August 2021 to 96% in February 2022 according to data collected by UK analytics company CryptoCompare published on Monday, April 11.
The firm analyzed over 150 active centralized exchanges, ranking them on security, number of assets available, regulatory compliance, KYC checks, and more, grading them from a top score of AA to a low of F with “top tier” receiving a grade B or above.
A total of 78 exchanges received a “top tier” grade, with Coinbase, Gemini, Bitstamp, and Binance the only four to receive the highest AA grading.
The report revealed that top-tier exchanges traded a total of $1.5 trillion in February 2022 compared to $62 billion in the “lower-tier” exchanges. This is a metric that CryptoCompare claims show “both retail and professional traders are moving to lower risk exchanges.”
Consolidation of exchanges has happened through both exchange closures and acquisitions from other, larger exchanges. Top crypto exchanges eyeing overseas expansion sometimes acquire already licensed, smaller exchanges operating in the country of interest, as was the case with FTX’s acquisition of the Japanese Liquid Group exchange on February 2nd, 2022.
The firm reported that since June 2019, 54 exchanges have closed due to being uncompetitive in the market which has caused further consolidation of users to top-ranking exchanges. Additionally, China’s crackdown on crypto saw 6 Chinese-based exchanges close with the analysts adding:
“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 into the future. 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 surfaced some challenges which lay ahead for the cryptocurrency exchange industry, highlighting the political pressure put on exchanges to enforce Russian sanctions as an 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 the future of exchanges.”
The movement of crypto users that prefer self-custody of assets was also an issue flagged in the report. “The mantra of ‘not your keys, not your coins’ is growing stronger amid the political pressure received by exchanges,” the report states, before adding it is a “movement that could hinder the business model of exchanges.”