introduction In Data Insights, we provide insights into specific topics through data analysis. In this article, we choose Korean centralized exchanges as the topic to explore. According to a survey by the Korea Financial Intelligence Service (KoFIU), the number of cryptocurrency investors in South Korea is expected to reach about 6 million in the first half of 2023, which is a staggering number, accounting for more than 10% of the total population of South Korea. However, most of these investors are mainly engaged in investment activities centered on centralized exchanges, making centralized exchanges have a significant influence on the Korean cryptocurrency market. Below we will examine the characteristics and tendencies of Korean investors through data from Korean centralized exchanges. The analysis is mainly 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). Despite overall decline, South Korean exchanges increase their share of trading volume Trading volume: Binance (yellow) VS South Korea’s top four exchanges (blue) Trading volume share: Binance (yellow) VS South Korea’s four major exchanges (blue) Trading volume is on a downward trend: Since its peak in March this year, the trading volume of centralized exchanges (CEX) has shown an overall downward trend. During this period, market volatility has also declined. The price of Bitcoin has been relatively stable at 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 Korean exchanges: Korean exchanges are no exception. After reaching a peak of $45 billion in total trading volume in February, trading volume dropped sharply to $23 billion in May. However, it has since shown an upward trend, with trading volume reaching $37 billion in July, a larger increase than Binance, the world's largest cryptocurrency exchange . The position of Korean exchanges compared with international exchanges: Through comparative analysis with Binance, the trading volume of the four major Korean exchanges this year is at a level of about 10% compared with Binance. In particular, their trading volume is higher compared with Coinbase in the same period, which shows that Korean exchanges have an important position in the international market. Market share is on the rise: In addition, the market share of the four major Korean exchanges continues to rise. The trading volume relative to Binance increased from 7% in March to 16% in September. This can be understood as an indicator of the increasing influence of domestic exchanges.
Upbit’s Monopoly Trading volume: South Korea's four major exchanges Trading volume share: South Korea's four major exchanges Upbit crushes the competition : In February this year, Upbit set a record high transaction volume of US$36 billion, accounting for about 80% of the 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 consistent trend in market share. Market share of Bithumb, Coinone and Korbit : Bithumb maintains a strong position as the second largest player in the market, 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%, and Korbit's share is less than 1%, with relatively limited market share. South Korea's enthusiastic reaction to Ripple's ruling : While Binance's trading volume did not fluctuate significantly in July compared to the previous month, South Korean exchanges reacted explosively to the Ripple-related news. The trading volume of the four largest exchanges in South Korea increased from $27 billion in June to $37 billion in July, a month-on-month increase of 37%. This was mainly due to the news that Ripple had partially won the lawsuit against the SEC, which led to an 80% surge in the price of XRP on July 13, and a significant increase in trading volume.
Bithumb’s zero-fee policy
Bithumb transaction volume: The impact of the zero-fee policy Daily trading volume share: South Korea's four major exchanges Effect of zero transaction fee policy : Bithumb, South Korea’s second largest exchange, implemented a zero transaction fee policy on October 4. The policy initially had a positive effect, with Bithumb’s transaction volume increasing and its market share exceeding 20%. Decline in market share : However, the impact of the fee-free policy did not last long, and Bithumb’s market share declined and returned to the level before the policy. Sustainability of the zero-fee policy : While Bithumb’s zero-fee policy was initially effective in increasing market share, it is uncertain whether it will be sustainable in the long run. This also suggests that Korean investors do not choose exchanges based solely on the presence or absence of fees. In addition, there are concerns about the sustainability of this policy as it eliminates a major source of revenue for exchanges.
Comparison between Coinbase and Upbit Upbit trading volume share by asset Coinbase volume share by asset High-risk, high-return investment style: Although Upbit's Bitcoin (BTC) and Ethereum (ETH) trading volume accounts for a small portion of the total trading volume, Coinbase, a representative US cryptocurrency exchange, accounts for a large proportion of the trading volume of these two cryptocurrencies. Most individual investors on Upbit show a strong interest in altcoins with high profit potential and are willing to accept the associated high risks. This is believed to be one of the reasons for the high proportion of alternative currency trading 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 pursue portfolio stability, which is why Bitcoin (BTC) and Ethereum (ETH) transactions account for a relatively high proportion, as they have the highest market capitalization among cryptocurrencies.
