South Korea digital asset market hits $46B in 2021 as profits surge to $2.8B: FSC

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South Korea’s digital asset market recorded explosive growth in 2021 to hit $46 billion in 2021, a comprehensive study by the country’s top financial regulator has revealed. Digital asset exchanges saw a massive increase in the number of users, the Korean won deposits, and their profitability, the study found.

The recently published study was described as the first comprehensive survey on the Korean domestic virtual asset market conducted by the Korean Financial Intelligence Unit (KoFIU), a division of the Financial Services Commission (FSC). It involved 29 virtual asset service providers (VASPs), with four being Korean won-based exchanges, 20 coin-only exchanges, and five digital asset wallets.

According to the study, at the end of December 2021, the total market capitalization of virtual assets being traded by the 24 exchanges stood at KRW 55.2 trillion ($45.9 billion). The average daily transaction volume at the 24 was KRW 11.3 trillion ($9.3 billion). The four KRW-based exchanges accounted for the lion’s share of the trading volume, taking up 95%, while the 20 coin-only exchanges only accounted for 5%.

In Korea, four exchanges dominate the market. The four—Korbit, Coinone, Bithumb, and Upbit—have consolidated their lead through launching innovative products. However, they have also gained the upper hand by being the only ones able to comply with the strict Korean regulatory regime. Some requirements, such as bank partnerships, have seen smaller operators shut down as banks refused to partner with them.

From Q1 to Q3 in 2021, the total operating profit earned by VASPs stood at $2.77 billion. These four exchanges accounted for 99.3% of this profit, with most coin-only exchanges barely breaking even. Nine of them reported operating losses. 

Other areas that recorded growth included the number of virtual assets being traded, which hit 1,257 and the number of registered users, which hit 15.25 million. Yet again, the Big Four accounted for the biggest percentage at 13.4 million users.

With the growth, the VASPs hired aggressively in 2021, with the headcount hitting 1,717 by the end of the year. The KRW-based exchanges had 239 staff members on average, while the coin-only exchanges averaged 38 employees.

Compliance also took center stage, with the FSC stating, “The total number of professionals devoted to the anti-money laundering (AML) compliance duties stood at 200 with the average number of AML staff for a KRW-based exchange standing at 18 and a coin market at 6.”

Despite the growth, the Korean digital currency market has yet to fully implement sufficient regulations for the industry. Taxation has been one of the biggest sticking points, with politicians using it as a tool to appeal to the younger voters as the country heads towards an election. Regulations for exchanges have also been criticized for favoring the Big Four and pushing out the smaller players.

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