The Story of Bithumb
How Bithumb is trying to retake the number one spot among CEX
TL;DR
Although Upbit is dominant in the domestic cryptocurrency exchange market, the influence of the second-largest exchange, Bithumb, cannot be ignored.
Bithumb had a dominant share in the early stages of the cryptocurrency market due to 1) the market dominance effect from early entry, 2) smooth trading experience, and 3) efforts to expand the market base by providing payment and remittance services using cryptocurrency.
However, Bithumb lost a significant amount of market share to competitors. The main reasons include: 1) a series of negative events such as server outages and hacks, 2) a relatively high fee structure, and 3) an inconvenient deposit and withdrawal process.
Recently, Bithumb has been making various strategic moves to get back on its feet, and it will be interesting to see how its efforts to reclaim the throne will affect the crypto market.
Introduction
Recently, the Korean cryptocurrency market has been gathering global interest due to its growing trading volume. Interest in Upbit, Korea's leading cryptocurrency exchange, is growing especially rapidly. Upbit accounts for more than 80% of the country's cryptocurrency trading volume. However, it is also worth paying attention to Bithumb, the second-largest cryptocurrency exchange in Korea. Before being overshadowed by Upbit's dominance, Bithumb held more than 70% of the Korean market. The exchange is still firmly in second place with a market share of more than 10%, with a radical zero-fee policy. In this report, we will shed some light on the runner-up in the Korean crypto exchange space. This will help provide more context to the current state of the cryptocurrency market in Korea.
Bithumb's Golden Era
Bithumb is the first-generation cryptocurrency exchange in Korea, founded in 2014 under the name Xcoin. Since its launch in 2014, Bithumb has quickly become the most popular cryptocurrency exchange in Korea in terms of Bitcoin trading volume and has since become the No. 1 cryptocurrency exchange in the world with a daily trading volume of KRW 1 trillion (approx. 771 million USD) in 2017. Even in 2017, despite the presence of competitors such as Coinone, Korbit, and Gopax in the market, the exchange was basking in a golden era by taking over 70% of the domestic market share.
Here are the main reasons why this was possible:
Market dominance effects of early market entry
Providing a smooth trading experience for crypto investors
Market expansion by offering crypto-enabled payments and remittance services
First, the market dominance effect of entering the market early is probably the most significant. Bithumb launched its service when the domestic cryptocurrency market was just beginning to take off, and its early entry played a major role in establishing brand recognition and market dominance. In addition, Bithumb was able to grow rapidly by actively leveraging its leadership position, conducting aggressive marketing activities, and expanding the number of cryptocurrency listings.
Secondly, the exchange’s efforts to provide a smooth trading convenience for crypto investors also contributed to market share dominance. Bithumb was one of the first crypto exchanges in Korea to launch the MTS (Mobile Trading System) app, allowing crypto investors to trade easily regardless of time and place. In addition, Bithumb provided RESTful API for users to create their own automated trading systems.
Finally, we believe that Bithumb strengthened its image as a market leader by providing payment and remittance services utilizing cryptocurrency. Bithumb operated 'Bithumb Cash', a cryptocurrency-based payment system, in partnership with Shinsegae Duty-Free, CU, GS25, etc. to enable users to purchase online gift certificates with cryptocurrency or make barcode-based payments offline. It has also entered the unmanned payment kiosk business called 'Touch B', showing its ambition to expand the practical use of cryptocurrency with plans to add cryptocurrency payment functions. As such, Bithumb has played the role of a pioneer in the domestic cryptocurrency market and has endeavored to expand the market base, which may explain why it has been able to operate as the largest cryptocurrency exchange in Korea.
Furthermore, industry insiders say that Bithumb's rapid development has been helped by the arrival of Lee Jung-hoon, the founder of IMI (formerly Itemmania). It is believed that his experience in running a game item exchange, Itemmania, has contributed to Bithumb's growth. In fact, after Lee joined Bithumb, there was a significant influx of talent into the company from IMI, and the exchange's systems were significantly improved. In 2016, the company grew even faster with the addition of former Bithumb CTO Jae Geun Lee, who worked on the development of Itemmania's trading services.
Continued sluggishness and plummeting market share
While Bithumb's early success was remarkable, the company has faced a number of challenges in recent years. Its market share has dropped to less than 10% in 2023, which is a steep fall from the all-time high of 70% in 2017. This is due to the emergence of new competitors who have eroded Bithumb's share by offering better services, lower fees, and aggressive marketing strategies. Other reasons for the decline are as follows:
Negative events including security issues, privacy breaches, and server outages.
High commission rates compared to other competing exchanges
Unfriendly deposit and withdrawal process
First, Bithumb began losing users in 2017 after a series of negative events. most notably a data breach, constant server outages, and cryptocurrency theft following a hack. This raised concerns about Bithumb's credibility and professionalism, which in turn led to heightened investor anxiety.
