The South Korean digital currency market presents a unique and dynamic landscape, characterized by strong local currency dominance and distinct user preferences. A comprehensive report by the Financial Intelligence Unit (FIU) of South Korea provides detailed insights into the market's structure, trading behaviors, and asset distribution. This analysis covers key metrics from the first half of 2023, offering a clear view of how the market operates and what drives its participants.
Market Overview and Trading Volume
The daily average trading volume across 26 virtual asset exchanges in South Korea was approximately $2.17 billion in the first half of 2023. This figure represents a slight decrease of 1.3% compared to the previous half-year. The market is overwhelmingly dominated by trading pairs involving the South Korean Won (KRW), with non-KRW markets contributing a negligible portion of the total volume. In fact, five exchanges reported daily trading volumes of less than $747 in their non-KRW markets.
A month-by-month breakdown reveals a consistent decline in trading activity starting from February 2023. This trend highlights the market's sensitivity to global crypto trends and local regulatory developments. Despite the drop in volume, the market remains highly active within the KRW-based ecosystem.
Exchange Profitability and Operational Metrics
Despite the slight dip in trading volume, the profitability of exchanges saw a significant boost. The total operating profit for the 26 exchanges reached $170 million, marking an 82% increase from the $93 million recorded in the second half of 2022. This surge in profitability is largely attributed to the KRW market, which is the primary revenue driver.
The average transaction fee rate across these platforms is 0.15%, a minor decrease of 0.01% from the previous period. Notably, 10 out of the 21 exchanges offering non-KRW markets reported zero transaction fees from those operations, and 18 were operating at a complete capital loss in that segment.
User Demographics and Asset Holdings
The user base within the South Korean digital currency ecosystem is substantial. The 26 exchanges reported a combined total of approximately 9.5 million registered users, though this figure includes duplicates. After accounting for dormant accounts, the number of active trading users stands at 6.06 million.
A demographic breakdown shows that users in their 30s form the largest age group, accounting for 30% of the total. They are followed by users in their 40s (29%) and 20s (19%). In terms of gender distribution, male users comprise 68% of the trading population, with female users making up the remaining 32%.
Asset distribution among users is highly skewed towards smaller holdings. A significant 73% of users hold digital assets worth less than $747. On the other end of the spectrum, only 0.7% of users (approximately 44,000 individuals) hold assets valued over $74,600. This distribution indicates that the majority of participants are retail investors with relatively small portfolios.
Listed Assets and Market Capitalization
The diversity of digital assets available on South Korean exchanges is notable. Collectively, the 26 platforms list 622 different virtual currencies, excluding duplicates. The number of supported assets varies widely per exchange, ranging from as few as 3 to as many as 236. The KRW markets support an average of 163 different tokens per exchange, while non-KRW markets average 28.
A striking 59% of these listed assets (366 tokens) are exclusively available on a single exchange within South Korea. The first half of 2023 saw significant churn in listings, with 169 new tokens added (a 128% increase from the previous period) and 115 tokens delisted (a 47% increase). Delistings were primarily driven by concerns related to project risk, investor protection, market volatility, and technical issues.
The total market capitalization of virtual assets within the South Korean ecosystem is estimated at $21.2 billion, reflecting a 46% increase since the end of 2022. The top ten assets by market cap show a strong alignment with global trends, with six also appearing in the global top ten: BTC, XRP, ETH, DOGE, ADA, and SOL.
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Regulatory Compliance and Asset Transfers
South Korea has implemented stringent regulations for virtual asset transfers. The Travel Rule requires exchanges to collect and share sender and receiver information for any transfer exceeding $746 between domestic exchanges. In the first half of 2023, transfers between exchanges totaled $22.2 billion, with 22% of this value subject to the Travel Rule.
For international transfers, users can only send assets to pre-registered (whitelisted) overseas exchange accounts or personal wallets. Transfers exceeding $746 to these pre-approved addresses totaled $16.5 billion, much of which is believed to be for arbitrage trading opportunities.
Wallet and Custody Services
The wallet and custody sector, represented by nine companies, holds a total custodial value of $2.31 billion, a 29% increase from the end of 2022. The bulk of this value ($2.24 billion) is held for corporate clients, with an average holding of $18 million per company. Individual users hold an average of $268 in custody services.
Despite the growth in assets under custody, the sector's profitability declined sharply. Operating profit for these nine firms was $2.61 million, a 71% decrease from the previous half-year. The sector employs 272 individuals, with 28 dedicated to anti-money laundering (AML) compliance.
Frequently Asked Questions
What is the dominant trading pair in South Korea?
The South Korean Won (KRW) is the dominant trading pair, accounting for the vast majority of trading volume. Non-KRW markets are insignificant in comparison.
Which digital assets are most popular with South Korean users?
The top assets by market cap are largely aligned with global trends, including Bitcoin, XRP, and Ethereum. XRP holds a particularly strong position, second only to Bitcoin in popularity.
How are large transfers of digital assets regulated?
The Travel Rule mandates that for any transfer over $746 between domestic exchanges, sender and receiver information must be shared. International transfers are only permitted to pre-registered wallet addresses.
What percentage of users are large investors?
Only 0.7% of users hold digital assets valued over $74,600. The vast majority (73%) hold less than $747 worth.
Why did exchange profits increase while trading volume decreased?
The increase in profitability is largely due to the dominance of the high-fee KRW market and improved operational efficiency, offsetting the slight volume decline.
Are many digital assets delisted from exchanges?
Yes, there is significant churn. In H1 2023, 115 tokens were delisted, primarily due to project, investor, market, or technical risks.