[Coin Exchange in Crisis] ① Big 2 Exchanges Upbit and Bithumb See Sales Plunge by Over 60%

Luna·Terra Crisis, FTX Bankruptcy, Interest Rate Hikes and Other Adverse Factors
Bitcoin Price Stagnates... Outlook for Q1 This Year Also Not Bright

The crypto winter has dealt a direct blow to cryptocurrency exchanges. In particular, the performance deterioration of small and medium-sized exchanges with relatively low trading volumes and user numbers was notable. Compared to the times when virtual asset prices, including Bitcoin, soared, there is an assessment that the growth momentum of exchanges has weakened.

According to the Financial Supervisory Service's electronic disclosure system on the 27th, Dunamu, which operates Upbit, the domestic market's top exchange, recorded sales of 1.2493 trillion KRW last year, a sharp drop of 66.28% compared to the previous year (3.7045 trillion KRW). Operating profit fell even more dramatically, recording 810.1 billion KRW last year, shrinking 75.24% from 3.2714 trillion KRW the previous year.

Bithumb Korea, the second-largest exchange in the domestic market, also recorded a significant decline in performance. In 2021, it surpassed 1 trillion KRW in sales with 1.0099 trillion KRW, but last year it dropped 68.30% to 320.1 billion KRW. Operating profit during the same period also decreased by 79.09%, from 782.1 billion KRW to 163.5 billion KRW.

The performance deterioration of these 'Big 2' exchanges, which account for over 90% of domestic coin trading volume, is largely due to a decrease in income from coin trading fees, which directly affects sales. In Dunamu's case, more than 97% of its sales come from operating the trading platform. However, last year, this revenue dropped 67.04% to 1.2145 trillion KRW from 3.685 trillion KRW the previous year. Bithumb Korea recorded 100% of its sales from virtual asset exchange fees, and as trading fees declined, its performance also plummeted.

Coin Prices Plunge Amid Various Adverse Factors... Performance Also Plummets

The deterioration in the performance of the Big 2 exchanges was caused by a series of adverse events shaking the coin market, including the Luna-Terra incident, the global exchange FTX bankruptcy, and interest rate hikes in various countries.

Notably, Bitcoin, which accounts for more than 45% of the total virtual asset market capitalization, plunged from $46,312 (about 61.83 million KRW) at the beginning of last year to $16,641 (about 22.21 million KRW) a year later. With a drop of nearly $30,000, trading volume also sharply decreased. According to an analysis of data from CoinMarketCap, a global virtual asset market information site, the average daily Bitcoin trading volume in January last year was $29.8578 billion (about 39.7907 trillion KRW), but it has since decreased to $17.47491 billion (about 23.329 trillion KRW).

According to data from the Financial Intelligence Unit (FIU) under the Financial Services Commission, the average daily trading volume in the domestic coin market also decreased from 5.3 trillion KRW in the first half of last year to about 3 trillion KRW in the second half. During the same period, the won-denominated deposits, representing potential investment demand, also decreased by 38%, from 5.9 trillion KRW to 2.3 trillion KRW. The number of active users capable of trading also dropped from 6.9 million to 6.27 million.

Furthermore, with virtual asset prices remaining sluggish, the performance outlook for the first quarter of this year is not very optimistic. Unlike the first quarter of last year when Bitcoin prices maintained between $35,000 and $47,000, this year’s first quarter struggled to hold $30,000, hovering around $28,000. An industry insider said, "Compared to the first quarter of last year, the first quarter of this year is likely to be even gloomier," adding, "We expect signals that interest rates will not rise further to come in the second half, so the situation will not improve until then."

Small and Medium Exchanges Hit Harder by Coin Market Impact

The situation is even bleaker for small and medium-sized exchanges with lower market shares than the two major exchanges. Coinone’s 2021 sales and operating profit were 173.5 billion KRW and 119.1 billion KRW, respectively. Last year, sales dropped to 35 billion KRW, and it turned to an operating loss of 21.1 billion KRW. Exchanges with even lower market shares than Coinone, such as Korbit and GOPAX, recorded large operating losses. Korbit, which posted 22.6 billion KRW in sales and a 2.7 billion KRW operating loss in 2021, recorded sales of 4.3 billion KRW and an operating loss of 35.8 billion KRW last year. Streami, which operates GOPAX, saw sales fall from 31.5 billion KRW to 1.6 billion KRW, and operating profit turned into a loss of 76.5 billion KRW from a profit of 13.6 billion KRW.

These five major exchanges, which have secured real-name verified deposit and withdrawal accounts for anti-money laundering purposes from banks, can operate won-denominated markets, so their situation is relatively better. Exchanges that operate only coin markets have significantly lower average daily trading volumes and actual user numbers compared to won-market exchanges.

The average daily trading volume of won-market exchanges was 5.22 trillion KRW in the first half of last year and 2.94 trillion KRW in the second half. Coin-market exchanges recorded 30 billion KRW and 20 billion KRW, respectively. The daily trading volume of coin markets compared to won markets was only about 0.57% and 0.68%. Operating losses also increased from 30 billion KRW to 50 billion KRW. The actual number of users of coin markets was 87,227 and 93,941, respectively, accounting for only 1.2% to 1.5% compared to won markets.

In the domestic coin market, won-market usage is overwhelmingly dominant, so the performance decline of coin-market-only exchanges is natural. Another industry insider explained, "Since most trading volume occurs in the Big 2, when overall trading volume decreases, trading at small and medium exchanges drops even more sharply," adding, "Coin-market-only exchanges, which lack basic trading volume, will suffer greater performance damage." He further explained, "While overseas cases of trading virtual assets using stablecoins are common, domestically, exchanges cannot issue stablecoins, so trading using won is predominant." Stablecoins are designed to be pegged to fiat currencies and are used as a hedge to avoid volatility or as a means to purchase other coins.

Professor Hwang Seok-jin of Dongguk University’s Graduate School of International Information Security said, "In the second half of this year, some exchanges may face serious management difficulties," adding, "Banks hesitate to provide real-name accounts due to money laundering risks, but a reasonable market environment should be created where coin-market exchanges can operate won markets and play rationally in the market."