Binance, the cryptocurrency exchange that was sued by US Commodity Futures Trading Commission on Monday, faces another pressing issue: a steep drop in market share.
(Bloomberg) — Binance, the cryptocurrency exchange that was sued by US Commodity Futures Trading Commission on Monday, faces another pressing issue: a steep drop in market share.
Binance’s share of all spot trading shrank to 58.8% as of March 26 from 65% a week earlier, according to data from researcher Kaiko, after it ended a zero-fee campaign for trading in Bitcoin cryptocurrency pairs. That means the exchange has given back nearly half of the market share gains Kaiko estimates it had reaped since starting the campaign in July.
“It’s hard to overstate the significance of Binance’s zero-fee trading pairs,” Riyad Carey, a research analyst at Kaiko, said by email. Kaiko estimates that Binance’s share of all spot trading shot up by about 20 percentage points, to 70-80%, in the months after the campaign started.
Rivals Coinbase Global Inc. and OKX have each gained about a percentage point of market share since Binance ended the zero-fees promotion, according to Kaiko.
The speedy market share loss is another headache for Binance founder Changpeng Zhao, who is a target of increasingly aggressive efforts by US authorities to bring the crypto industry into compliance with laws. The CFTC sued Zhao and Binance for allegedly violating derivatives regulations, saying it had “sham” compliance procedures.
Binance called the lawsuit “unexpected and disappointing.” It had no immediate comment on the market share loss.
The regulator is one of several US bodies that have been investigating Binance’s activities. The Internal Revenue Service, as well as federal prosecutors, have been examining the firm’s compliance with anti-money laundering obligations, Bloomberg News has reported. The Securities and Exchange Commission has been scrutinizing whether the exchange has supported the trading of unregistered securities.
Binance launched its zero-fees campaign just as turmoil was sweeping through crypto markets last summer, unleashed by the sudden implosion of stablecoin TerraUSD. The initiative helped cement its dominance in global crypto trading — a position that was further bolstered when FTX, one of its key rivals, spiraled into bankruptcy in November.
After ending the promotion, Binance now only offers zero-fee trading between Bitcoin and TrueUSD, the fifth-biggest stablecoin.
Cryptocurrencies have staged a partial recovery this year, with Bitcoin advancing more than 60%, but volumes have remained depressed. The rapid drop in market share since Binance stopped the promotion raises questions about how loyal the customers who flocked to it during the campaign will remain.
“It is now a question of how sticky these users will be now that zero-fee trading only applies to the BTC-TUSD pair,” Carey said.
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