DeSpread Research: Data explains Korean CEX and investor behavior
Original author: Bulmat, Do Dive
Original compilation: Deep Chao TechFlow
DeSpread authorizes Shenchao TechFlow to compile and release it.
introduce
This article chooses South Korea’s centralized exchange as the subject of exploration. According to a survey by the Korean Financial Intelligence Unit (KoFIU), the number of cryptocurrency investors in South Korea is expected to reach approximately 6 million in the first half of 2023. This is an astonishing number, accounting for more than 10% of the total population of South Korea. The main investment activities of most of these investors revolve around centralized exchanges, which makes the influence of centralized exchanges in the Korean crypto market quite significant.
In the following sections, we will examine data from Korean centralized exchanges and explore the characteristics and trends of Korean investors. These analyzes are mainly based on data from the four major exchanges: Upbit, Bithumb, Coinone and Korbit. Part of the analysis is based on data from the third week of October (14th to 20th).
South Korean exchanges increase share of trading volume despite overall downward trend
Declining trend in trading volume: Since reaching its peak in March this year, the trading volume of centralized exchanges (CEX) has generally shown a downward trend. Market volatility also declined during this period, with Bitcoin’s price remaining within a relatively stable range of $27K to $28K in the six months from the end of March to the end of September, without major fluctuations.
Relative Strength of Korean Exchanges: Korean exchanges have not escaped this shrinking trend. After peaking at $45 billion in February, trading volume dropped sharply to $23 billion in May. But it has since been on an upward trend, reaching a trading volume of $37 billion in July, a greater increase compared with Binance, the worlds largest cryptocurrency exchange.
Comparison of Korean exchanges and international exchanges: Compared with Binance, the trading volume of the four major Korean exchanges this year is approximately 10% of Binance. Compared with Coinbase during the same period, their trading volume is higher, indicating that Korean exchanges have an important position 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, trading volume increased from 7% in March to 16% in September. This can be understood as an increase in the influence of domestic exchanges.
Upbit’s Monopoly
Upbit is far ahead: In February this year, Upbit recorded its highest trading volume, reaching $36 billion, accounting for approximately 80% of South Korea’s cryptocurrency trading market, maintaining its dominance. 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 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%, while Korbit’s share is less than 1%.
South Korea reacts strongly to Ripple ruling: Binance’s trading volumes did not show significant volatility in July compared to the previous month, but the Korean exchange had explosive reactions to Ripple-related news. Trading volumes on the four major Korean exchanges were recorded at $27 billion in June and increased to $37 billion in July, a 37% increase from the previous month. This was mainly due to the news that Ripple had partially won its lawsuit with the SEC, which led to an 80% increase in XRP price and a sharp increase in trading volume on July 13.
Bithumb’s zero-fee policy
Initial reaction to zero-fee policy: Bithumb, South Korea’s second-largest exchange, implemented a 0% fee policy on October 4th. This policy has initially produced positive effects, with Bithumbs trading volume increasing and its market share exceeding 20%.
Market share decline: However, the impact of the free policy did not last long, and Bithumb’s market share declined, returning to the level before the policy was implemented.
Sustainability of the zero-fee policy: Although Bithumb’s no-fee policy initially effectively increased market share, there is still uncertainty over whether the exchange can sustain growth in the long term. This also shows that Korean investors’ choice of exchanges is not entirely based on the presence or lack of fees. Additionally, concerns have been raised about the sustainability of this policy as it eliminates a major source of revenue for the exchange.
Coinbase and Upbit
High-risk, high-return investment style: Although the trading volume of BTC and ETH accounts for a smaller proportion of Upbit’s total trading volume, the trading volume of these two cryptocurrencies on Coinbase, a representative cryptocurrency exchange in the United States, Quantity occupies a large proportion. Most individual investors on Upbit show strong interest in small coins with high profit potential and tend to accept the high risks associated with them. This is considered to be one of the reasons for the high proportion of small currency transactions in the Korean market.
Institutional Investor-Focused Trading: Unlike Upbit, Coinbase’s trading volume is primarily driven by institutional investors. According to Coinbase’s second-quarter shareholder letter, institutional investors account for approximately 85% of Coinbase’s total trading volume. They tend to pursue portfolio stability, which is why BTC and ETH, which have the highest market capitalization among cryptocurrencies, account for a relatively high proportion of transactions.
