Written by: AiYing
South Korea's position in the global cryptocurrency market cannot be ignored. South Korea has extensive Internet coverage and a highly technically skilled young population, making it a hot spot for cryptocurrencies. In recent years, the Korean market has seen unique phenomena such as "Kimchi Premium" and "Listing Raises", which demonstrate the enthusiasm of Korean investors for cryptocurrencies and the uniqueness of the market.
South Korean Won (KRW) market share in global fiat currency trading volume since January 2020
At present, according to Aiying, the trading volume of cryptocurrency in South Korea has exceeded that of the domestic stock market. For example, on March 8, 2024, the trading volume of the Korea Composite Stock Price Index (KOSPI) was 11.4794 trillion won, while the trading volume of the Korean cryptocurrency market on the same day was close to 12 trillion won.
At the policy level, South Korea introduced the "Virtual Asset User Protection Act", which was passed by the South Korean National Assembly on June 30, 2023 and will take effect on July 19, 2024, which was officially effective last week. Next, Aiying will use this report from Presto Labs to give you a deeper understanding of the development history, current status and future trends of the Korean cryptocurrency market.
1. Unique market phenomena
1. Kimchi Premium
Definition: Kimchi Premium refers to the price premium of Korean cryptocurrency exchanges relative to other global exchanges. Specifically, the price of the same cryptocurrency on Korean exchanges is usually higher than on exchanges in other countries.
The relationship between Bitcoin’s kimchi premium and trading volume
Cause:
Restricted capital flows: South Korea’s strict capital controls make large-scale cross-border capital flows difficult. This prevents South Korean investors from easily engaging in cross-border arbitrage transactions, making the local market’s supply and demand independent of the global market.
Strong market demand: Due to the strong demand for cryptocurrencies among Korean investors, especially when the market is bullish, the demand increases significantly, driving up prices on local exchanges.
Fiat currency conversion restrictions: There are certain restrictions on the conversion of South Korea’s local fiat currency (KRW) to other major currencies (such as USD), making cross-border fund flows and adjustments to price differences more complicated.
Market Impact:
Price Difference: The kimchi premium creates a significant difference between prices on Korean exchanges and global market prices. This price difference was especially pronounced during bull markets, reaching 30-40% at one point.
Arbitrage opportunities: For investors who can operate across borders, the kimchi premium provides arbitrage opportunities, but due to limited capital flows and complex operations, it is difficult to implement in practice.
Market attractiveness: The kimchi premium has attracted global attention, making the Korean market one of the focuses of global investors.
2. Raise the price by listing
Definition: Listing Pump refers to the phenomenon in which the price of a certain cryptocurrency rises rapidly after it is listed on a major Korean exchange such as Upbit or Bithumb.
Price changes of different assets before and after the Upbit exchange listing announcement
Cause:
Market expectations: Korean investors generally believe that cryptocurrencies listed on large local exchanges have higher investment value. Therefore, whenever a new coin is listed, market expectations drive the price up rapidly.
Increased liquidity: After the new currency is listed, the liquidity increases significantly, and more buy orders flood into the market, causing the price to rise.
Speculative behavior: Some investors use the news of new coin listings to engage in short-term speculation, buying quickly and selling for profit after the price rises.
Market Impact:
Short-term price fluctuations: The phenomenon of listing and pulling up causes the price of cryptocurrencies to fluctuate sharply in the short term. Although the price rises rapidly, it is usually difficult to sustain such a rise, and the subsequent price correction is also more severe.
Increased investment risk: This phenomenon increases the speculation in the market, making ordinary investors face greater risk of price fluctuations and require them to operate with caution.
Increased influence of exchanges: The listing-pulling phenomenon highlights the influence of major Korean exchanges in the global cryptocurrency market, making global project parties pay more attention to listing opportunities on these exchanges.
II. Historical Review of Market and Regulatory Policies
1. Early stage (2013-2016)
Before 2013, cryptocurrency did not attract widespread attention in South Korea. However, starting in 2013, South Korea gradually entered the initial development stage of cryptocurrency:
The emergence of the first exchanges:
Korbit: In 2013, the first cryptocurrency exchange in South Korea, Korbit, was established, marking the official start of cryptocurrency trading in South Korea. Korbit provides Bitcoin trading and storage services, providing a platform for Korean investors to enter the cryptocurrency market.
Bithumb: In 2014, another major exchange, Bithumb, was founded and quickly became one of the largest cryptocurrency trading platforms in South Korea. Bithumb offers trading services for a variety of cryptocurrencies, further driving the development of the market.
Increased market acceptance:
With the establishment and operation of exchanges, more and more Koreans are beginning to understand and invest in cryptocurrencies. Although the cryptocurrency market is still relatively niche at this stage, a preliminary investor community has begun to form.
2. 2017 Bull Market
2017 was an important turning point for the cryptocurrency market. The global bull market attracted a large number of investors, and South Korea was no exception:
Investment Frenzy:
The sharp rise in the price of Bitcoin and other cryptocurrencies in 2017 attracted the attention of a large number of Korean investors. South Korean retail investors were particularly enthusiastic and entered the market in large numbers, driving a sharp increase in trading volume.
