South Korea Cryptocurrency Industry Research Report: Demand for Wealth Drives Market Development, Female Users Account for the Highest Proportion Globally

Author: MIIX Capital

Introduction

The cryptocurrency market in South Korea may be the most active and mature, with almost everyone in Korea being aware of BTC, and people being more welcoming towards emerging projects. In particular, young people are far more enthusiastic about cryptocurrencies than older generations, and due to South Korea's market economic environment, the FOMO sentiment among young people is stronger.

1. Macroeconomic Indicators and Current Situation

South Korea is a high-income developed country and the most industrialized member of the OECD. South Korean brands like LG Electronics and Samsung are internationally renowned and have earned the country a reputation for high-quality electronics and other manufactured goods. South Korea became a member of the OECD in 1996.

Geographic Location and Population Size

South Korea, also known as the Republic of Korea (ROK), is located in the southern part of the Korean Peninsula, extending about 1,100 kilometers from the Asian continent, bordering North Korea along the Korean Demilitarized Zone. Its western boundary is formed by the Yellow Sea, while the eastern boundary is defined by the Sea of Japan. South Korea (including all its islands) is situated between 33° to 39° North latitude and 124° to 130° East longitude, with a total area of 100,410 square kilometers (38,768.52 square miles). The country claims to be the only legitimate government of the entire peninsula and its adjacent islands.

It is estimated that in 2022, South Korea's population was about 51.7 million, but the country's birth rate became the lowest in the world in 2009, making it the OECD country with the largest decline in the working-age population. It is expected that by 2025, the proportion of the population aged 65 and older will exceed 20%, and by 2050, it will approach 45%.

Additionally, South Korea is known for its population density, estimated at 514.6 people per square kilometer in 2022, which is more than ten times the global average. Excluding microstates and city-states, it is the third most densely populated country in the world. South Korea is also one of the most ethnically homogeneous societies globally, with ethnic Koreans accounting for about 96% of the total population. Due to many immigrants being ethnic Koreans themselves, the statistics do not record ethnicity, making it difficult to estimate accurate numbers.

Economic Structure and Characteristics

South Korea has a mixed economy, with major industries including textiles, steel, automobile manufacturing, shipbuilding, and electronics. Over the past few decades, South Korea's rapid growth has primarily been driven by the export of electronic products and telecommunications equipment, earning the country a reputation as a global leader in production and innovation.

The country holds significant or even dominant positions in many major global industries, such as nuclear power, consumer electronics, and biotechnology, and is committed to becoming a major player in several other fields, including smart grid technology, the Internet of Things (IoT), and robotics.

The South Korean economy heavily relies on international trade. In 2014, South Korea was the world's fifth-largest exporter and the seventh-largest importer. However, against the backdrop of tightening interest rates and weakening external demand affecting South Korean exports, economic growth is expected to moderate but slow down in the near term. In particular, South Korea's main export product, semiconductors, saw a 41% decline in April 2023, and the International Monetary Fund predicts a real GDP growth rate of 1.5% for 2023.

As of 2023, South Korea has 82 chaebols. These business groups are typically run by a single family and have total assets exceeding 50 trillion won (approximately 36.90 billion USD). South Korean chaebols are large industrial groups owned and controlled by individuals or families. Samsung, with a market capitalization exceeding 375 billion USD, is one of the most valuable chaebols, larger than the economy of Qatar. According to Statista.com, as of May 2023, the five largest business groups (also known as chaebols) — Samsung, SK Group, Hyundai Motor Company, LG, and POSCO — accounted for nearly 53% of the total revenue of South Korea's 82 major business groups.

South Korea's GDP Ranking

South Korea's economy is one of the largest and most advanced in the world, ranking 13th in nominal GDP and 14th in purchasing power parity GDP. According to World Bank data, South Korea's GDP in 2022 was 1.67392 trillion USD. South Korea's GDP accounts for 0.72% of the global economy.

Inflation Rate Data

In April 2024, South Korea's annual inflation rate slowed to 2.9%, down from 3.1% the previous month, slightly below the market forecast of 3%. This is the lowest reading since January, as the cost increases for food and non-alcoholic beverages (5.9% vs. 6.7% in March) and restaurants and hotels (3% vs. 3.4%) slowed.

At the same time, the costs of housing, electricity, gas, and water rose at the same rate (1.8%), while the price increase rate was faster (2.9% vs. 2.8%). Month-on-month, inflation stagnated after a slight increase of 0.1% last month, below the market expectation of a 0.2% rise.

South Korea's Legal Currency

The won is the official currency of South Korea. Its currency code is KRW, and the symbol is ₩. The conversion factor for the won is six significant digits. It is a legal tender. According to research firm Kaiko, in the first quarter of 2024, the won became the primary currency for cryptocurrency trading globally, with a cumulative trading volume of 456 billion USD, reflecting the growing speculative interest of South Koreans in high-risk crypto assets.

2. Current Situation and Characteristics of the Cryptocurrency Market

High User Proportion

According to the semi-annual report on cryptocurrency assets released by the Korean Financial Intelligence Unit (KOFIU), as of the second half of 2023, the number of active users registered on cryptocurrency exchanges in South Korea increased by 390,000, with over 6.4 million users (11% of the population) in South Korea.

