In the first half of 2023, approximately 26% of South Korean adults were involved in the cryptocurrency field, accounting for nearly 80% of South Korea's cryptocurrency trading market.
According to data from The Block, in October, the cumulative transaction volume of crypto CEX reached US$443.27 billion, while South Korea's Upbit's spot transaction volume in October was US$51.88 billion, ranking second.
South Korea's Upbit has jumped to the second largest CEX, showing the strong demand for the current Korean crypto market. In fact, looking at the data in recent years, the Korean market has always been one of the most active forces in the crypto market. Despite the impact of the global economic downturn in 2022, its user scale and transaction volume continue to expand.
So how did the Korean crypto market develop and how is it developing at present?
The “Korean Dream” in the “Kimchi Premium”
When you mention South Korea, what comes to mind? Is it the prosperous entertainment industry, the exquisite plastic surgery technology, or the sour and spicy kimchi?
However, in addition to these well-known Korean labels, perhaps we need to add another one, that is, the country of hype.
Bitcoin has always been popular among Koreans, especially during the peak of the bull market in 2017, when Bitcoin became a household name. Whether students, office workers, seniors or freelancers, Koreans actively participate in market transactions and look for opportunities to get rich. So much so that buyers on Korean trading platforms were once willing to buy Bitcoin at a 50% premium.
Coinmarketcap even removed South Korean prices from cryptocurrency trading when local Bitcoin prices were 40% higher than on U.S. exchanges, a phenomenon that became known as the “Kimchi premium.”
However, in 2018, the South Korean government began to crack down on speculation, requiring cryptocurrency transactions to use real-name bank accounts and completely banning the once very popular ICOs. As a result, the phenomenon of kimchi premium disappeared.
Although the kimchi premium no longer exists, the crypto hype continues in South Korea. In 2021 alone, the total value of crypto transactions in South Korea reached nearly $20 billion, ranking fourth in the world, behind the United States, Japan and the United Kingdom.
In 2022, South Korea still ranks third in terms of Bitcoin trading volume, behind the United States and Japan. In the first half of 2023, the Korean digital asset market continued to maintain significant growth. According to a research report released by KOFIU on October 31, 2023, the encryption market value increased by approximately 46% compared with the first half of the year, with the total market value reaching 28.4 trillion won. Equivalent to US$226 billion.
So why are Koreans so keen on speculation?
On the one hand, it is related to the national conditions. South Korea's fast-paced life makes South Korea more receptive to new technologies. South Korea's local support for the Web3 field, strong economy, and focus on technology and innovation are all contributing factors:
Since the Korean War in 1953, South Korea has rapidly risen from one of the poorest countries in the world to one of the richest countries, which is known as the "Miracle on the Han River". Led by family-owned business groups (chaebols) and emphasizing exports and capitalist development, South Korea has achieved great economic success in just a few decades. This rapid development has also led to the fast-paced lifestyle of Koreans, who focus on efficiency and speed, whether in food delivery, transportation or construction.
Before 2012, the Korean economy relied mainly on innovation and labor surplus value, but over time, economic growth slowed from double digits to about 3%. This made it more difficult to get rich, and the upward path for ordinary people became narrower. Strict real estate policies and high stock market thresholds made speculation a way for many Koreans to seek quick wealth.
When crypto assets emerged, South Koreans viewed them as new gambling products and saw them as an opportunity to make fortunes.
On the other hand, South Korea has always been a country that has been open to cryptocurrencies and has implemented relatively relaxed policies. At present, South Korea is considered one of the most cryptocurrency-friendly countries.
However, the bankruptcy of the LUNA project in 2022 caused huge losses to investors, and many people's "Korean dream" came to nothing. This bankruptcy incident attracted great attention from the government, prompting the government to begin strengthening its supervision of cryptocurrencies.
As of the first half of 2023, Korean market statistics show that there are about 622 cryptocurrencies traded, including leading market tokens such as Bitcoin, Ethereum, Ripple and Dogecoin. During this period, a total of 169 new cryptocurrencies were listed, of which 115 faced trading suspension due to project risks, investor protection and other reasons.
Koreans looking forward to getting rich overnight
Despite the huge risks of encryption, it still cannot stop Koreans' enthusiasm for getting rich through speculation.
During the epidemic, many young Koreans even quit their jobs in large companies in order to make a living, just wanting to take a chance and hoping to change the trajectory of their lives.
Statistics from a crypto platform research report showed that in the first half of 2023, about 26% of Korean adults participated in the cryptocurrency field, among which women and younger generations continued to participate. Among them, 25% of crypto investors made their first crypto investment in the past six months, and 38% of young cryptocurrency investors hoped to get rich overnight through crypto assets.
