DeSpread Research Data Analysis of Centralized Exchanges and Investor Behavior in South Korea

A Comprehensive Study on Centralized Exchanges and Investor Behavior in South Korea DeSpread Research Data Analysis

Author: Bulmat, Do Dive; Source: DeSpread Research; Translation: Song Xue, LianGuai

Disclaimer: The author of this report did not use any material non-public information to purchase or sell any related tokens during the research or preparation of this report. The content of each report reflects the opinion of the respective author and is provided for reference only, and should not be construed as advice to buy or sell any tokens or use any protocols. Any content in this report does not constitute investment advice and should not be interpreted as such.

Introduction

In data insights, we provide insights into specific topics through data analysis. In this article, we choose South Korean centralized exchanges as the topic of discussion. According to a survey by the Korea Financial Intelligence Unit (KoFIU), it is estimated that the number of cryptocurrency investors in South Korea will reach approximately 6 million in the first half of 2023, which is an astonishing number accounting for over 10% of the total population of South Korea. However, most of these investors are primarily engaged in investment activities centered around centralized exchanges, making the influence of centralized exchanges significant in the South Korean cryptocurrency market.

• Indian Banks Woo Customers with Rewards to Foster Adoption of Digital Rupee
• Neo Announces NeoGone A Powerful and Exciting EVM-Compatible Sidechain to Safeguard Against MEV Attacks
• Lending virtual currency has disputes. The Nanchang Court says, I don’t care about this matter.

Next, we will examine the characteristics and tendencies of South Korean investors through the data of South Korean centralized exchanges. The analysis is primarily based on data from four major exchanges: Upbit, Bithumb, Coinone, and Korbit. Some analysis is based on data from the third week of October (October 14th to 20th).

Although overall declining, the market share of South Korean exchanges has increased.

Trade Volume: Binance (yellow) vs. South Korean exchanges (blue)

Trade Volume Percentage: Binance (yellow) vs. South Korean exchanges (blue)

• Decreasing trend in trade volume: The trade volume of centralized exchanges (CEX) has been declining since reaching its peak in March of this year. During this period, market volatility has also decreased, with Bitcoin prices remaining relatively stable around $27,000 to $28,000 from the end of March to the end of September, with no significant fluctuations for six consecutive months.

• Relative strength of South Korean exchanges: South Korean exchanges are no exception. After reaching a peak total trading volume of $45 billion in February, the trading volume dramatically dropped to $23 billion in May. However, it has since shown an upward trend, with the trading volume reaching as high as $37 billion in July, surpassing that of the world’s largest cryptocurrency exchange, Binance.

• Status of South Korean exchanges compared to international exchanges: Through a comparative analysis with Binance, the trading volume of South Korea’s four major exchanges is at a level of around 10% compared to Binance this year. In particular, their trading volume is higher than Coinbase during the same period, indicating that South Korean exchanges hold an important position in the international market.

• Increasing market share: Furthermore, the market share of South Korea’s four major exchanges continues to rise. Relative to Binance, the trading volume has grown from 7% in March to 16% in September. This can be understood as an indicator of the increasing influence of domestic exchanges.

The Monopoly of Upbit

Trading Volume: South Korea’s Four Major Exchanges

Market Share: South Korea’s Four Major Exchanges

• Upbit’s Dominance: In February of this year, Upbit reached a record trading volume of $36 billion, capturing around 80% of the South Korean cryptocurrency exchange market, maintaining its leading position. Although its market share briefly dropped to 70% in August, it quickly rebounded to 80% the following month, showing a consistent trend.

• Market Share of Bithumb, Coinone, and Korbit: Bithumb remains the second-largest player in the market, accounting for 15% to 20% of the total trading volume among the four major exchanges. On the other hand, Coinone’s market share ranges from 3% to 5%, while Korbit’s share is less than 1%, indicating relatively limited market share.

• Strong Reaction to Ripple Ruling in South Korea: Although Binance’s trading volume in July did not show significant fluctuations compared to the previous month, South Korean exchanges had an explosive response to Ripple-related news. The trading volume of the four major exchanges increased from $27 billion in June to $37 billion in July, a month-on-month growth of 37%. This was mainly due to the news of Ripple’s partial victory in the lawsuit against the SEC, resulting in an 80% surge in XRP price and a significant increase in trading volume.

Bithumb’s Zero Fee Policy

Bithumb’s Trading Volume: Impact of Zero Fee Policy

Daily Trading Volume Share: South Korea’s Four Major Exchanges

• Effect of Zero Fee Policy: Bithumb, the second-largest exchange in South Korea, implemented a zero fee policy on October 4th. This policy initially had a positive effect, with an increase in Bithumb’s trading volume and market share exceeding 20%.

• Decrease in Market Share: However, the impact of the zero fee policy did not last long, and Bithumb’s market share decreased, returning to pre-policy levels.

• Sustainability of Zero Fee Policy: Although Bithumb’s zero fee policy initially effectively increased its market share, it remains uncertain whether it can sustain the development of the exchange in the long run. This also indicates that South Korean investors’ choice of exchange is not solely based on fees. Additionally, there are concerns about the sustainability of this policy as it eliminates a significant source of revenue for the exchange.

Coinbase and Upbit

Upbit’s trading volume shares divided by assets

Coinbase’s trading volume shares divided by assets

• High-risk, high-reward investment style: Although Bitcoin (BTC) and Ethereum (ETH) trading volumes on Upbit account for a small portion of the total trading volume, Coinbase, a representative cryptocurrency exchange in the United States, has a larger share in the trading volume of these two cryptocurrencies. Most individual investors on Upbit show strong interest in alternative coins with high profit potential and are willing to accept the associated high risks. This is considered one of the reasons why the proportion of alternative coin trading is relatively high in the Korean market.

