Ten cryptocurrency exchanges account for 90% of the market’s trading.

And that concentration could be a problem, according to a report issued Wednesday (April 10) by the European Securities and Market Authority (ESMA).

“While this might be advantageous from an efficiency standpoint due to economies of scale, it raises considerable concerns regarding the implications of a failure or malfunction at a major asset or exchange for the wider crypto ecosystem,” said the report, which noted that Binance accounts for roughly half the market. 

The EU made history in 2023 when it became the first jurisdiction in the world to endorse a comprehensive regulatory framework for cryptoassets like bitcoin. The Markets in Crypto Assets (MiCA) rules won’t go into full effect until the end of this year. Until that happens, the report said, crypto assets and related service providers are more or less unregulated.

“In fact, crypto exchanges largely operate outside of national legal frameworks and are often based in countries with lighter regulatory requirements,” the report said. “Binance, for example, claims to not have a headquarters, while former crypto exchange FTX was based in the Bahamas and incorporated in Antigua and Barbuda.”

The report also cited data from Chainalysis showing that during the last two years, around 20% of crypto transaction value was received by investors from North America, another 20% from central, northern and western Europe, and 20% from central and southern Asia.

“Based on the domiciles of crypto exchanges, we find that most trading is performed on exchanges based in tax havens,” ESMA said. The announcement of MiCA, the regulator said, has not caused an increase in euro transactions.

The report added that despite frequent claims “that crypto assets could represent a safe haven in times of wider market stress, we find a certain co-movement with equities and no stable relationship with gold.”

Earlier this year, ESMA debuted proposed rules for crypto asset firms based outside of Europe that want to offer services to European customers.

“The proposed guidance confirms ESMA’s previous message that the provision of crypto-asset services by a third-country firm is limited under MiCA to cases where the client is the exclusive initiator of the service,” ESMA said in a statement.

“This exemption should be understood as very narrowly framed and must be regarded as the exception. A firm cannot use it to bypass MiCA,” the agency added.