Author: Climber, Golden Finance
If it weren’t for the tight cash flow, Upibit, known as the largest exchange in South Korea, wouldn’t have been so shamelessly exposed.
Recently, many heavily-held tokens on Upbit have risen sharply, which has attracted investors' attention more than before. Many crypto market analysts believe that there is serious market manipulation. Some even say that Upbit has replaced Binance and become a centralized exchange with a greater "currency listing effect" and a "coltcoin engine". For this reason, some investors have followed the orders of the top currencies on the exchange in terms of daily trading volume.
So what kind of CEX is Upbit? Which tokens have it driven up significantly? And why are there more speculations about its operation in the crypto market recently than in the past?
1. Upbit Effect: The Engine of Altcoins
As early as the first half of this year, there were rumors in the crypto market that Upbit was a market maker, but at that time, the number, frequency and increase of the currencies driven by it were not obvious. However, since August in the second half of the year, especially in September, most of the tokens heavily held by Upbit wallet addresses have ushered in a wave of increases.
In the deep bear market of the crypto market, the money-making effect brought by Upbit is particularly eye-catching. However, as a centralized platform, Upbit hoards and pulls coins for trading, which makes it seem like a referee playing the game himself.
1. Hoarding coins
From market news alone, we can know that Upbit has made heavy bets on several currencies that have been at the top of the recent price increase list, and is particularly ahead of other crypto trading platforms in LOOM, STORJ, and HIFI.
According to statistics from the on-chain data intelligence platform arkham, Upbit holds the largest amount of LOOM, accounting for 48.6%, and the increase in LOOM in the past 30 days has reached as high as 405%.
Media news:
On October 9, Scopescan monitoring showed that Upbit held more than 77 million STORJ (approximately US$40 million), making it the largest coin holder.
On September 21, on-chain analyst Ember monitored that a total of 10.95 million IMX (about 8.1 million US dollars) flowed into Upbit from multiple CEXs including Binance, OKX, Bybit, Cryptocom and Gate.
On September 18, Scopescan monitoring showed that the Upbit HIFI wallet address sent a total of 13.13 million HIFI to 6 different Binance deposit addresses in the past 24 hours. However, the Upbit wallet address still holds 65 million HIFI (about 70% of the circulation).
On August 31, Scopescan monitored that since Upbit launched CYBER on August 22, the Upbit trading platform wallet address has held about 3.6 million CYBER, worth about $32.43 million. Upbit surpassed Binance to become the largest holder of CYBER, accounting for 33% of the token's circulating supply.
2. Pull the plate
If we take the rise of CYBER as the starting point, at least 6 currencies have risen sharply due to Upbit’s participation, among which HIFI has the largest increase. Tokens that have long lacked liquidity on other exchanges have also seen unusual increases due to Upbit’s listing, such as GLMR.
Taking IMX as an example, the details are as follows:
On September 21, 10.95 million IMX (about 8.1 million US dollars) flowed into Upbit from multiple CEXs such as Binance, OKX, Bybit, Cryptocom and Gate. On CEXs such as Binance, IMX rose by 23.4% that day.
On the Upbit trading platform, IMX trading volume skyrocketed from 8 a.m. that day, driving its price to rise rapidly from US$0.56 to a maximum of US$1. In just two and a half hours, the spot trading volume exceeded US$80 million.
3. Crash
Similar to the impact of raising token prices, Upbit's transfer and reduction of tokens also has a devastating impact on the crypto market.
On September 25, Scopescan monitored that after IMX rose sharply on September 21, Upbit transferred 10.802 million IMX to Binance and OKX, worth about US$4.8 million. After the transfer, the price of IMX fell by about 24%.
On September 18, Scopescan monitored that the Upbit HIFI wallet address sent a total of 13.13 million HIFI to 6 different Binance deposit addresses in the past 24 hours. On September 17, before the transfer, the price of HIFI plummeted by 61.1%.
4. Aftermath
Since many currencies related to Upbit have risen sharply in September, under the influence of the "herd effect", the tokens suspected to be bought by Upbit alone have also seen an increase.
On October 8, Lookonchain monitored that a suspected Upbit wallet had accumulated 4.71 million BNT (about US$2.54 million) in the past 11 hours, accounting for 3.3% of the total supply.
On that day, BNT saw a sharp rise, with an increase of 52.18%.
2. Losses, lawsuits, hackers, and increasingly tight cash flow
Currently, Upbit is the largest crypto exchange in South Korea by volume, founded in 2017. The exchange offers trading services for 189 currencies and 300 trading pairs, and users can trade a variety of cryptocurrencies and Bitcoin pairs in Korean won (KRW) on the platform.
Song Chi-Hyung is the CEO of Dunamu and the founder of Upbit. Through its holding company Danamu, Upbit received investment from Internet giant Kakao and partnered with US-based Bittrex in October 2017. In December of that year, the platform's average daily trading volume reached $4.5 billion, with a single-day record of $11 billion.