• Institutional investor-centric trading: Unlike Upbit, Coinbase’s trading volume is driven by institutional investors. According to Coinbase’s second-quarter shareholder letter, institutional investors account for about 85% of Coinbase’s total trading volume. They tend to seek portfolio stability, which is why Bitcoin (BTC) and Ethereum (ETH) trading occupy a relatively high proportion as they have the highest market capitalization in the cryptocurrency market.

Characteristics of the Korean market

Top 10 cryptocurrencies: The market shares of Korea in global trading volume

• Cryptocurrencies favored by Korean investors: The above chart shows the cryptocurrencies that Korean investors are mainly interested in. By analyzing the data of cryptocurrencies that were most actively traded in Korea compared to the global market last week, we found that Loom Network ($LOOM) had the highest trading volume, accounting for 62% and ranking first. Next are eCash ($XEC) (55%) and Flow ($FLOW) (43%). Stacks ($STX) and Bitcoin SV ($BSV) are also on the list, with proportions of 37% and 34% respectively.

• LOOM surges with mysterious movements: In the third week of October, the most actively traded cryptocurrency in Korea compared to the global market was Loom Network ($LOOM). This means that Korean investors are actively trading this asset compared to global investors. Starting from September 15, the token price began to rise without any specific reason, skyrocketing nearly 10 times in just one month, reaching 686 Korean won. However, starting from October 15, it began to plummet and is currently around 140 Korean won at the time of writing this report. Due to such extreme price fluctuations, Loom Network briefly entered the top 100 global market capitalization.

• Impact of exchange deposit and withdrawal policies: Changes in deposit and withdrawal policies of Korean exchanges directly affect prices and trading volumes. Specifically, on October 14, there was a significant increase in the price and trading volume of $FLOW, as it temporarily suspended deposits and withdrawals compared to the previous day. This phenomenon occurs when arbitrage trading with overseas exchanges is not possible due to the suspension of deposits and withdrawals, and is known as the “Gaduri” effect.

• Ongoing attention to cryptocurrencies: While some cryptocurrencies receive short-term attention, such as Loom Network and Flow, others like Stacks and eCash continue to receive attention on Korean exchanges regardless of temporary events. These situations are worth noting because they continue to trade in the Korean market unaffected by global trends.

Upbit Investor In-Depth Analysis

Top 10 cryptocurrencies: Upbit’s share in global trading volume

Bottom-ranked 10 cryptocurrencies: Upbit’s share in global trading volume

• “Kimchi Coins” mainly traded on Upbit: Among the cryptocurrencies traded on Upbit, Steem Dollars ($SBD), Moss Coin ($MOC), and Hippocrat ($HPO) account for 100% of the trading volume and are exclusively traded on Upbit. Additionally, cryptocurrencies like Sentinel Protocol ($UPP), Aha Token ($AHT), and Groestlcoin ($GRS) are primarily traded on Upbit and are referred to as “kimchi coins” because they do not receive much attention in the global market. These tokens are mainly traded by Korean investors and have formed their own market within the Upbit platform.

• Mainstream cryptocurrencies underperform: Cryptocurrencies dominating the global market, such as Bitcoin (BTC), Ethereum (ETH), and Polygon (MATIC), have a significant trading volume worldwide. However, their trading volume within Upbit is surprisingly low. This phenomenon indicates that Upbit has unique characteristics compared to the global market, reflecting regional differences in investor preferences and investment strategies. It is worth noting that Upbit’s total trading volume is relatively lower compared to global giants like Binance, so the low trading volume of these major cryptocurrencies should also be taken into consideration.

• Global trends and the diversity of regional markets: As mentioned above, the Korean market has its uniqueness compared to the global market, which is likely applicable to other regions as well. This suggests that global cryptocurrency projects need to establish and implement region-specific go-to-market (GTM) strategies.

Upbit Deposit and Withdrawal Network Analysis

Tron (red) VS Ethereum (blue): Upbit’s preferred transfer network

• Upbit users prefer Tron network for deposits and withdrawals: The above graph shows the transaction ratio between Ethereum and Tron networks for deposits and withdrawals by Upbit users over the past week. The data indicates that the number of transactions on the Tron network is five times higher than on the Ethereum network.

• Tron network popular for its lower fees: Upbit users tend to actively use the Tron network for depositing and withdrawing compared to Ethereum. This is because the transaction fees on the Ethereum network are relatively high, while the TRON network offers lower fees and faster transaction processing speed. According to Coinmetrics data, the daily number of USDT transactions through the Tron network reaches up to 2 million, while Ethereum only reaches around 100,000 transactions. This indicates that the Tron network has a significant advantage in simple fund transfers on a global scale, which is also evident in the deposit and withdrawal trends of Upbit users and Korean investors.

• Playing the role of a fiat exchange? In addition to the reasons mentioned above, considering that the Ethereum network has the highest TVL and the most on-chain protocols, it can be interpreted that the purpose of Korean investors’ deposits and withdrawals is more for transferring funds between overseas centralized exchanges and Korean exchanges rather than using on-chain products. There can be multiple reasons for this investor preference, but two main reasons can be considered:

• Originating from Korean investors’ characteristics: Upbit users and Korean investors mainly use exchanges for cryptocurrency transactions. They use cryptocurrency deposit and withdrawal services to access products not offered by Korean centralized exchanges, such as futures markets and margin trading provided by overseas exchanges.

• Convenience difference due to on-chain deposit and withdrawal services: Users who wish to deposit and withdraw funds in an on-chain environment may choose to send funds to overseas exchanges and then withdraw them to the on-chain environment because Korean centralized exchanges do not offer corresponding services. Insufficient services may include lack of support for USD stablecoins and withdrawal network diversity.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!