Korean investors abandon savings, stocks for cryptocurrencies

Money is rapidly shifting to cryptocurrency markets in South Korea as lower interest rates and lackluster stock prices reduce the investment appeal of bank term deposits and stocks.

According to The Korea Economic Daily’s analysis of Korea’s Financial Supervisory Service’s deposit data of Korean crypto exchanges on Monday, total fund deposits with the country’s top five cryptocurrency exchanges – Upbit, Bithumb, Coinone, Korbit and Gopax – stood at 10.66 trillion won ($7.3 billion) as of the end of January.

That is more than double from 5.22 trillion won in the same month last year.

The crypto fund deposits are in accounts linked to the crypto exchanges. The higher the deposits, the higher the crypto investment demand.

Korea’s capital flight from interest-bearing bank deposit and stock brokerage accounts to crypto trading markets has accelerated since pro-crypto Donald Trump’s victory in the US presidential election last November, which has rekindled the crypto craze worldwide.

Korean investors unhappy with low interest gains from their bank deposits and savings have promptly withdrawn funds from these accounts.

The country’s top five commercial banks – Kookmin, Shinhan, Woori, Hana and NH Nonghyup – saw a combined fall of 5.75 trillion won in their term deposit and savings balance in January from the previous month.

Late last year, more than 20 trillion won worth of funds were withdrawn from bank time-fixed deposit accounts.

Over two months, the top five lenders lost about 26 trillion won in their term deposit and savings balances.

FATTENING SAFES AT CRYPTO EXCHANGES

Over the same period, the country’s cryptocurrency exchanges attracted massive funds.

Deposits with them topped 10 trillion won for the second straight month in January.

By exchange, Korea’s largest digital asset exchange Upbit boasted the largest deposits of 7.76 trillion won as of the end of January, followed by Bithumb with 2.52 trillion won, Coinone with 238.3 billion won, Korbit with 131.1 billion won and Gopax with 12.1 billion won.

The daily trading volume of the top five cryptocurrency bourses also soared to 10 trillion won on Monday, beating that of the country’s major stock market Kospi and junior market Kosdaq, which recorded 9.9 trillion won and 7.3 trillion won, respectively, on average this year.

Korean investors have flocked to cryptocurrency exchanges given the lack of attractive investment options, analysts said.

Since the country’s central bank started cutting the policy rate last year, local banks hastily slashed interest on their time-fixed deposits and savings below 3% for the first time in three years.

NOWHERE TO GO

After about 20 trillion won worth of funds in the country’s top five commercial banks’ deposit and savings accounts were withdrawn last December, another 6 trillion won vanished in January.

Amid growing uncertainty in the stock market with the Trump administration’s threats to slap universal tariffs on most imports to the US, stock investors have also gone into a wait-and-see mode after years of bullish stock markets.

Their interest has also shifted to the crypto market.

According to the Korea Financial Investment Association, stock investment deposits lost 3.6 trillion won last week to 54.67 trillion won.

“Capital has flown in the cryptocurrency market away from low interest-paying bank term deposits/savings and lethargic stocks,” said Kim Min-seung, head of Korbit’s research center.

“Cryptocurrencies are also poised to become a mainstream asset under the Trump government,” marking a big change from a few years back, he added.

If Korea allows corporate investment in virtual assets starting as early as next month, the country could see another round of a massive capital inflow into the cryptocurrency market, warned market analysts.   

Korean lawmakers are urging the government to tighten rules for close monitoring of any fraudulent crypto trading and come up with stronger virtual asset investor protection laws before a new wave of money inflow into cryptocurrencies begins.

Write to Jae-Won Park and Mi-Hyun Jo at wonderful@hankyung.com

Sookyung Seo edited this article.