Upbit dominates S.Korea’s crypto exchange with 80% market share

South Korea’s cryptocurrency exchange market is being dominated by the biggest platform Upbit that holds about 80% of all transactions made in the country.

According to data submitted by the four major crypto exchanges to the National Assembly on Aug. 29, Upbit had the largest amount of user deposits with 5.3 trillion won ($4.6 billion), about 5.1 times that of Bithumb at 1.03 trillion won ($886 million). The total money deposited in Coinone and Korbit, 247.6 billion won ($213 million) and 68.5 billion ($58.9 million), respectively, is only about one-quarter that of Upbit.

Upbit’s earnings figures also far outperform its competitors. The crypto platform made an operating profit of 544 billion won ($468 million) in the first quarter of this year, more than double that of Bithumb's 250 billion won ($215 million).

New users are mostly flowing into Upbit as well. The data shows that Upbit saw 1.8 million users newly registering on its platform during the second quarter, much higher than Bithumb’s 450,000, Coinone’s 170,000 and Korbit’s 45,000 in the given period.

Moreover, Upbit’s amount of financial transactions is now the second-largest in the world after Binance. According to CoinMarketCap, the total amount of transactions made on UPbit on Aug. 29 as of 2 p.m. was 12.1 trillion won (10.4 billion), more than 10 times that of Bithumb's 1.2 trillion won ($1.03 billion).

The rivalry between Upbit and Bithumb seemed tight until early last year. The market shares of the two companies in terms of transactions were largely at par until the gap started to widen from the second half of last year. From June 2020 to July 2021, Bithumb only raised 820,000 new users versus Upbit’s 4.2 million.

Analysts highlight that Upbit’s dominance is mainly driven by its stable equity structure, with the majority of the shares owned by the co-founders and Kakao Group affiliates. Dunamu Inc., the operator of Upbit, is 25.4% owned by the co-founder and chairman Song Chi-hyung and 13.6% by another co-founder and chief strategy officer Kim Hyung-nyun. Kakao Group affiliates own a total of 21.3% of Dunamu shares.

The analysts also highlight that the fact that the current Upbit CEO, Lee Suk-woo, is an ex-Kakao CEO also strengthens the stable corporate image that Upbit holds over Bithumb.

On the other hand, Bithumb’s equity structure is not only much more complex but also lacks the support of a big tech company such as Kakao or Naver. Bithumb is 34.2% owned by Vidente Co., a Kosdaq-listed broadcast monitor company and 30% by DAA, a Singapore-based entity headed by the former chairman Lee Jung-hoon. Lee was indicted by South Korean prosecutors last month for allegedly swindling $100 million from an investor.

UPBIT MOVES AHEAD ALONE AMID TOUGHER REGULATIONS

South Korea has recently revised its financial laws to regulate the growing crypto exchanges. Under new regulations, crypto exchanges by Sept. 24 must be certified by the state in terms of risk management and partner with a domestic bank to ensure real-name client accounts if they want to continue operations legally.

UPbit was the first and the only one to have filed for registration to the Financial Services Commission (FSC) under the toughened conditions. Some say UPbit will be the only exchange to meet the tougher regulations, while others more optimistic say that all four major exchanges will eventually pass the bar.

Experts highlight that if the other three major crypto exchanges fail to acquire legal standing, UPbit’s monopoly will harm the market order in the long run.

“Having only one or two exchanges for cryptocurrency trading will not seem harmful in the short run. However, in the long run, such a monopoly will hurt investors, with higher transaction fees, for instance,” said a crypto industry expert.  

Write to Jin-woo Park at pjw@hankyung.com
Daniel Cho edited this article.