High Adoption Rate

Driven by a tech-savvy population and a strong interest in financial innovation, cryptocurrency ownership and adoption rates in South Korea are significantly and continuously increasing. Most of these investors primarily engage in investment activities centered around centralized exchanges, which gives centralized exchanges significant influence in the South Korean cryptocurrency market. At the same time, the ownership of cryptocurrencies in South Korea has significantly increased, especially among individuals in their 40s and 50s, as well as young investors in their 20s and 30s.

Large Trading Volume

Additionally, with the arrival of a new cycle and the rise in BTC prices, a cryptocurrency trading frenzy has once again emerged in South Korea, with trading volume on domestic cryptocurrency exchanges reaching a record 11.8 trillion won (approximately 9 billion USD) in March 2024, surpassing the trading volume of the South Korean stock market at that time, which was 11.47 trillion won (approximately 8.7 billion USD).

3. Characteristics of Cryptocurrency Users

According to recent data, cryptocurrency ownership in South Korea has significantly increased. This includes a diverse demographic range, with significant adoption among individuals in their 40s and 50s, as well as young investors in their 20s and 30s. According to a report by Forkast, 31% of South Korean investors are in their 30s, 27% are in their 40s, and a quarter are in their 20s.

Female User Proportion Exceeds Other Regional Markets

According to a 2023 survey by Kucoin:

26% of adult internet users in South Korea aged 18 to 60 have invested in cryptocurrencies in the past six months;

Among the entire cryptocurrency investor population, male participation (56%) is higher than female participation (44%);

Investment by young women (Generation Z) aged 18-30 has significantly increased, accounting for 67% of female cryptocurrency investors;

This trend indicates that women, especially those from Generation Z, may play a more important role in future cryptocurrency investments.

Generation Z More Inclined to Get Rich Overnight

The survey also analyzed different motivations for investing in cryptocurrencies:

Older age groups are motivated by long-term wealth accumulation (47%);

Generation X is more inclined towards long-term investments (55%) and portfolio diversification (38%);

Generation Z tends to seek quick returns, with 38% aiming for "overnight wealth," compared to an overall average of 30%;

Young investors are primarily driven by FOMO sentiment, which is reflected in their higher trading frequency, with 64% of Generation Z investors trading more than once a week, compared to 48% for Generation Y and 42% for Generation X.

Additionally, Generation Z shows a higher interest in the entertainment value of crypto investments (27%), viewing it as an engaging activity beyond just financial returns.

4. Current Status of CEX in South Korea

South Korea is one of the largest and most active cryptocurrency markets in the world. According to CoinGecko, as of May 14, 2024, its five licensed exchanges — Upbit, Bithumb, Coinone, Korbit, and Gopax — processed over 2 billion USD in cryptocurrency transactions.

Upbit

Upbit is the largest exchange in South Korea, dominating the market with over 80% of the trading volume (1.5 billion USD as of May 17, 2024), making it one of the top five cryptocurrency exchanges globally. It also operates in Singapore, Thailand, and Indonesia, focusing on major Southeast Asian crypto markets.

Bithumb

Founded in 2014, Bithumb has developed into one of the largest and most influential cryptocurrency exchanges in South Korea, headquartered in Seoul. According to Coingecko, as of May 14, 2024, it ranks second with a daily trading volume of 411 million USD.

Other CEX

According to Coingecko, as of May 17, 2024, other CEXs have a small market share compared to Upbit and Bithumb, with daily trading volumes of 5 million USD (Korbit), 2 million USD (Gopax), and 29 million USD (Coinone).

5. Web3 Projects in South Korea

ZEAT

Zeat is a gaming social platform designed to connect players, facilitate finding gaming partners, chat with friends, and share content. It supports clans with features such as casual matches, tournaments, and quests. ZEAT aims to integrate Web3 elements like NFTs, SocialFi, and tokens to enhance the gaming experience. The platform's AI recommendation system helps players discover like-minded individuals and build communities.

CXT.Tax

CXT.Tax, also known as CryptoTax, is a platform designed to effectively manage cryptocurrency assets and taxes. It offers features such as transaction data aggregation from various trading platforms, real-time asset monitoring, and the latest news and disclosures. Users can preview and report taxes, estimate future tax liabilities, and receive notifications about important updates regarding their assets. CryptoTax aims to simplify digital asset management and tax compliance for investors.

DSRV

DSRV is a blockchain infrastructure company based in Seoul, South Korea. It offers a range of services, including node operation, staking, and blockchain development tools. DSRV supports over 40 major blockchain networks and operates more than 4,000 nodes. The company also provides products such as the integrated development tool Welldone Studio for multi-chain environments and the comprehensive multi-chain development suite All That Node. DSRV aims to simplify blockchain integration and promote sustainable growth within the industry.

Hyperithm

Hyperithm is a digital asset management company headquartered in Tokyo and Seoul, specializing in quantitative trading and venture capital. They leverage advanced trading strategies and investment expertise to provide institutional-level services in the digital asset space.

