In the wake of US regulatory charges against Binance, smaller cryptocurrency exchanges with perceived higher risk levels have experienced an unexpected boost in market share. This shift in the crypto trading landscape has been particularly beneficial for exchanges like Huobi Global and KuCoin, both headquartered in the Seychelles, which have managed to increase their shares in the trading of cryptocurrencies such as Bitcoin and Ether during the first half of the year.
In contrast, exchanges rated as "top tier" by industry research provider CCData, based on adherence to minimum risk thresholds for customer protection, have seen their collective market share decline from 80% to around 68% since the beginning of the year. During the same period, Binance, the leading player in the industry, has seen its market share decrease from 56% to just over 40%.
This reflects the impact of the two lawsuits filed against Binance by US regulatory agencies earlier in the year.
In March, the Commodity Futures Trading Commission accused Binance of illegally accessing US customers, while the Securities and Exchange Commission followed up in June with allegations against 13 Binance-related entities, including improper segregation of customer and corporate funds.
Tom Robinson, chief scientist and co-founder of blockchain tracing firm Elliptic, highlighted the fact that for many cryptocurrency traders, privacy and the ability to exchange potentially high-risk funds take precedence over trading on platforms known for strict compliance.
CCData's classification of "top tier" exchanges focuses on robust measures to safeguard customer funds, enhance security, and maintain anti-money laundering standards. However, smaller exchanges like Huobi, which have managed to increase its market share by almost 6% since January, have demonstrated that non-top-tier exchanges can still thrive.
Other exchanges that have experienced gains in market share despite not being classified as top tier by CCData include DigiFinex and KuCoin, which have increased their shares by 3.5% and 1.3%, respectively. Notably, exchanges such as Coinbase and Binance US, the US arm of the Binance group, have both relinquished over 1% of their market shares since the start of the year.
Experts suggest that the decline in Binance's market share and the regulatory scrutiny it faces have created opportunities for smaller exchanges, largely due to their relative obscurity and lack of legal challenges. CK Zheng, co-founder and chief investment officer at crypto hedge fund ZX Squared Capital, highlighted that newcomers to the crypto market may be deterred by exchanges facing regulatory lawsuits.