Characteristics of the Korean market
Coins favored by Korean investors: The chart above shows which currencies Korean investors are mainly concerned about. By analyzing data on the most actively traded cryptocurrencies in South Korea last week compared to the global market, we found that Loom Network ($LOOM) topped the list with the highest trading volume at 62% of the market. This is followed by eCash ($XEC) at 55% and Flow ($FLOW) at 43%. Stacks ($STX) and Bitcoin SV ($BSV) also made the list, with 37% and 34% respectively.
$LOOM Surges, Mysterious Dynamics: In the third week of October, the most actively traded cryptocurrency in South Korea compared to global markets was Loom Network ($LOOM). This means that Korean investors are actively trading this asset compared to global investors. Starting on September 15, the token price began to rise for no reason, and surged nearly 10 times to 686 won in just one month. However, starting on October 15, it began to fall sharply and was around 140 won at the time of writing this report. As a result of this dramatic price swing, Loom Network briefly entered the top 100 global market capitalization companies.
Impact of exchange deposit and withdrawal policies: Changes in deposit and withdrawal policies of Korean exchanges may directly affect prices and trading volumes. Specifically, on October 14, $FLOW saw a significant increase in both price and volume compared to the previous day, when deposits and withdrawals were temporarily suspended. This phenomenon is called"가두리（Gaduri）"The effect occurs when arbitrage trades with overseas exchanges become impossible because deposits and withdrawals are suspended.
Coins that continue to receive attention: While some cryptocurrencies, such as Loom Network and Flow, have received brief attention, cases like Stacks and eCash continue to receive attention on Korean exchanges, unaffected by temporary events. These cases are noteworthy because they continue to be traded in the Korean market regardless of global trends.
In-depth analysis from Upbit investors
“Pickle coins” mainly traded on Upbit: Among the cryptocurrencies traded on Upbit, Steem Dollars ($SBD), Moss Coin ($MOC) and Hippocrat ($HPO) account for 100% of the trading volume and are only on Upbit Exclusive deal. Additionally, cryptocurrencies like Sentinel Protocol ($UPP), Aha Token ($AHT), and Groestlcoin ($GRS) are primarily traded on Upbit and are known as “picklecoins” since they don’t get much traction in the global market. Pay attention. These currencies are mainly traded by Korean investors and have formed their own market on the Upbit platform.
Mainstream currencies underperformed relatively: Cryptocurrencies that dominate global markets, such as Bitcoin (BTC), Ethereum (ETH) and Polygon (MATIC), have significant trading volumes globally. However, within Upbit, their trading volume is surprisingly low. This phenomenon demonstrates that Upbit has unique characteristics compared to global markets and reflects regional differences in investor preferences and investment strategies. However, it should be noted that Upbit’s total trading volume is relatively low compared to giant global exchanges like Binance, so the low trading volumes of these major cryptocurrencies should also be taken into account.
Global Trends vs. Regional Market Diversity: As mentioned above, the Korean market shows its uniqueness compared to the global market, and this may apply to other regions as well. This implies that global cryptocurrency projects need to establish and implement customized go-to-market (GTM) strategies tailored to the specificities of each region.
Upbit Deposit and Withdrawal Network Analysis
Upbit users prefer to use the Tron network: The chart above shows the proportion of Upbit users’ transactions on the Ethereum and Tron networks for deposits and withdrawals over the past week. Judging from the data, the number of transactions on the Tron network is 5 times that of Ethereum.
Low-fee Tron network is popular: Upbit users tend to actively use the Tron network for deposits and withdrawals compared to Ethereum. This is because transaction fees on the Ethereum network are relatively high, while the Tron network offers low fees and fast transaction processing speeds. According to data from Coinmetrics, the number of USDT transactions through the Tron network can reach 2 million per day, while Ethereum only has about 100,000 transactions, which also shows that Tron has a clear advantage in simple fund transfer transactions around the world. 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 explained that the purpose of deposits and withdrawals by Korean investors is more in overseas centralized exchanges transfer funds between exchanges and Korean exchanges instead of using on-chain products. There could be various reasons behind this investor preference, but there are probably two main ones:
Characteristics derived from Korean investors: Upbit users and Korean investors mainly use exchanges for cryptocurrency trading, and they use cryptocurrency deposit and withdrawal services to access products provided by overseas exchanges that are not available on Korean centralized exchanges. Examples include futures markets and margin trading.
Differences in convenience stemming from on-chain deposit and withdrawal services: Users wishing to deposit and withdraw to an on-chain environment may prefer to send funds to an overseas exchange before withdrawing to the chain, which may be due to the Korean center Insufficient services provided by exchanges may include a lack of USD-denominated stablecoins and insufficient diversity in the withdrawal network.
