The world’s craziest ‘leeks’ – Can Koreans have a second chance after their dreams are shattered?

Redemption after Shattered Dreams The Wild 'Leeks' of Korea and Their Quest for a Second Chance

Author: Huohuo; Blockchain in Plain Language

According to data from The Block, the accumulated trading volume of CEX in October reached 443.27 billion US dollars, while Korea’s Upbit had a spot trading volume of 51.88 billion US dollars in October, ranking second.

Korea’s Upbit has risen to become the second largest CEX, demonstrating the strong demand for cryptocurrency in the Korean market. In fact, looking at the data in recent years, the Korean market has always been one of the most active forces in the cryptocurrency market. Despite the low global economy in 2022, its user base and trading volume continue to expand.So how did the cryptocurrency market in Korea develop, and how is it currently developing?

 01 “The Korean Dream” in the “Kimchi Premium”

When you think of Korea, what comes to mind? Is it the prosperous entertainment industry, exquisite plastic surgery techniques, or the delicious and spicy kimchi?

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But now, in addition to these well-known Korean labels, there may be another one to add, which is the country of speculative trading.

In Korea, Bitcoin has always been very popular, especially during the peak of the bull market in 2017, when Bitcoin became widely known in Korea. From students to the elderly, from office workers to freelancers, Koreans are all trying to find opportunities for market trading in order to find a way to get rich. At one point, buyers on Korean trading platforms were willing to buy Bitcoin at a 50% premium.

Image source: Internet

When the local price of Bitcoin in Korea was 40% higher than that of US exchanges, Coinmarketcap even removed the Korean price from the cryptocurrency market. This phenomenon later became known as the “Kimchi Premium.”

In 2018, the Korean government began cracking down on speculative activities, requiring the use of real-name bank accounts for cryptocurrency transactions, and then completely banned premium purchases. The “Kimchi Premium” disappeared.

Although the Kimchi Premium may have disappeared, the cryptocurrency frenzy continues.

In 2021, the total cryptocurrency trading volume in Korea reached nearly 20 billion US dollars, ranking fourth globally after the United States, Japan, and the United Kingdom.

In 2022, Korea ranks third in terms of Bitcoin trading volume, behind the United States and Japan.

In the first half of 2023, the growth of the Korean digital asset market was also significant. According to a research report released by KOFIU on October 31, 2023, the cryptocurrency market value increased by about 46% compared to the first half of the year, reaching a total market value of 28.4 trillion Korean won (approximately 226 billion US dollars).

So why are Koreans so enthusiastic about trading cryptocurrencies?

On one hand, it is related to their historical background. The fast-paced lifestyle in Korea has made Koreans more receptive to new technologies. Factors such as local support for the Web3 field, a strong economy, and a focus on technology and innovation have all contributed:

The Korean War from 1950 to 1953 made Korea one of the poorest countries in the world, but by 2023, it is one of the richest.

Led by family-owned conglomerates known as chaebols, a focus on exports, and the development of capitalism, Korea achieved rapid economic growth in just a few decades, known as the “Miracle on the Han River.” This rapid development has also led to a fast-paced lifestyle, where every second counts. Food must be delivered quickly, trains arrive on time, and buildings are constructed within weeks. Whatever you do, it must be done quickly and efficiently, including getting rich. Therefore, Koreans value a culture of “fast fast fast” to get rich and have a speculative mindset, hoping to get rich quickly through speculation.

Before 2012, the Korean market mainly relied on innovation and surplus labor value for economic growth. However, after 2012, economic growth slowed down from double-digit growth in the 2000s to about 3%. Getting rich became difficult, and the upward mobility for ordinary people became narrower. Strict real estate policies and high stock market thresholds have left gambling as the only option for many Koreans.

When cryptocurrencies emerged, Koreans saw it as a new form of gambling and a new opportunity to get rich.

On the other hand, Korea is a country that welcomes cryptocurrencies with open arms. It once implemented relatively lenient policies in the cryptocurrency market and can be considered one of the most cryptocurrency-friendly countries at present.

However, the bankruptcy of the LUNA project in 2022 caused significant losses to Korean investors. Not only did they not make much money, but many people’s “Korean dream” was shattered due to debt. The collapse of the LUNA incident also drew great attention from the Korean government, prompting them to tighten regulations on cryptocurrencies.

In the first half of 2023, the Korean market recorded approximately 622 cryptocurrency trades, including market leaders such as Bitcoin, Ethereum, Ripple, and Dogecoin. During this period, a total of 169 new cryptocurrencies were listed, of which 115 faced trading suspensions due to project risks and investor protection.

02 Koreans who expect to get rich overnight

Despite the enormous risks involved in cryptocurrency, it does not stop Koreans from being enthusiastic about speculative wealth.

During the pandemic, many young Koreans quit their jobs at large companies just to trade cryptocurrencies, hoping to change their lives.

According to statistics from a crypto platform research report, about 26% of Korean adults will participate in the cryptocurrency field in the first half of 2023. Among them, the participation of women and the younger generation continues to increase. 25% of cryptocurrency investors made their first investment in the past six months, and 38% of young cryptocurrency investors hope to get rich overnight through digital assets.

So, according to this narrative logic, Koreans should be the most active in the DeFi field. However, despite the still existing trend of cryptocurrency trading, DeFi development hasn’t shown any progress.

