Rise of the Crypto Underdogs: ‘Low Tier’ Exchanges Gain Market Share after Binance Falters

Regulatory and legal troubles that Binance faced in the United States (and globally) have led to a significant drop in the crypto market giant's share. Surprisingly, the main beneficiaries of this situation were not the exchange's main competitors, but smaller platforms whose share in total volumes has grown considerably since the beginning of the year.

Where Binance Loses, Smaller Exchanges Benefit

According to data presented by CCData, exchanges located in Seychelles, including KuCoin and Huobi Global, have benefited from Binance's decline in popularity.

CCData classifies cryptocurrency platforms based on the minimum acceptable risk threshold. Riskier exchanges are categorized under 'low tier', while those posing less risk to their clients are labeled 'top tier'. In establishing these categories, the crypto data provider considers the exchanges' approach to client fund protection, safeguarding against hacker attacks, and anti-money laundering standards.

Exchanges in the latter category saw their combined market share drop from 80% at the beginning of the year to 68%. Binance, the industry leader, experienced the most significant loss during this period. The exchange had a market share of 56% at the start of the year. Now, it has fallen below 40%.

Among 'low tier' exchanges, Huobi has performed the best, increasing its market share 6% since January. DigiFinex's market share has grown 3.5%, and KuCoin's has advanced 1.3% in the same period. Market observers claim that current regulatory pressure could benefit smaller players, as they aren't under constant scrutiny or observation by regulators.

This highlights investors' sensitivity to lawsuits filed against Binance by US regulatory agencies. First, in March, the CFTC accused the exchange of unlawfully servicing US clients. Then, in June, the SEC filed a lawsuit against Binance concerning the alleged mishandling of billions of dollars belonging to clients.

"Binance, Crypto.com, and BeQuant saw the largest decline in market share by trading volume, falling 11.0%, 4.54%, and 2.77% to 40.4%, 0.46%, and 0.96%, respectively," CCData commented.

Binance.US Suffers a Hit

A separate report by Kaiko, quoted by Finance Magnates in early July, confirms Binance's drop in market share from 60% at the beginning of the year to 52%. However, Binance.US, an independent entity operating in the US market, received the most brutal hit. Its market share shrank dramatically from 22% to just 0.9% between April and June.

According to other data published by CCData in June, the spot trading volume of cryptocurrencies on centralized exchanges (CEXs) plunged to $495 billion in May, which is a decrease of 21.8%. This was the lowest level since March 2019. According to the latest data, in July, the volume on centralized exchanges dropped 10.5% to $515 billion, closely mirroring the poor results from May.

"Trading activity across spot markets decreased in July after major assets, including Bitcoin and Ethereum, largely traded in a narrow range during the month," CCData added.