Analysis of the South Korean Cryptocurrency Market: 10% of South Koreans Invest in Cryptocurrency, Upbit Dominates 80% of the Market

Author: DeSpread Research

Compiled by: Nick, Tuo Luo Finance

According to a survey by the Korea Financial Intelligence Unit (KoFIU), the estimated number of cryptocurrency investors in South Korea is 6 million, accounting for over 10% of the total population, which is an astonishing figure. However, most of these investors primarily engage in investment activities centered around centralized exchanges, which significantly enhances the influence of centralized exchanges in the South Korean cryptocurrency market.

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

Despite the overall decline in trading volume, the trading volume share of South Korean exchanges has increased

The trading volume of centralized exchanges (CEX) has shown an overall downward trend since peaking in March this year. During this period, market volatility has also decreased, with Bitcoin prices remaining relatively stable between $27,000 and $28,000 from the end of March to the end of September, without significant fluctuations for half a year.

South Korean exchanges are no exception. Total trading volume peaked at $45 billion in February, then sharply declined to $23 billion in May. However, it has shown an upward trend since then, with trading volume reaching $37 billion in July, a larger increase compared to Binance, the world's largest cryptocurrency exchange.

Through comparative analysis with Binance, the trading volume of South Korea's four major exchanges is around 10% of Binance this year. Particularly, compared to Coinbase during the same period, their trading volume is higher, indicating that South Korean exchanges hold an important position in the international market.

Additionally, the market share of South Korea's four major exchanges has been continuously rising. The trading volume relative to Binance has increased from 7% in March to 16% in September. This is an indicator reflecting the enhanced influence of domestic exchanges.

Upbit's monopolistic position

In February of this year, Upbit recorded a peak trading volume of $36 billion, accounting for about 80% of the South Korean cryptocurrency exchange market, maintaining its dominant position. Although its market share briefly dropped to 70% in August, it quickly rebounded to 80% the following month, showing a continuous growth trend in market share.

Among the market shares of Bithumb, Coinone, and Korbit, Bithumb firmly holds the second position in the market, accounting for 15% to 20% of the total trading volume of the four major exchanges, while Coinone's market share is between 3% and 5%, and Korbit's share is less than 1%, indicating relatively limited market share.

Bithumb's zero-fee policy

South Korea's second-largest exchange, Bithumb, implemented a zero-fee policy on October 4th. This policy initially had a positive impact, with Bithumb's trading volume increasing and market share exceeding 20%.

However, the impact of the zero-fee policy did not last long, and Bithumb's market share returned to pre-policy levels.

Although Bithumb's zero-fee policy initially effectively increased market share, it remains uncertain whether it can be sustained in the long term. This also indicates that South Korean investors' choice of exchange does not solely depend on whether fees are charged. Additionally, the sustainability of this policy raises concerns, as it eliminates a major source of revenue for the exchange.

Comparison between Coinbase and Upbit

Although the trading volume of BTC and ETH on Upbit accounts for only a small portion of the total trading volume, Coinbase has a relatively large trading volume for these two cryptocurrencies. Most individual investors on Upbit show a strong interest in altcoins with high profit potential and tend to accept the associated high risks. This is also considered one of the reasons for the high proportion of altcoin trading in the South Korean market.

In contrast to Upbit, where individual investors dominate, Coinbase's trading volume is driven by institutional investors. According to Coinbase's Q2 shareholder letter, institutional investors account for about 85% of Coinbase's total trading volume. They tend to pursue stability in their portfolios, which is why BTC and ETH trading occupies a relatively high proportion.

Characteristics of the South Korean market

From the above chart, we can see which cryptocurrencies South Korean investors are mainly interested in. By analyzing the most actively traded cryptocurrencies in South Korea compared to the global market last week, we found that LOOM had the highest trading volume, accounting for 62%, ranking first. This was followed by XEC at 55% and FLOW at 43%. STX and BSV also made the rankings with 37% and 34%, respectively.

The impact of deposit and withdrawal policies of exchanges: Changes in the deposit and withdrawal policies of South Korean exchanges can have a direct impact on prices and trading volumes. Specifically, on October 14th, FLOW experienced a significant increase in price and trading volume compared to the previous day while deposits and withdrawals were suspended. This phenomenon occurs when arbitrage trading with overseas exchanges is not possible due to the suspension of deposits and withdrawals.

Additionally, while some cryptocurrencies may temporarily attract attention, such as Loom Network and Flow, cryptocurrencies like Stacks and eCash continue to receive sustained attention on South Korean exchanges regardless of temporary events. Notably, they can continue to trade in the South Korean market, unaffected by global trends.

In-depth analysis of Upbit investors

Among the cryptocurrencies traded on Upbit, Steem Dollars ($SBD), Moss Coin ($MOC), and Hippocrat ($HPO) account for 100% of the global trading volume and are only traded on Upbit. Additionally, cryptocurrencies like Sentinel Protocol ($UPP), Aha Token ($AHT), and Groestlcoin ($GRS) are also primarily traded on Upbit and are referred to as "kimchi coins" due to their lack of attention in the global market. These tokens are mainly traded by South Korean investors and have formed their own market on the Upbit platform.

Dominant cryptocurrencies in the global market, such as BTC, ETH, and MATIC, have significant trading volumes worldwide. However, their trading volumes on Upbit are surprisingly low. This phenomenon indicates that Upbit has unique characteristics compared to the global market, reflecting regional differences in investor preferences and investment strategies. However, it is important to note that Upbit's total trading volume is relatively low compared to global giants like Binance, so the low trading volumes of these major cryptocurrencies should also be taken into account.

As mentioned above, the South 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 develop and implement tailored go-to-market (GTM) strategies based on the characteristics of each region.

Upbit deposit and withdrawal network analysis

The above chart shows the proportion of transactions in which Upbit users used the Ethereum and Tron networks for deposits and withdrawals over the past week. The data indicates that the trading volume on the Tron network is five times that of Ethereum.

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 lower fees and faster transaction processing speeds. According to Coinmetrics data, the daily USDT transaction volume on the Tron network reaches up to 2 million transactions, while the transaction volume on Ethereum is only around 100,000 transactions, indicating a clear advantage for the Tron network in simple transfer transactions globally. This phenomenon is also reflected in the deposit and withdrawal trends of Upbit users and South Korean investors.

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 understood that South Korean investors' deposit and withdrawal purposes are more about transferring funds between overseas centralized exchanges and South Korean exchanges rather than using on-chain products. There are various reasons for this investor preference, with two main reasons worth noting.

Upbit users and South Korean investors primarily use exchanges for cryptocurrency trading, and they utilize cryptocurrency deposit and withdrawal services to access products offered by overseas exchanges that are not available in Korea, such as futures markets and margin trading.

Due to the insufficient services provided by South Korean centralized exchanges, users who wish to deposit and withdraw in an on-chain environment may be more inclined to withdraw in an on-chain environment after remitting to overseas exchanges. The lacking services may include the inability to process stablecoins in USD and a lack of diversity in withdrawal networks.