The company is headquartered in Seoul, South Korea. However, it began expanding into Southeast Asia in late 2018, opening a branch in Singapore on October 30. Subsequent locations also include Indonesia and Thailand, but it does not serve users in the United States.
Even such a top Korean exchange with extraordinary strength and strong background still fell into the dilemma of tight cash flow in the long bear market of cryptocurrencies, which eventually led to its suspicion and criticism by investors. Combining various data, the main reasons are as follows:
1. Loss of performance
Yonhap News Agency reported on August 25 that Upbit operator Dunamu had a net profit of 108 billion won (about 81.6 million U.S. dollars) in the second quarter of this year (April to June), but a net loss of 37.8 billion won compared to the same period last year.
In addition, the company's sales were 186.6 billion won, a year-on-year decrease of 47.9%; operating profit was 86.6 billion won, a year-on-year decrease of 68.9%.
In this regard, Dunamu explained that "sales fell due to weakened investment sentiment due to reduced global liquidity and a prolonged economic recession."
In addition, Upbit’s transaction fee is the lowest among many similar exchanges, at only 0.05%. Therefore, when it began to decline from its peak in July this year, the transaction volume dropped from $5.8 billion to around $400 million at the end of August, a drop of about 93%.
This means that Upbit’s revenue from transaction fees has shrunk by about 93%.
In contrast, the fee levels and rates of other crypto trading platforms are:
Bithumb's transaction fee is 0.15%, which applies to all trading products.
Binance transaction fee: 0.1% for order maker and 0.1% for order taker;
Huobi service fee: 0.2% for order maker and 0.2% for order taker;
The handling fee rate charged by OUYI for placing orders is 0.08%, and the handling fee rate charged for taking orders is 0.1%.
2. Losing the case
On August 28, Dunamu lost a lawsuit against the tax authorities for a refund of 25 billion won in corporate taxes. Dunamu applied to the court for a refund based on the tax reduction and exemption benefits for 2018, but the money was withheld due to the cancellation of Dunamu's venture company certification.
In addition, on August 22, the Cheongju City in South Korea also required seven cryptocurrency trading platforms including Upbit and Bithumb to provide detailed cryptocurrency holdings of 8,520 users who owed more than 1 million won in local taxes, intending to seize and recover cryptocurrencies from tax defaulters.
For these 7 Korean CEXs, they will face a tax refund of no less than 8.52 billion won (about 6.33 million U.S. dollars). As the largest exchange in South Korea, Upbit users will have to refund at least 1 million U.S. dollars.
The above two legal cases will undoubtedly deal a heavy blow to Upbit’s existing financial planning and credibility, and affect the subsequent business expansion of the platform.
3. Hacker Attacks
On October 9, Upbit operator Dunamu released data showing that Upbit had suffered 159,661 hacker attacks in the first half of this year, 2.17 times that of last year. Upbit lost about 58 billion won in 2019 due to hacker attacks. Dunamu said that it has since controlled the proportion of cold wallets to more than 70%.
On September 25, fake APT tokens created by scammers were identified as real APT tokens and flowed into Upbit. The incident affected 100,000 accounts on the platform, forcing the platform to suspend AP withdrawals.
4. Reserves
For a commercial institution engaged in financial transactions, the reserve ratio will naturally not account for the company's capital ratio. However, based on the above situation, the Bank of Korea's demand for crypto companies to reserve reserves has also made Upbit less liquid in terms of cash flow.
In July this year, the Korean Banking Federation issued the "Virtual Asset Real-Name Account Operation Guidelines", requiring cryptocurrency exchanges to reserve 30% of the average daily deposits or 3 billion won (whichever is greater) as reserves in their partner banks. The maximum limit is 20 billion won. If 30% of the average daily deposits exceed 20 billion won, a maximum of 20 billion won can be reserved as reserves.
According to data submitted by the office of Financial Supervisory Service representative Kim Hee-gon, Upbit has worked with K-Bank to prepare a total of 20 billion won in reserves, or about 15 million U.S. dollars, which is undoubtedly a considerable expense.
Because Upbit’s trading behavior is quite obvious, some investors chose to follow suit after realizing this situation, and some even listed ways to “dance with the dealer” to cash out.
First of all, in terms of news, keep an eye on the dynamic news of Upbit related currencies, such as adding positions, listing coins, etc.
The second is to refer to on-chain data platforms such as CoinMarketCap and refresh the upbit exchange trading volume ranking every day.
Conclusion
As a securities trading service provider similar to traditional brokerages, it should maintain the professional ethics of fairness and justice and safeguard the interests of investors. However, due to the lag of local regulatory laws and regulations, coupled with the anti-censorship nature of the crypto market itself, CEX is more likely to undermine market fairness when encountering financial pressure.
However, in any case, if another leading exchange collapses due to insufficient liquidity during the long bear market, the blow to the crypto market will undoubtedly be further exacerbated.
