As the domestic stock market continues to thrive, trading volumes in cryptocurrency markets have sharply declined, indicating a significant shift of investor funds towards stocks. Following a substantial drop in trading volume in the first quarter, the second quarter is expected to see a prolonged downturn for exchanges.
According to data from The Block, a cryptocurrency data platform, the estimated cumulative trading volume for South Korea's five major cryptocurrency exchanges (Upbit, Bithumb, Coinone, Korbit, and Gopax) in the second quarter of this year reached $149.09 billion. This marks a 48.7% decrease from $290.71 billion in the same quarter last year and a 51.8% drop compared to $309.16 billion in the second quarter of 2024.
The trading volume in the second quarter is even lower than the already diminished figures from the first quarter, which recorded a cumulative trading volume of $222.8 billion, reflecting a 33.1% decline. Given that trading fees constitute the majority of revenue for exchanges, this decrease in trading volume is likely to lead to further declines in their financial performance.
Indeed, Dunamu, the operator of Upbit, reported an operating profit of 88 billion won in the first quarter, down 77.8% from the same period last year. Bithumb's operating profit fell to 2.9 billion won, a staggering 95.8% decrease, and the company recorded a net loss of 86.9 billion won, marking a shift to a deficit. With trading volumes in the second quarter expected to be lower than in the first, the financial struggles of these exchanges are likely to deepen.
A primary factor behind the sharp decline in trading volume is the migration of investor funds to the booming domestic stock market. In May, the average daily trading volume in the domestic stock market, including the Korea Exchange (KRX) and alternative trading systems (NXT), surged to around 106 trillion won. The average monthly trading volume in the first quarter of this year was 66.6 trillion won, more than quadrupling compared to the same period last year.
Concerns have also been raised that if overseas cryptocurrency exchanges introduce high-leverage products based on the domestic stock market, domestic investor demand could shift abroad. Binance, the world's largest cryptocurrency exchange, listed a product on June 26 that allows for up to 150 times leverage on KOSPI investments. Industry experts warn that if domestic investors convert their won to Tether (USDT) and move to overseas exchanges, it could further diminish the commission revenue and liquidity of domestic exchanges.
Domestic exchanges find themselves in a position where they can only watch as overseas platforms absorb trading fees and liquidity from local investors. Unlike in the United States, various cryptocurrency derivatives trading, including futures and leverage, are restricted under South Korea's Capital Markets Act.
Industry insiders believe that relying solely on trading fees from individual investors will lead to significant volatility in trading volumes during periods of stock market prosperity. As a result, there is a growing call for regulatory improvements to attract institutional and foreign investors. Hwang Se-woon, a senior researcher at the Capital Market Research Institute, emphasized, "To enhance liquidity in the domestic digital asset market, we need to move beyond just activating trading policies and focus on expanding the user base. Allowing participation from foreign and institutional investors is essential."
* This article has been translated by AI.
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