(Bloomberg) -- Binance appears to have lost market share amid changes to its trading fee structure and a broader regulatory crackdown on the cryptocurrency universe by U.S. officials.
The world's largest digital trading platform now controls around 50% of the spot market share, the lowest since April 2022, according to Dessislava Ianeva, a senior research analyst at Kaiko. Its market share has shrunk after the platform, which has no fixed headquarters and offers services around the world, in March removed zero-fee trading on certain pairs.
“We have to wait and see if this is temporary or a more sustainable change in trading patterns,” Ianeva said, adding that she noted that some Korean exchanges have seen rallies at the same time, although it is not possible to directly determine whether that increase is due to to Binance outlets.
“It is possible that due to the current regulatory environment, some institutions are taking a wait-and-see approach, staying out of the market or deploying less funds elsewhere for trading,” Ianeva said.
Meanwhile, CCData says Binance's spot market share fell to levels before rival FTX's November crash, and spot trading volume on the exchange fell 48% to $287 billion in April. That marked its second-lowest monthly trading volume since 2021. And its overall market share also declined, the data provider said.
Binance did not immediately respond to a request for comment.
Crypto market observers have been very focused on trading volumes and liquidity in the markets as many investors (retails and institutions) have fled following the FTX crash late last year. In March, the US Commodity Futures Trading Commission sued Binance for violating US derivatives rules. Binance has disputed the allegations.
Other negative events have also been a factor for many previously committed investors to avoid cryptocurrencies, at least for now. And some companies are cutting back on digital asset markets: Jane Street Group and Jump Crypto, two of the world's leading market makers, are pulling out of digital asset trading in the US as markets regulators crack down on industry, Bloomberg News reported.
In April, combined spot and derivatives trading volumes on centralized exchanges fell nearly 30% to $2.8 trillion, according to CCData. That marked the first month-over-month drop in trading volumes this year.
Ianeva also points out that Bitcoin liquidity on Binance has steadily declined in recent months and has more than halved since early February. “Volume has also decreased, but the decrease was mainly due to the removal of BTC zero fees on March 22,” she said. Meanwhile, Bitcoin fell below $27,000 on Wednesday as some analysts pointed to low liquidity that may cause prices to swing.
Binance, the world's largest cryptocurrency exchange, introduced zero-fee trading on a number of trading pairs last year. That helped it gain more than 20% market share, according to Kaiko. But in March of this year, the exchange stopped that offer for 13 Bitcoin trading pairs (although it allowed it for Bitcoin-TrueUSD). Meanwhile, US regulators have been very focused on cracking down on certain activities in space.
Its market share changed when it removed those zero-fee options, says Noelle Acheson, author of the "Crypto Is Macro Now" newsletter.
“The speed of the decline in BTC spot volumes on Binance shows just how speculative much of the exchange’s volumes were,” he said. "This makes sense, as fees are one of the few barriers to trading churn."
Acheson added: "While a drop in volumes is generally not a good sign for a market, in this case it indicates less speculative churn, which is healthier."
--With the assistance of Muyao Shen and Olga Kharif.
(Updates with data from CCData in the fifth paragraph.)
©2023 Bloomberg L.P.
