New data from analytics firm Kaiko reveals that the top eight cryptocurrency exchanges now control about 91.7% of market depth and 89.5% of trading volume. Binance, the leading exchange, accounted for 30.7% of global market depth and 64.3% of global trade volume in 2023. This concentration of liquidity has intensified over time, raising questions about the implications for the broader cryptocurrency market.
According to Kaiko, Binance’s market share in spot volume has experienced a noteworthy increase, climbing from 38.3% in 2021 to 64.3% in 2023. This surge can be attributed to Binance’s zero-fee trading promotion.
Despite a decrease in the exchange’s market depth from 42% to 30.7%, the promotion had a more pronounced effect on trading volume than on market depth. Other major exchanges that control significant portions of global market depth include OKX, Bitfinex, Coinbase, KuCoin, Kraken, and Bybit.
Source: Kaiko
Kaiko’s report delves into the advantages and disadvantages of a concentrated market. On one hand, a concentrated source of liquidity can benefit average traders. On the other hand, the firm warns that this concentration poses a significant risk to the industry, citing the example of the FTX collapse. The firm also stated that many centralized exchanges lack fundamental safeguards for traders during failures, hacks, or market manipulation.
The firm also compiled data on average 1% market depth and cumulative trade volume for Bitcoin (BTC) and Ethereum (ETH) in its report. It stated the top 28 cryptocurrencies by market capitalization and revealed a concentration of liquidity that has intensified over time, especially in the case of Binance.
Regulatory impact on altcoin liquidity
According to Kaiko, altcoin liquidity has become highly concentrated within three major exchanges: Coinbase, Kraken, and Bitstamp, due to the anti-crypto regulatory agenda in the United States. Since August 2022, Kraken has not experienced any reduction in market depth for the top 30 altcoins, while Coinbase has lost around $5 million in liquidity.
The report leaves open questions about the long-term implications of concentrated liquidity, especially in an industry that values decentralization. While liquidity may be optimal from a market perspective when concentrated on just a few exchanges, the cryptocurrency industry generally holds decentralization in high regard. Therefore, the current state of liquidity concentration could be at odds with the industry’s broader values.
