Trading in digital assets grows 20 fold to $2 trillion in just one year – but oversight lagging, report contends

Trading in digital assets – about $2 trillion in 2021, up from $100 billion just three years earlier – is highly concentrated and growing quickly, according to a report issued Tuesday by Treasury’s financial research arm.

The agency’s Office of Financial Research (OFR) also noted that the number of companies engaged in trading of digital assets has grown – but that there is limited oversight of those swapping the assets.

According to the report, the “high degree of market concentration” is accompanied by major intermediaries accounting for most of transaction volumes and holding the largest amounts of customer digital assets.

However, the report noted that “significant data gaps” remain regarding oversight of the digital asset intermediaries. The report also asserts that, as a result, there is little oversight of the financial stability risks that may emerge from the trading.

The report found that there were two billion transactions of digital assets totaling $1.4 billion in 2021. The year before, the report states, $193 billion via 586 million transactions were made. But that number was dwarfed by activity in the last quarter of 2021, when virtual currency transactions totaled $367 billion. During that period, the mean company reporting was $4.7 billion in transactions.

“Virtual currency held on behalf of customers also increased rapidly in 2021, jumping to $240 billion at year-end from $60 billion one year prior,” the report states.

Regarding concentration of trading, OFR’s review notes that at year-end 2021 more than 96% of all activities, or $356 billion of the $367 billion in transactions in the fourth quarter, were conducted by the top quartile of firms.

“These firms also held the majority of digital assets, with over $11 billion reported in Q4 2021, or roughly 65% of total digital assets across all companies in our sample,” the report states. “Of the $240 billion in virtual currency held on behalf of customers, $204 billion was held by the five largest firms, again illustrating the high degree of concentration.”

OFR Data Analysis Shows High Growth, High Concentration in Digital Asset Market