Bithumb has repeatedly become one of the world’s largest cryptocurrency exchanges by trading volume this year, demonstrating the great vitality of the Korean market.
Peak of the Kimchi Premium:
During the bull run in 2017, the Kimchi premium peaked at 30-40%. This means that the price of the same cryptocurrency on Korean exchanges is 30-40% higher than other exchanges around the world, further reflecting the speculative craze in the market.
ICO Ban:
In September 2017, the Financial Services Commission (FSC) of South Korea announced a ban on all forms of initial coin offerings (ICOs) to protect investors and prevent potential financial fraud and speculation. This ban is still in effect today, indicating the government’s cautious attitude towards the cryptocurrency market.
3. Regulatory measures after 2018
In 2018, the South Korean government stepped up its regulation of the cryptocurrency market and took a series of measures to improve market transparency and protect investors:
Real-name trading system:
On January 30, 2018, South Korea implemented the "Real Name Trading System", requiring all cryptocurrency exchanges to cooperate with banks to provide real-name verification accounts for transactions. This move is intended to increase transparency, prevent money laundering, and ensure the legitimacy of transactions.
This policy caused the price of Bitcoin to collapse at that time
The implementation of the real-name trading system has significantly improved market transparency, but it has also had a certain impact on market liquidity.
Amendment to the Law on Specified Financial Transaction Information:
In March 2020, the South Korean National Assembly passed an amendment to the Specified Financial Transaction Information Act, requiring all virtual asset service providers (VASPs) to register with the Financial Services Commission (FSC) and comply with anti-money laundering (AML) and know your customer (KYC) regulations. This bill will come into effect in March 2021.
After the bill was implemented, only 29 of the 63 exchanges were successfully registered, and only five of them (Upbit, Bithumb, Coinone, Korbit, and Gopax) obtained Information Security Management System (ISMS) certification and real-name account licenses to continue operating the KRW market.
The bill also applies to foreign exchanges, causing companies like Binance to shut down Korean language support and P2P services. Currently, foreign exchanges in South Korea are not allowed to provide KRW support, Korean language services, or conduct direct marketing to the Korean market.
Through these regulatory measures, the South Korean government hopes to prevent illegal activities and protect the rights and interests of investors while promoting market development. These measures have curbed market speculation to a certain extent, but have also had a certain impact on market liquidity and innovation.
4. Implementation of the Virtual Asset User Protection Law and other important regulations
In May 2022, the two main tokens in the Terra ecosystem, LUNA and UST, experienced severe price crashes in a short period of time. LUNA fell from nearly $100 to almost no value, while UST lost its peg to the US dollar and its price fell to near zero.
Then in 2023, two digital asset management companies, Haru Invest/Delio, went bankrupt due to suspected Ponzi scheme structures. This incident intensified the market's attention to regulatory gaps and investor protection issues, highlighting the need for strengthened supervision.
So South Korea drafted the "Virtual Asset User Protection Act", which was passed by the South Korean National Assembly on June 30, 2023 and will take effect on July 19, 2024. The main purpose of the law is to protect the financial security of virtual asset users, regulate virtual asset market transactions, prevent unfair trading practices, and give the Financial Services Commission (FSC) the power to supervise and sanction, which Aiying has written in previous articles:
[Crypto Regulatory Policy] South Korea's Financial Services Commission issued new regulations: Virtual asset operators must strengthen legal compliance reporting
South Korea’s new cryptocurrency trading regulations: The introduction of a continuous monitoring system and its impact
South Korea strengthens virtual currency regulation and postpones crypto asset taxation plan
South Korea's Virtual Assets Law is about to be implemented: Market panic caused altcoin prices to plummet, and South Korea's FSC stated that it would not directly participate in the token inspection and delisting process
South Korea's "Virtual Asset User Protection Act" will be implemented on July 19: NFT Guidelines Detailed Interpretation
Specific requirements include:
Independent management of user deposits: VASPs must manage user deposits separately from their own assets and deposit or entrust these deposits to trusted financial institutions such as banks. This ensures that user funds have priority payment rights in the event of VASPs bankruptcy or other similar situations.
Asset custody requirements: VASPs need to ensure that they hold the virtual assets entrusted by users and store at least 80% of users’ virtual assets in offline (cold wallets) to prevent hacker attacks and system failures.
Insurance and reserves: VASPs need to purchase appropriate insurance or establish reserves for the virtual assets they hold to deal with losses caused by unexpected events such as hacker attacks or system failures.
Regulation of unfair trading: The law prohibits trading using non-public information, manipulating market prices, and fraudulent trading activities. VASPs must also monitor unusual trading activities and immediately report suspicious transactions to financial and investigative agencies.
