Cryptoverse: Hungry exchanges fight for slice of American pie

© Reuters. Representations of cryptocurrency Bitcoin are placed on a PC motherboard in this illustration taken June 16, 2023. REUTERS/Dado Ruvic/Illustration

By Hannah Lang

(Reuters) - May the best exchange win?

Crypto platforms are vying for dominance in the United States, the world's biggest market, following a regulatory crackdown that's shaken the sector.

Coinbase (NASDAQ:COIN) and Binance.US, two of the largest crypto exchanges by market share among those operating in America, have lost ground this year. The former has fallen to about 51% as of June 18 from a high of 62% in January, while the latter has sunk to around 1.5% from 22% in March, according to data from Kaiko.

Both Binance and Coinbase have been sued by the U.S. Securities and Exchange Commission (SEC) for alleged securities laws violations, though deny wrongdoing. Their regulatory woes and others' have conspired with the collapse of Sam Bankman-Fried's FTX last year to conjure crypto chaos.

Rivals scent blood.

Kraken, Bitstamp and LMAX Digital - an institutional crypto exchange - have seen their market shares increase since the start of this year by as much as 5.66%, according to the Kaiko data, which represents the global market share of exchanges that operate in the United States.

Kraken has leapt to about 29%, leaving Binance.US in its wake.

"Dominance in the U.S. market is really important," said Ravi Doshi, co-head of trading at Genesis Trading. "The majority of the trading volume happens during U.S. trading hours because the most amount of capital is here and the most amount of interest from institutions is coming from the U.S."

Guy Hirsch, global managing director at Kraken, said the company had "dedicated significant time and resources to enhance the quality of its platform".

Bobby Zagotta, CEO of Bitstamp USA, said its recent growth was driven by a "flight to quality" in the marketplace. Bitstamp's global market share among exchanges operating in the U.S. has risen to about 9%.

Coinbase and LMAX declined to comment on the data, while Binance.US - the American affiliate of the world's largest crypto exchange - didn't respond to a request for comment.

'TONS AND TONS' OF TOKENS

The swings in market share are happening at a precarious time for the digital asset industry, with the SEC arguing that most crypto coins are unregistered securities.

It may not be that simple for hungry challengers to grab market share, according to market players.

In years gone by, crypto exchanges could swiftly gobble up business by offering access to a swathe of coins.

"Differentiating based on the breadth of your offerings has provided a lot of these exchanges with popular adoption," said Wade Guenther, a partner at investment firm Wilshire Phoenix.

Both Kraken and Coinbase, for instance, list more than 200 tokens, including some that the SEC in its lawsuits has labeled as unregistered securities, like solana and polygon.

Now, though, the increased regulatory scrutiny of those offerings has made it more challenging for exchanges to follow the old playbook.

"As an exchange operator, you're increasing your risk, because you're offering these tokens that could be deemed as securities," said Doshi at Genesis Trading.

Still, the cost-benefit analysis for exchanges could change if crypto token prices were to rebound and there was suddenly increased interest from investors, said Doshi.

"I can totally see this happening again, where tons and tons of more tokens are added as we enter a new bull market."