Data Perspective on the South Korean Cryptocurrency Market Strong Growth of CEX and Obsession of Retail Investors with Altcoins

Insights into the South Korean Cryptocurrency Market The Surging Popularity of CEX and Retail Investors' Obsession with Altcoins

Written by: Bulmat, Do Dive

Translated by: Deep Tide TechFlow

Introduction

This article focuses on exploring centralized exchanges in South Korea. According to a survey by the Korea Financial Intelligence Unit (KoFIU), it is expected that the number of cryptocurrency investors in South Korea will reach around 6 million in the first half of 2023, which is an astonishing number accounting for more than 10% of the country’s total population. Most of these investors are primarily involved in activities related to centralized exchanges, making them significant players in the Korean cryptocurrency market.

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In the following sections, we will examine the data of South Korean centralized exchanges and explore the characteristics and trends of Korean investors. This 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 (14th to 20th).

Increasing Market Share of Korean Exchanges, Despite Overall Decline

• Declining trading volume: After reaching its peak in March this year, the trading volume of centralized exchanges (CEX) has been on a downward trend. During this period, market volatility has also decreased, with Bitcoin’s price remaining relatively stable in the range of $27K to $28K from the end of March to the end of September, without major fluctuations.

• Relative strength of Korean exchanges: Korean exchanges have also not been able to escape this shrinking trend. After reaching a peak trading volume of $45 billion in February, it sharply declined to $23 billion in May. However, it has been on an upward trend since then, reaching a trading volume of $37 billion in July, surpassing the growth of the world’s largest cryptocurrency exchange, Binance.

• Comparison between Korean exchanges and international exchanges: Compared to Binance, the combined trading volume of the four major Korean exchanges is approximately 10% of Binance’s volume this year. Compared to Coinbase during the same period, their trading volume is higher, indicating the important position of Korean exchanges in the international market.

• Market Share Growth Trend: In addition, the market share of the four major Korean exchanges has been steadily increasing. Compared to Binance’s trading volume, it has increased from 7% in March to 16% in September. This can be understood as an increase in the influence of domestic exchanges.

The monopoly of Upbit

• Upbit’s Dominance: In February this year, Upbit recorded its highest trading volume of $36 billion, accounting for approximately 80% of the Korean cryptocurrency trading market, maintaining its leading position. Although its market share briefly dropped to 70% in August, it quickly rebounded to 80% the following month, and its market share has basically stabilized.

• Market share of Bithumb, Coinone, and Korbit: Bithumb, as the second-largest player in the market, has maintained a strong position, accounting for 15% to 20% of the total trading volume of the four major exchanges. On the other hand, Coinone’s market share is between 3% and 5%, while Korbit’s share is less than 1%.

• Strong reaction to the Ripple ruling in Korea: Compared to the previous month, Binance’s trading volume in July did not show significant volatility, but Korean exchanges had an explosive reaction to news related to Ripple. The trading volume of the four major Korean exchanges was recorded at $27 billion in June, increasing to $37 billion in July, an increase of 37% from the previous month. This was mainly due to the news of Ripple partially winning the lawsuit against the SEC, which led to an 80% increase in the price of XRP on July 13th and a sharp increase in trading volume.

Bithumb’s Zero Fee Policy

• Initial response to the zero fee policy: Bithumb, the second-largest exchange in Korea, implemented a 0% fee policy on October 4th. This policy has had an initial positive effect, with an increase in Bithumb’s trading volume and its market share exceeding 20%.

• Decline in market share: However, the impact of the free policy did not last long, and Bithumb’s market share declined back to pre-policy levels.

• Sustainability of zero fee policy: Although Bithumb’s free policy initially effectively increased market share, the long-term sustainability of the exchange’s growth remains uncertain. This also indicates that Korean investors’ choice of exchange is not solely based on the presence or absence of fees. In addition, there are concerns about the sustainability of this policy as it eliminates the exchange’s main source of revenue.

Coinbase and Upbit

• High-risk, high-reward investment style: Although the trading volume of BTC and ETH accounts for a small percentage of total trading volume on Upbit, it occupies a significant proportion on Coinbase, a representative cryptocurrency exchange in the United States. Most individual investors on Upbit show strong interest in small coins with high profit potential and tend to accept associated high risks. This is considered one of the reasons for the high proportion of trading in small coins in the Korean market.

• Institutional investors-centered trading: Unlike Upbit, Coinbase’s trading volume is primarily driven by institutional investors. According to Coinbase’s Q2 shareholder letter, institutional investors account for approximately 85% of Coinbase’s total trading volume. They tend to seek portfolio stability, which is why the trading of BTC and ETH, the top market cap cryptocurrencies, occupies a relatively high proportion.