KODA

Korea Digital Asset (KODA) was announced on February 22, 2023, by KB Kookmin Bank (the largest retail bank in South Korea), Haechi Labs, and Koda, the largest institutional crypto custody service company funded by the 2020 Korean VC fund Hash. Its custody of crypto assets expanded by nearly 248% in the second half of 2023.

6. Cryptocurrency Venture Capital in South Korea

Lecca Ventures

Lecca Ventures is a venture capital firm based in South Korea, focusing on the Web3 and cryptocurrency sectors. They concentrate on investing in community-driven startups, particularly those led by visionary founders. Lecca Ventures adopts a hands-on approach, providing not only capital but also actively participating in the development and expansion of their portfolio companies.

Their investment strategy emphasizes quality over quantity, aiming to support startups that offer unique and innovative solutions in the Web3 space. Their portfolio includes companies like Airstack, Alloyx, Nibiru, Shield, Anima, and Mission ate Cash, known for their contributions to the crypto industry.

Hashed

Hashed is a well-known blockchain investment firm and incubator based in Seoul, with an office in Silicon Valley. The company focuses on supporting and investing in innovative blockchain projects and Web3 startups. Founded by Simon Kim, Hashed is committed to building a decentralized future by supporting visionary entrepreneurs and providing comprehensive support to its portfolio companies. Hashed plays a significant role in the global blockchain ecosystem, hosting events like Korea Blockchain Week to promote community and collaboration within the industry.

7. Cryptocurrency Market Regulation in South Korea

South Korea has established a comprehensive regulatory framework for cryptocurrencies aimed at ensuring investor protection and market integrity. Key components of this framework include:

Digital Asset Basic Act

This upcoming legislation aims to provide a structured approach to regulating virtual assets. It includes regulatory provisions for virtual asset service providers (VASPs), standards for issuing and listing cryptocurrencies, and information disclosure requirements to prevent unfair trading practices.

Anti-Money Laundering (AML) and Compliance

The Financial Intelligence Unit (FIU) is strengthening its scrutiny of cryptocurrency exchanges. The FIU's strategy includes rigorous inspections and enforcing strict regulatory standards to curb illegal activities such as money laundering and embezzlement. Exchanges must obtain real-name verification services and separate user funds from company funds.

Investor Protection Measures

Following high-profile events like the collapse of Terra-LUNA, regulatory focus has shifted towards enhancing investor protection. This includes stricter controls on token issuance and listing, as well as mandatory disclosures for senior public officials to prevent conflicts of interest.

Global Consistency Standards

South Korea's regulatory efforts align with global standards, such as those set by the Financial Action Task Force (FATF). This ensures that the country's regulations are consistent with international best practices, enhancing the reliability and security of its digital asset market. These measures aim to create a safer and more transparent environment for cryptocurrency trading in South Korea, balancing the need for innovation with the necessity of protecting investors and maintaining market stability.

8. Tax Policies in South Korea

South Korea's tax policies on cryptocurrencies are evolving, reflecting the government's efforts to balance regulation and market growth. Initially, South Korea planned to impose a 20% tax on cryptocurrency gains exceeding 2.5 million won (approximately 2,300 USD) starting in 2022. However, this faced several delays due to industry opposition and legislative changes. As of now, the implementation of this tax has been postponed until January 2025, applicable to cryptocurrency trading income, and will require investors to report their gains for taxation. Additionally, the ruling People Power Party has proposed to delay the establishment of a comprehensive regulatory framework again, potentially pushing the effective date to 2027.

Tax regulations classify cryptocurrency gains as "miscellaneous income," and any non-sale transfer of crypto assets, such as gifts or inheritances, is subject to statutory gift and inheritance tax rates, which can be as high as 50%. The South Korean government is also focused on increasing transparency and combating illegal activities in the crypto market, requiring exchanges to share transaction records and mandating senior public officials to disclose their cryptocurrency holdings starting in 2024.

• In South Korea, capital gains tax varies depending on the type of asset and whether the seller is a resident or non-resident;

• Non-residents are subject to capital gains tax on income from South Korea, with rates and rules generally similar to those for residents;

9. Conclusion

As a member of the G20 and with a strong economy supported by companies like Samsung and Hyundai, South Korea plays an important role in the global economic landscape. At the same time, South Korea is a culturally homogeneous market. Without a genuine Korean team operating within South Korea, it is challenging for teams to enter the Korean market.

On the other hand, South Korea's financial system enjoys a very high level of trust, which has also led to a lack of enthusiasm among Korean users for decentralized self-custody and DeFi. However, driven by FOMO sentiment for investment, value preservation, and the desire to get rich, South Korea's cryptocurrency market continues to perform well, standing out in the global crypto market, especially with the large adoption of licensed cryptocurrency exchanges and users.

As of 2024, South Korea's cryptocurrency market is indeed characterized by a rapidly evolving regulatory environment, increased government oversight, and significant market activity. Coupled with high levels of market participation and strict enforcement measures, South Korea has become a key player in the global cryptocurrency space, and as the industry continues to develop, South Korea is likely to play an even more important role in the global cryptocurrency market.