Record keeping: VASPs must keep records of virtual asset transactions for at least 15 years to facilitate tracking and verification of transaction history
Exchange project delisting guidelines:
DAXA’s role: The Digital Asset Exchange Alliance (DAXA), which is comprised of the five major Korean exchanges (Upbit, Bithumb, Coinone, Korbit, and Gopax), is responsible for developing and implementing new listing and delisting guidelines. These guidelines are designed to standardize exchanges’ processes for listing new coins and delisting old coins, ensuring transparency and market fairness.
Specific requirements: DAXA’s guidelines include nine audit criteria, covering the issuer’s reputation, user protection measures, technical security and compliance. Audits are conducted every quarter to ensure transparency and fairness in listing and delisting.
Travel Rule: Following FATF guidelines, South Korea introduced a “travel rule” to increase transparency in cryptocurrency transactions and combat illegal activities
III. Major Market Participants
Market share distribution of major cryptocurrency exchanges in South Korea in 2024
1. Major exchanges
Upbit：
Background: Upbit, operated by Dunamu Corporation, was founded in 2017 and quickly became one of the largest cryptocurrency exchanges in South Korea.
Market position: Upbit has taken a leading position in the Korean market in terms of both trading volume and number of users. Its trading volume often ranks among the top in the world, second only to Binance. Upbit offers a wide range of cryptocurrency trading pairs, including KRW/BTC/USDT, and most of its trading volume is concentrated in the KRW market.
Features: Upbit is known for its high liquidity, wide range of currency selection and strong technical support. In addition, Upbit also excels in information security and user protection.
Bithumb：
Background: Founded in 2014, Bithumb is one of the earliest cryptocurrency exchanges in South Korea and has been the world's largest exchange by trading volume many times.
Market position: Despite a decline in market share in recent years, Bithumb remains one of the major players in the Korean market. Its trading volume is second only to Upbit and has significant market influence.
Features: Bithumb is known for its diverse trading pairs and strong marketing capabilities. An IPO is planned for 2025, although its governance structure has been unclear.
Coinone：
Background: Founded in 2014, Coinone is the third largest cryptocurrency exchange in South Korea.
Market position: Coinone ranks at the top in terms of market share. Although it is far behind Upbit and Bithumb, it still has a significant influence in the Korean market.
Features: Coinone is known for its innovative financial products and services. It is the first exchange in South Korea to list Ethereum, attracting many cryptocurrency investors.
Raven:
Background: Korbit was founded in 2013 and is the oldest cryptocurrency exchange in South Korea.
Market Position: Despite its small market share, Korbit still maintains a certain reputation in the industry as a pioneer in the market.
Features: Korbit is known for its stable operation and high attention to users. As a pioneer in the Korean cryptocurrency market, Korbit's position in the market cannot be ignored.
Gopax：
Background: Gopax is a relatively new exchange in South Korea, operated by Streami.
Market Position: Despite its small market share, Gopax excels in technological innovation and user experience. Binance recently acquired a majority stake in Gopax to strengthen its presence in the Korean market.
Features: Gopax is known for its user-friendly interface and strong security measures. Although its market share is small, it is competitive in terms of user experience and technological innovation.
2. Blockchain Project
Kaia：
Background: Kaia is a new project formed by the merger of Klaytn and Finschia, the blockchain divisions of two South Korean tech giants, Kakao and Naver. Klaytn was developed by Ground X, a subsidiary of Kakao, while Finschia is Naver’s blockchain platform.
Development: Kaia was established to integrate the resources and technical advantages of the two platforms to build a powerful Layer-1 blockchain. The project is scheduled to be launched by the end of 2024 and aims to promote the popularization and application of blockchain technology in Asia.
Features: Kaia combines Klaytn's technical strength and Finschia's application development capabilities, aiming to become Asia's leading blockchain platform. Its main innovations include native staking proxy and priority fee mechanism.
Delabs：
Background: Delabs is a subsidiary of 4:33 Games, a well-known Korean game company. It was founded by former Nexon head Joon Mo Kwon and is dedicated to developing blockchain games.
Development: Delabs is developing three blockchain games, including the casual racing game Rumble Racing Star, the space survival game Space Frontier, and the Web3 role-playing game Metabolts. In February 2024, Delabs launched its first racing game Rumble Racing Star, which was a significant success.
Features: Delabs is known for its strong game development background and in-depth understanding of blockchain technology. Its goal is to change the gaming industry through blockchain technology and bring a new gaming experience to players.
Aiying's comment: Although the new regulatory measures have improved the transparency and security of the market, they have also brought certain challenges to innovation and the launch of new projects. Startups need to operate in a strict compliance environment. Many small and medium-sized exchanges and projects find it difficult to meet the requirements, resulting in the market being concentrated on a few large compliant platforms, which may limit the development of some innovative projects. Some Korean blockchain projects and talents choose to move to countries with a more relaxed regulatory environment, such as Singapore. This has had a certain impact on the local innovation ecosystem in South Korea. But this is actually the same for other regulatory regions. After all, compliance and decentralization are a philosophical issue of market development trade-offs. It takes a relatively long process for the government and entrepreneurs to be able to run in well and achieve a governance balance rule suitable for local development.
