Digital Assets Data Provider Kaiko in a deep-dive analysis of the crypto trends that matter has pointed out a dwindling Binance market share.
Binance has had consistent growth since its founding in 2017 with the bulk of the growth happening after 2020. In 2021, Binance held 25% of the spot volume market share and then shot up to 50% by the end of 2021. The market share then dipped in 2022 following the crypto bloodbath in that year before expanding to over 70% this year and dipping to 57% last week.
Reasons for the market share drop
Binance has had several hits this year despite starting the year on a positive note. The first hit came in February when the New York Department of Financial Services (NYDFS) ordered Paxos to stop issuing BUSD and the Securities and Exchange Commission (SEC) sent a Wells notice to Paxos.
The second is the recent lawsuit by the US CFTC against the crypto exchange and its CEO and founder Changpeng Zhao (“CZ”) for dodging federal law and operating an illegal digital asset derivatives exchange. The lawsuit led to an increase in Binance outflows as investors and traders feared the worst after the recent crypto crackdown in the US.
A breakdown of the CFTC lawsuit
According to the CFTC Binance took a calculated approach to increasing its presence in the US, first by bringing in retail and later by bringing in institutional customers. The crypto exchange then allegedly directed retail customers to use VPNs to obscure their location and allowed them to continue trading without submitting proof of identity.
The CFTC also alleges that when Binance began restricting users from certain jurisdictions in 2019, it left a loophole that allowed customers to use the exchange without undergoing KYC. Allegedly, Binance used Binance.US to identify important US clients and then pushed them to onboard Binance using new KYC documentation associated with a shell company.
The regulatory authority also alleged that Binance has been trading on its exchange using 300 “house accounts” linked to the CEO CZ.
Lastly, CFTC also says that Binance used “prime brokers” to allow US institutions to trade spot and derivatives on the exchange.
Although the allegations aren’t confirmed at the moment, a US-based trading firm radix has come out to confirm some of the details in the CFTC lawsuit.
Kaiko – Binance trading volume skewed towards US trading hours
According to Kaiko, Binance trading volume is disproportionately skewed towards US trading hours and is similar to US-based crypto exchange Coinbase.
In 2018, 35% of Binance’s BTC volume occurred between 1 pm and 8 pm UTC (9 am to 4 pm ET) compared to Coinbase’s 41.5%. Currently, in 2023, 43.4% of Binance’s BTC volume comes during US hours, compared to Coinbase’s 47.5%.
Interestingly, Binance’s volume distribution changed in late spring and early summer 2021 after China cracked down on crypto trading. After the crackdown, Binance shifted and started to favour European and US trading hours, with over double the volume at 10 am ET compared to 1 am ET.
According to Kaiko, it is difficult to tell how much of Binance’s market share drop is a result of the “reinstated fees on its most traded BTC pairs as opposed to US institutions ceasing to trade on the exchange.”Binance’s market share dropsBinance’s market share drops
Kaiko however speculates that “US exchanges, particularly Coinbase, would absorb some of the US institutional spot volume that leaves Binance.”
It is also probable that other exchanges like Bybit, Deribit, and OKX will capture some of Binance’s derivatives volume.
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