According to this narrative logic, the most active people in the DeFi field should be Koreans. However, after the kimchi premium, although the "craze" of speculating in B still exists, the development of DeFi has not improved at all.
This is still related to South Korea's national conditions.
First, South Korea’s financial regulatory environment is relatively unstable. Although financial regulators have taken some measures in the past to regulate the cryptocurrency market, including DeFi, these policies have not yet been incorporated into law, and there is uncertainty, which may become an obstacle for some DeFi projects and investors.
Secondly, the South Korean government emphasizes KYC (Know Your Customer) and AML (Anti-Money Laundering) requirements, which may have a certain impact on the anonymity and decentralized characteristics of DeFi platforms. These requirements increase the difficulty of promoting and developing DeFi projects in South Korea.
South Korea has a strong traditional financial system, including banks and securities companies, which makes Koreans more inclined to use traditional financial tools rather than DeFi. Cryptocurrency and DeFi are still relatively new and may take more time to be integrated into Korean financial culture.
Finally, education and cognition are also a challenge. DeFi has a high threshold for ordinary investors, and the returns may not be attractive enough. Unlike the Western concept of Bitcoin as "digital gold", Koreans value the speculative nature of cryptocurrencies, which is similar to the regular operation of the Korean stock market, except that the crypto market provides them with new possibilities.
According to surveys, in 2022, the number of cryptocurrency investors in South Korea will account for more than 13% of the South Korean population, about more than 6 million people. These investors mainly participate in CEX activities, making CEX’s influence in the Korean crypto market quite significant.
So what are the well-known platforms and projects in South Korea?
Mainstream platform that mainly operates "Kimchi Coin"
During the cryptocurrency boom in 2017, South Korea emerged as a hotspot for trading Bitcoin and other virtual currencies. However, security breaches and hacks in 2018 had a significant impact on South Korean trading platforms such as Bithumb, Coinrail, and Youbit. Youbit lost 17% of its assets in the second hack and eventually filed for bankruptcy.
These events caused the relevant investors to suffer heavy losses, but despite this, Upbit has successfully risen to become the world's second largest platform, showing that South Korea's crypto trading volume is still considerable. At present, South Korea's mainstream cryptocurrency trading platforms include Upbit, Bithumb, Coinone and Korbit, among which Upbit is far ahead, occupying nearly 80% of the market share.
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, while Coinone and Korbit have market shares between 3% and 5% and less than 1%, respectively.
Analysis shows that Korean traders have a high risk appetite, and the trading volume of Bitcoin and Ethereum is relatively small compared to the global market. Instead, altcoins such as Loom Network, eCash and Flow dominate the trading. Among Upbit users, most individual investors prefer high-profit altcoins, which is the main reason for the popularity of altcoins in the Korean market.
Popular crypto assets in the Korean market include Steem Dollars, MossCoin, Hippocrat, and Aha Token, known as “Kimchi Coins.” These tokens are mainly traded by Korean investors and have formed their own market on the Upbit platform because they have not attracted much attention in the global market.
Therefore, mainstream tokens such as Bitcoin (BTC), Ethereum (ETH) and Polygon (MATIC) performed relatively poorly on Upbit. Their trading volumes were relatively low on Upbit, with only 2% of trading volume coming from ETH and 9% from BTC.
From a global market perspective, Upbit has been ranked second since the beginning of this year.
This phenomenon shows that Upbit has unique characteristics compared to the global market and reflects the differences in investor preferences and investment strategies between regions. It is also worth noting that Upbit has been approved by Singapore regulators last month, paving the way for subsequent development in Singapore.
summary
Many young people hope to get rich by "speculating on B", get rid of economic pressure and achieve class transition. However, like any emerging industry, because it involves huge economic interests, relevant regulatory standards have not yet been followed up, resulting in many problems.
Although South Korea has banned all forms of token issuance since 2017 and the government has also regulated related illegal activities, regulatory legislation has not yet appeared at the parliamentary level, but rather regulations are formulated by government agencies or departments.
Since 2022, possibly affected by numerous explosive incidents, especially the collapse of Terra and FTX, South Korea has begun to take more intensive crypto regulatory measures. South Korea launched the drafting of the (Basic Law on Digital Assets) last year to strengthen supervision of the country's cryptocurrency market, and plans to launch a CEX system to ban illegal platforms in order to further optimize regulations to support sustainable development.
Additionally, with new President Yoon Seok-yeol, elected in May 2022, promising to relax crypto regulations, the market is moving towards more significant legalization.
In general, as the fourth largest economy in Asia, South Korea is one of the countries with the most active cryptocurrency market and has become an indispensable part of the global cryptocurrency market.
With the legalization of crypto activities, will those Koreans who hope to get rich by "speculating on B", get rid of economic pressure and achieve class transition get what they want?