Characteristics of the Korean market
Top 10 Cryptocurrencies: South Korea’s Share of 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 the most actively traded cryptocurrencies in Korea last week compared to the global market, we found that Loom Network (LOOM) had the highest volume, accounting for 62%, ranking first. It was followed by eCash (XEC) (55%) and Flow (FLOW) (43%). Stacks (STX) and Bitcoin SV (BSV) also made the list, accounting for 37% and 34% respectively. LOOM surges, mysterious movement: In the third week of October, the most actively traded cryptocurrency in South Korea compared to the global market was Loom Network ($LOOM). This means that Korean investors are actively trading the 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 to 686 won. However, starting from October 15, it began to plummet and is currently around 140 won at the time of writing this report. Due to such drastic price fluctuations, Loom Network once entered the top 100 global market capitalization. Impact of exchange deposit and withdrawal policies: Changes in deposit and withdrawal policies of Korean exchanges have a direct impact on price and trading volume. Specifically, on October 14, $FLOW saw a sharp increase in price and trading volume compared to the previous day when deposits and withdrawals were suspended. This phenomenon occurs when arbitrage trading with overseas exchanges cannot be carried out due to the suspension of deposits and withdrawals, and is called the "і두리 (Gaduri)" effect. Cryptocurrencies that continue to gain attention: While there are some cryptocurrencies that receive short-term attention, such as Loom Network and Flow, there are cases like Stacks and eCash that continue to gain attention on Korean exchanges regardless of temporary events. These cases are noteworthy because they are continuously traded in the Korean market and are not affected by global trends.
In-depth analysis of Upbit investors Top 10 cryptocurrencies: Upbit’s share of global trading volume Bottom 10 cryptocurrencies: Upbit’s share of global trading volume “Kimchi coins” are mainly traded on Upbit: Among the cryptocurrencies traded on Upbit, Steem Dollars ($SBD), Moss Coin ($MOC), and Hippocrat ($HPO) account for 100% of the global trading volume and are only traded on Upbit . In addition, cryptocurrencies such as Sentinel Protocol ($UPP), Aha Token ($AHT), and Groestlcoin ($GRS) are mainly traded on Upbit and are called kimchi coins because they have not received much attention in the global market. These tokens are mainly traded by Korean investors and form their own market within the Upbit platform. Mainstream cryptocurrencies perform relatively poorly: Cryptocurrencies that dominate the global market, such as Bitcoin (BTC), Ethereum (ETH), and Polygon (MATIC), have large trading volumes worldwide. However, within Upbit, its trading volume is unexpectedly low . This phenomenon shows that Upbit has unique characteristics compared to the global market, reflecting regional differences in investor preferences and investment strategies. However, it is worth noting that Upbit's total trading volume is relatively low compared to global giant exchanges such as Binance, so the low trading volume of these major cryptocurrencies should also be taken into account. Diversity of global trends and regional markets: As mentioned above, the Korean market is unique compared to the global market, which is likely to apply to other regions as well. This suggests that global cryptocurrency projects need to establish and implement a go-to-market (GTM) strategy that is tailored to the characteristics of each region.
Upbit deposit and withdrawal network analysis Tron (red) vs Ethereum (blue): Upbit’s preferred transmission network Upbit users who prefer Tron network for deposits and withdrawals: The above chart shows the transaction ratio between Ethereum and Tron networks used by Upbit users for deposits and withdrawals in the past week. From the data, the number of transactions on the Tron network is 5 times that of transactions on Ethereum. Tron network is popular for its low fees: Compared with Ethereum, Upbit users tend to actively use Tron network for deposits and withdrawals. This is because the 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 number of USDT transactions through the Tron network is as high as 2 million per day, while Ethereum only reaches about 100,000, indicating that the Tron network has a significant advantage in simple fund transfer transactions worldwide. This phenomenon is also evident in the deposit and withdrawal trends of Upbit users and Korean investors. Playing the role of a fiat currency exchange? In addition to the above reasons, considering that the Ethereum network has the highest TVL and the most on-chain protocols, it can be interpreted that the purpose of deposits and withdrawals by Korean investors is more to transfer funds between overseas centralized exchanges and Korean exchanges, rather than using on-chain products. There can be many reasons for this preference of investors, but two main reasons can be considered:
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 provided by Korean centralized exchanges, such as futures markets and margin trading. Convenience differences from 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 funds to the on-chain environment because Korean centralized exchanges do not provide corresponding services. Insufficient services may include not supporting US dollar stablecoins and diversity of withdrawal networks.
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