Characteristics of the Korean market

• Favored coins by Korean investors: The chart above shows which coins Korean investors are most interested in. By analyzing cryptocurrency data that was most actively traded in Korea compared to the global market last week, we found that Loom Network ($LOOM) had the highest market share with 62% of trading volume, ranking first. It was followed by eCash ($XEC) with 55% and Flow ($FLOW) with 43%. Stacks ($STX) and Bitcoin SV ($BSV) also made it to the ranking with 37% and 34%, respectively.

• Surge of $LOOM, a mysterious trend: In the third week of October, Loom Network ($LOOM) was the most actively traded cryptocurrency in Korea compared to the global market. This means that Korean investors are actively trading this asset compared to global investors. Starting from September 15th, the token price inexplicably started to rise and surged nearly 10 times within just one month, reaching 686 Korean won. However, starting from October 15th, it began to sharply decline and was around 140 Korean won at the time of writing this report. Due to such drastic price fluctuations, Loom Network briefly entered the global top 100 by market capitalization.

• Impact of exchange deposit and withdrawal policies: Changes in the deposit and withdrawal policies of Korean exchanges can directly affect prices and trading volume. Specifically, on October 14th, a significant increase in both price and trading volume occurred for $FLOW when deposits and withdrawals were temporarily suspended compared to the previous day. This phenomenon, known as the “Gaduri effect,” happens when arbitrage trading with overseas exchanges becomes impossible due to the suspension of deposits and withdrawals.

• Coins of continued interest: Although some cryptocurrencies like Loom Network and Flow received temporary attention, cases like Stacks and eCash continue to be of interest on Korean exchanges, unaffected by temporary events. These cases are worth noting as they are traded continuously on the Korean market, regardless of global trends.

Deep Analysis of Upbit Investors

• “Kimchi coins” traded primarily 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 mainly traded on Upbit and are known as “Kimchi coins” because they haven’t received much attention in the global market. These coins are primarily traded by Korean investors, forming their own market on Upbit.

• Mainstream coins underperform: Cryptocurrencies that dominate the global market, such as Bitcoin (BTC), Ethereum (ETH), and Polygon (MATIC), have surprisingly low trading volumes on Upbit. This phenomenon suggests that Upbit has unique characteristics compared to the global market and reflects differences in investor preferences and strategies among regions. However, it’s worth noting that Upbit’s overall trading volume is relatively low compared to global giants like Binance, so the low trading volumes of these major cryptocurrencies should be taken into consideration.

• Global trends and regional market diversity: As mentioned above, the Korean market exhibits its uniqueness compared to the global market, which might also apply to other regions. This implies that global cryptocurrency projects need to establish and implement customized go-to-market (GTM) strategies tailored to each region’s characteristics.

Analysis of Upbit Deposits and Withdrawals

• Upbit users prefer to use the Tron network: The chart above shows the transaction ratio of Upbit users for deposits and withdrawals on the Ethereum and Tron networks in the past week. Based on the data, the transaction volume on the Tron network is five times that of Ethereum.

• Low-cost Tron network is popular: Compared to Ethereum, Upbit users tend to actively use the Tron network for deposits and withdrawals. This is because transaction fees on the Ethereum network are relatively high, while the Tron network offers low fees and fast transaction processing speed. According to Coinmetrics data, daily transactions of USDT via the Tron network can reach 2 million, while Ethereum only has around 100,000 transactions, indicating Tron’s clear advantage in simple global fund transfers. This phenomenon 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 aforementioned reasons, considering that the Ethereum network has the highest TVL and the most on-chain protocols, it can be explained that Korean investors use deposits and withdrawals to transfer funds between overseas centralized exchanges and Korean exchanges rather than utilizing on-chain products. There could be various reasons behind this investor preference, but the main ones could be:

1. Characteristics of Korean investors: Upbit users and Korean investors mainly use exchanges for cryptocurrency trading. They use cryptocurrency deposit and withdrawal services to access products provided by overseas exchanges that are not available on Korean centralized exchanges, such as futures markets and margin trading.

2. Differences in the convenience of on-chain deposit and withdrawal services: Users who want to deposit and withdraw to on-chain environments may prefer to withdraw to the blockchain after sending funds to overseas exchanges. This may be because the services provided by Korean centralized exchanges are insufficient, including a lack of stablecoins denominated in USD and insufficient diversity in withdrawal networks.

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