The vast majority of bitcoin trading volume has traditionally been handled by a relatively small number of exchanges.

However, the latest data indicates that volume has concentrated even further as smaller exchanges are being pushed aside, leaving them with a much lower share of the total volume of bitcoins traded than just a few months ago.

Lost monopoly

Prior to the start of its decline in mid-2013, Mt. Gox had what amounted to an effective monopoly on bitcoin trading volume, often commanding upwards of 80-90% of total US dollar-denominated volume.

However, as Mt. Gox’s problems mounted, the bitcoin exchange sector took on a more oligopolistic appearance.

Exchanges such as Bistamp and BTC-e began to rise, eventually joining Mt. Gox at the top of the volume leaderboard. Each of these exchanges – the ‘Big Three’ – accounted for roughly 30% each of total US$ bitcoin trading volume near the end of 2013 (see Table 1).

Table 1: Top 3 Bitcoin Exchange US$ Volume Market Share, late 2013

Date Bitstamp Mt. Gox BTC-e 25-Nov 31% 34% 25% 26-Nov 29% 29% 32% 27-Nov 28% 32% 34% 28-Nov 29% 44% 24% 29-Nov 28% 31% 35% 30-Nov 25% 39% 30% 1-Dec 30% 37% 28% 2-Dec 33% 35% 27% 3-Dec 25% 39% 30% 4-Dec 30% 30% 34% 5-Dec 28% 38% 28% 6-Dec 30% 34% 32% 7-Dec 25% 29% 41% 8-Dec 24% 30% 39% 9-Dec 34% 24% 32% 10-Dec 30% 29% 31% 11-Dec 35% 24% 31% 12-Dec 32% 30% 28% 13-Dec 27% 30% 33% 14-Dec 25% 36% 25% 15-Dec 26% 32% 29% 16-Dec 32% 24% 38% 17-Dec 31% 27% 35% 18-Dec 34% 24% 38% 19-Dec 31% 27% 36% 20-Dec 34% 24% 34% 21-Dec 27% 22% 41% 22-Dec 28% 23% 36% 23-Dec 30% 29% 33% 24-Dec 30% 29% 33% 25-Dec 33% 22% 34% 26-Dec 31% 26% 33% Period Average 30% 30% 33%

Sources: CoinDesk, BitcoinAverage.

Small but significant

However, even with a small handful of exchanges dominating total trading share, traditionally there was a not-insignificant amount of trading taking place at the other smaller exchanges.

For example, from September though early-October 2013, exchanges such as CampBX and other smaller exchanges combined to handle thousands of bitcoin trades per day, frequently representing more than 10% of the total volume of bitcoins traded on any given day (see Chart 1).

Chart 1: Total US$ Bitcoin Volume Share of Small Exchanges (excludes Mt. Gox, Bitstamp, BTC-e, and Bitfinex), Sept. through early-Oct. 2013

Sources: CoinDesk, BitcoinAverage, BitcoinCharts.

However, 6th October 2013 was the last day on which smaller exchanges collectively processed 10% of the total US$ bitcoin volume.

Since October, the relative market share of the non-Big Three exchanges began plummeting and has remained low, now averaging only 0.9% of total daily US$ bitcoin volume from 10th February to 10th March 2014 (see Chart 2).

Chart 2: US$ Total Volume Market Share of All Bitcoin Exchanges, excluding Mt. Gox, Bitstamp, BTC-e, and Bitfinex, 10th Feb – 10th Mar 2014

Sources: CoinDesk, BitcoinAverage, BitcoinCharts.

In fact, on only two days in the past month did the US$ volume traded outside the Big Three exceed 2% of the total volume traded on all exchanges.

(Note: the spike in the above chart on 6th March was driven by both a relatively low total BTC volume that day, along with a one-day spike in exchange volume at itBit.)

And where 1,000-2,000 BTC collective volume days were the norm for smaller exchanges in Autumn 2013, on only nine days in the last month did we see 1,000+ collective BTC volume days for the smaller exchanges.

Has the big bitcoin shakeout begun?

Given the importance that traders place on liquidity, along with the relatively small total size of bitcoin trading volumes as compared to other securities markets, it’s not at all surprising to see bitcoin trading volume further concentrating in the largest exchanges.

What’s less clear is whether the decline and ultimate bankruptcy of Mt. Gox has also led bitcoin traders to concentrate trading across fewer, larger exchanges.

Regardless, one of the themes expressed in the recently issued State of Bitcoin 2014 report was an expectation that we would begin seeing some rationalization and consolidation this year across certain sectors of the bitcoin economy, just as we are witnessing right now in the exchange sector.

Trading image via Shutterstock