This is still related to the national situation in Korea.

First of all, the financial regulatory environment in Korea is relatively unstable. Although financial regulatory agencies have taken measures to regulate the cryptocurrency market, including DeFi, these policies have not been legislated, and there is uncertainty. This uncertainty will hinder some DeFi projects and investors.

In addition, the Korean government emphasizes Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, which may have a certain impact on the anonymity and decentralization of DeFi platforms. These requirements increase the difficulty of promoting and developing DeFi projects in Korea.

Furthermore, Korea has a powerful traditional financial system, including banks and securities companies. This makes Koreans more inclined to use traditional financial tools rather than DeFi. Cryptocurrency and DeFi are still relatively novel and may need more time to integrate into Korean financial culture.

Lastly, education and awareness are also a challenge. DeFi has a high barrier for ordinary investors, and the returns cannot provide sufficient gambling excitement. Therefore, unlike the Western concept of Bitcoin as “digital gold,” Koreans value the speculative nature of cryptocurrency. This is similar to how the stock market operates in Korea, but cryptocurrency opens up new possibilities.

According to the Digital 2022 Global Overview Report, in 2022, the number of cryptocurrency investors in Korea accounted for more than 13% of the population, with over 6 million people participating. These investors primarily engage in activities related to CEX, which makes CEX influential in the Korean crypto market.

Global distribution map of countries with cryptocurrency ownership

So what are some well-known platforms and projects in South Korea?

03 Mainstream platforms for “Kimchi Coin”

During the cryptocurrency boom in 2017, South Korea became a popular trading hub for Bitcoin and other virtual currencies. At certain times, the South Korean market even contributed the majority of the global market share. However, in 2018, a series of security vulnerabilities and hacking incidents occurred, affecting multiple Korean platforms such as Bithumb, Coinrail, and Youbit. Youbit, in particular, lost 17% of its assets during the second hacking attack and was eventually forced to file for bankruptcy.

These events also resulted in significant losses for related investors, but nonetheless, Upbit has risen to become the world’s second-largest platform, indicating that South Korea’s cryptocurrency trading volume is still quite substantial. Currently, among the mainstream platforms in the South Korean crypto market, aside from Upbit, there are Bithumb, Coinone, and Korbit, but Upbit leads by a wide margin, capturing nearly 80% of the South Korean cryptocurrency trading market.

Bithumb, as the second-largest participant in the market, maintains a strong position, accounting for 15% to 20% of the total trading volume across the four major exchanges. Coinone’s market share ranges between 3% to 5%, while Korbit’s share is less than 1%.

Related analysis shows that Korean traders have a high-risk preference, and compared to the global market, Bitcoin and Ethereum account for only a small portion of the trading volume. Instead, altcoins like Loom Network, eCash, and Flow dominate most of the trading.

Among Upbit’s user base, most individual investors also prefer altcoins with high profit potential, even though they come with higher risks. This is the primary reason why altcoin trading is so popular in the South Korean cryptocurrency market.

Popular tokens in the Korean market include Steem Dollars, MossCoin, Hippocrat, Aha Token, etc. However, these types of crypto assets primarily trade on Upbit and are known as “Kimchi Coins.” These tokens are mainly traded by Korean investors and have formed their own market on the Upbit platform, as they have not received much attention on the global market.

Therefore, on Upbit, the performance of mainstream tokens is relatively poor, such as Bitcoin (BTC), Ethereum (ETH), and Polygon (MATIC), which have significant trading volume worldwide. However, within Upbit, their trading volume is relatively low, with only 2% of the volume coming from ETH and only 9% coming from BTC.

Looking at the global market perspective, Upbit has consistently ranked second this year.

This phenomenon indicates that Upbit has unique characteristics compared to the global market and reflects differences in investor preferences and investment strategies between regions. It is also worth noting that Upbit obtained approval from the regulatory agency in Singapore last month, paving the way for future developments in Singapore.

04 Conclusion

Many young people hope to get rich quick through “speculating on B”, to escape economic pressures and achieve social mobility. However, like any emerging industry, there have been many problems due to the involvement of huge economic interests and the lack of synchronized regulatory norms.

Although various forms of token issuance have been banned in South Korea since 2017, the government has also made regulations against related illegal activities. However, it is not legislation at the congressional level, but regulations issued by government agencies or departments, and regulatory legislation has not yet emerged.

Since 2022, perhaps due to the impact of numerous fraud cases, especially the collapse of Terra and the collapse of FTX, South Korea has begun to take more intensive measures in cryptocurrency regulation. Last year, South Korea started drafting the “Digital Asset Basic Act”, hoping to strengthen regulation of its own cryptocurrency market and plans to launch a CEX system to crack down on illegal platforms, further optimizing regulatory support for sustainable development.

In addition, with the election of the “crypto-friendly president” President Yoon Suk-yeol in May 2022, who promised to relax cryptocurrency regulation, the market is moving towards significant legalization.

Overall, as the fourth largest economy in Asia, South Korea is one of the most active countries in the cryptocurrency market and has become an indispensable part of the cryptocurrency market. With the process of legalizing cryptocurrency activities, will Koreans who hope to get rich quick through “speculating on B” and escape economic pressures and achieve social mobility be able to fulfill their wishes?

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