Second, the fee rate is high compared to other competing exchanges. Upbit made a splash in the Korean cryptocurrency exchange market with the lowest transaction fee rate at 0.05% while Bithumb's rate was higher at 0.25%, which was likely a burden for users. Bithumb recognized the high trading fee rate and introduced a 'fee discount coupon' for mitigation, but this new feature only caused inconvenience to users. The process of selecting and purchasing the appropriate fee discount coupon based on trading patterns and trading status was complicated and cumbersome. This complicated fee structure may have contributed to many users leaving Bithumb for exchanges like Upbit.
Lastly, there is the inconvenient deposit and withdrawal process. Korean cryptocurrency exchanges have been partnering with banks to enable users to deposit and withdraw fiat currency through the 'real name account issuance' system. The policies and systemic limitations of the partnering banks affected exchange account usage, especially the daily deposit and withdrawal limits. For example, Kbank, which is Upbit’s bank partner, initially had a daily deposit and withdrawal limit of up to 500 million won (approx. 386 thousand USD). NH Bank, Bithumb’s bank partner, only had a maximum limit of 1 million won (approx. 773 USD). This may have reduced the efficiency of transactions in the crypto market, where rapid movement of funds is crucial.
Controversies surrounding Bithumb
Bithumb is one of the most controversial cryptocurrency exchanges in South Korea. This adds to investors' anxiety, especially regarding Bithumb's complicated governance and ownership structure. The legal battles surrounding Bithumb are also highly controversial. Former Bithumb chairman Lee Jung-hoon, who is known to be the actual owner of Bithumb, is currently on trial for fraud involving 160 billion won (approx. 1.2 billion USD) in cryptocurrencies. He recently faced a sentencing of eight years in prison in an appellate court. In addition, Kang Jong-hyun, the so-called "Bithumb chairman," is currently in custody on charges of embezzlement and stock price manipulation.
There has been no shortage of news about Bithumb being up for sale, with talks of a sale starting in 2018 and becoming more serious in 2020. By 2022, FTX was seen attempting to acquire Bithumb. However, following FTX's bankruptcy, the sale talks are currently suspended.
The news of Bithumb's subsidiary liquidation is also a major source of anxiety. Since 2022, a total of three subsidiaries, Bithumb Live, Bithumb Systems, and Bithumb Meta, are in the process of or have completed liquidation. This further begs the question of whether the exchange itself is experiencing operational difficulties due to poor performance. Some investors have speculated that the liquidation of these subsidiaries reflects concerns about Bithumb's financial stability.
Bithumb's quest to reclaim the throne
Bithumb has made a number of strategic moves to overcome the ongoing slump. Most notably it is the first crypto exchange to declare zero trading fees. This demonstrates Bithumb's commitment to expanding its market share. In addition, Bithumb is focusing on strengthening its finances by pursuing an initial public offering (IPO) and establishing a transparent governance structure. A major user interface overhaul is also underway, with the aim to significantly improve the accessibility and convenience of crypto trading. These efforts are a reflection of Bithumb's determination to regain its competitive edge in the industry and return to its glory days.
Conclusion
Bithumb is trying its best to relive its golden days in the highly competitive crypto exchange market. This includes eliminating trading fees altogether, launching an IPO, and improving the user interface. These efforts demonstrate Bithumb's commitment to better serve its investors.
However, it remains to be seen if these efforts will be enough to break Upbit's dominance. While there was a temporary increase in market share following the announcement of zero trading fees, it has since declined and is now back to its previous level. Therefore, Bithumb will need to make further improvements to its stability and reliability if it hopes to regain any more market share. In addition, Bithumb is also facing pressure from Coinone, the third-largest exchange in Korea. It will be interesting to see what strategy Bithumb devises in order to overcome this situation.
Participate in our 1-minute survey to help improve our weekly reports. As a thank you, you can download Tiger Research's original "2023 Country Crypto Matrix" spreadsheet, an all-in-one spreadsheet for the global virtual asset market analysis after finishing the survey.
Disclaimer
This report has been prepared based on materials believed to be reliable. However, we do not expressly or impliedly warrant the accuracy, completeness, and suitability of the information. We disclaim any liability for any losses arising from the use of this report or its contents. The conclusions and recommendations in this report are based on information available at the time of preparation and are subject to change without notice. All projects, estimates, forecasts, objectives, opinions, and views expressed in this report are subject to change without notice and may differ from or be contrary to the opinions of others or other organizations.
This document is for informational purposes only and should not be considered legal, business, investment, or tax advice. Any references to securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or an offer to provide investment advisory services. This material is not directed at investors or potential investors.