Why South Korea Dominates 10% to 20% of Global Retail Crypto Trading
TL;DR
South Korea, representing only 0.6% of the global population, astonishingly accounts for a 10% to 20% share of the global crypto trading volume, with Upbit's volume entirely from Korean nationals.
Factors like 1/strong investor protection policies, 2/the millennial shift towards crypto due to soaring real estate prices, and 3/an inherent risk-taking tendency boosts crypto trading volume.
The nation's strict anti-gambling regulations have inadvertently pushed the younger generation's gambling appetite towards the ever-volatile crypto market.
South Korea is emerging as a power buyer in the cryptocurrency market. While reviewing the performance of Upbit, South Korea's leading cryptocurrency exchange, I stumbled upon some remarkable insights.
Historically, South Korea's influence in global financial and economic indicators has rarely breached the double digits. The nation, which comprises only 0.6% of the world's population, ranks within the top 10 for global GDP (1.93%), and has a 1.63% share in global stock markets. Generally, South Korea's market share across most sectors fluctuates between 0.6% to 2%.
However, the crypto sphere tells a different story. According to cryptocurrency data provider, CCData, Upbit experienced a whopping 42.3% surge in trading volume last July, amounting to $29.8 billion. This surge propelled Upbit to the second rank globally among crypto exchanges. Notably, The Wall Street Journal reported that in May, a staggering 13% (or $58.3 billion) of Binance's trade volume originated from South Korean users. Astoundingly, this suggests that while Upbit accounts for the world's second-largest trading volume, 13% of Binance's trading volume is from South Koreans.
More intriguing is the fact that 100% of Upbit's trading volume comes from Korean nationals. Due to South Korea's regulations, Upbit services are only available to those with Korean citizenship and Korean Won bank accounts. Institutional investors can't even open an account on Upbit. Furthermore, derivatives trading like margin trading, staking, and short-selling are not allowed because of these regulations.
Given these numbers, it's astonishing that Upbit, which caters to only 0.6% of the global population, captures anywhere between 10% to 20% (or even more) of the global crypto trading volume. This illustrates the high interest and active participation of Koreans in the crypto market.
But what's fueling this exceptional retail trade volume in Korea?
First, the country's strong investor protection policies instill trust in its exchanges. After the enactment of the Special Payments Act, South Korea has implemented strict management and control over crypto-related businesses. While fraudulent activities still persist at the token project level, scam incidents at the exchange level are rare. Asset segregation practices, combined with the DAXA alliance overseeing token listing and delisting procedures, have cultivated trust among investors.
Secondly, millennials, especially those in their 20s and 30s, are familiar with token and coin investments. Real estate, traditionally South Korea's investment darling, has become increasingly out of reach for many, with a 3-bedroom apartment in Seoul's Gangnam district costing over $2.5 million. Hence, stocks and crypto have emerged as the primary investment avenues for younger generations. Their trust in exchanges, comparable to their trust in established securities firms, plays a significant role.
Lastly, the inherently volatile nature of the crypto market resonates with the risk appetite of Korean investors. While gambling is largely restricted in South Korea, with only one state-designated casino operating legally, the younger generation perceives cryptocurrency investments akin to gambling, with the added allure of high returns. Many of my peers find the traditional stock market's 10-20% annual returns "boring" compared to the dynamic crypto market. Essentially, the government's stringent anti-gambling regulations have indirectly funneled the gambling appetite of many towards the cryptocurrency sector.