Kaiko Warns Crypto Liquidity Concentration on Binance Increases Market Risk

Highlights:

• Analysts have noted that crypto liquidity concentration is increasing risk due to reliance on one major exchange.
• The October volatility showed how traders face pressure during rapid liquidations in the market.
• The ongoing regulatory issues involving Binance have influenced market stability and industry concerns.

Kaiko, a leading crypto market data provider, has warned that crypto market liquidity is gathering on a small number of exchanges in its latest report. The firm said this trend is shaping trading conditions across spot and derivatives markets. It identified Binance as the main center of this shift. Spot volume on the exchange now stands above $15 billion. Derivatives open interest also exceeds $27 billion.

Kaiko said this pattern looks stable during calm periods. However, volatility quickly changes the picture. The October sell-off showed how fast pressure can spread. The market wiped out more than $19 billion in futures positions within hours. In addition, liquidations pushed the prices lower across major tokens.

Some traders also reported access issues during the event. Binance later said it would compensate affected users. The exchange confirmed it would review its systems. Still, the incident raised new concerns. Kaiko said concentrated activity increases the speed of market disruptions during stress.

Crypto Liquidity Concentration Creates Fresh Concerns for Market Stability

Kaiko also pointed to rising regulatory pressure around Binance. It said the exchange does not hold a MiCA license in Europe. It also noted that Binance lacks formal regulation in several jurisdictions. This uncertainty adds another risk layer to the market.

Meanwhile, Changpeng Zhao was convicted in the United States of breaking anti-money laundering regulations. Zhao acknowledged that the exchange did not prevent illegal money transfer via the platform. Binance agreed to pay penalties totaling $4.3 billion. In the meantime, Kaiko pointed out that legal issues continue to influence market expectations. It warned that any sudden implementation effort can disrupt liquidity.

The event of the collapse of FTX pushed the price of Bitcoin and major altcoins lower. It also forced several companies into bankruptcy. Kaiko said the industry must consider the risk of another major failure. It said concentration increases the chance of similar chain reactions.

During October, some tokens listed on Binance showed unusual price gaps. Kaiko said this behaviour reflected limited liquidity outside the exchange. It warned that heavy reliance on one venue reduces market resilience. It also said technical or legal shocks could spread quickly across prices and order books.

Industry Voices Respond to Ongoing Questions Over Exchange Dominance

Binance has been making strides in the industry despite the recent warnings by Kaiko. The exchange recently secured approval from Abu Dhabi Global Market. The approval allows the platform to operate under the strict rules in the country. In addition, the exchange received a no-objection certificate from Pakistan on December 12.

Some industry figures have voiced their support for the platform. CryptoQuant CEO Ki Young Ju said the early market lacked clear rules. He added that “pioneers must find their own way” as Binance has survived while many platforms failed.

Kaiko insists that the market needs deeper liquidity across more exchanges. It noted that current patterns are set to increase pressure during shocks and suggested that a broader distribution could help reduce systemic stress.