Interest Rate Hikes and Luna Crisis... Domestic Cryptocurrency Market Cap Plummets 58%

[Asia Economy Reporter Lee Jung-yoon] The market capitalization of domestic cryptocurrencies has reportedly plummeted by nearly 60%. As the market entered a downturn, the operating profits of virtual asset operators also significantly decreased.

According to the "2022 First Half Virtual Asset Operator Survey Results" released on the 26th by the Financial Intelligence Unit (FIU) under the Financial Services Commission, the market capitalization of domestic virtual assets was recorded at 23 trillion KRW as of the first half of this year. This represents a 58% decrease compared to 55.2 trillion KRW at the end of last year. During the same period, the average daily trading volume fell by 53% to 5.3 trillion KRW.

It is explained that the cryptocurrency market showed weakness as the real economy contracted due to the Ukraine crisis, interest rate hikes, and inflation. Additionally, the Luna incident in May and the consecutive bankruptcies of cryptocurrency platforms accelerated the downturn by eroding trust.

This survey was conducted on 35 virtual asset operators (26 trading operators and 9 other operators). The registration of operators under the revised Act on Reporting and Using Specified Financial Transaction Information, which was enforced in September last year, was completed in the first half of this year, marking institutional stabilization. Among the 42 operators who submitted registrations, 35 completed registration, including 26 trading operators and 9 wallet/custody operators. From February this year, inspections on operators' compliance with the Act began, and after the Luna incident, industry-led voluntary improvement measures for user protection have been established.

The total operating profit of virtual asset operators was 630.1 billion KRW, a decrease of about 62% compared to 1.6 trillion KRW in the second half of last year. The Won market recorded an operating profit of 662.9 billion KRW, while the Coin market posted an operating loss of 32.7 billion KRW. The average commission rate for cryptocurrency buying and selling was 0.16%, down 0.01 percentage points from the second half of last year but still high compared to the Korea Exchange stock trading commission rate of 0.0027%. Only one operator lowered their commission rate. The average commission rate was 0.18% for the Won market and 0.15% for the Coin market.

As of the end of June this year, customer-held Won deposits, which are pending trading funds, totaled 5.9 trillion KRW, down 22% from the second half of last year. After peaking at 8.5 trillion KRW in December last year, it has been steadily declining.

The number of virtual assets traded domestically was 1,371 as of the end of June this year, including duplicates, an increase of 114 compared to last year. The Won market handled an average of 153 assets, and the Coin market handled 29 virtual assets. The number of exclusive listings supported only by specific domestic operators was 391, down by 12. However, the top 10 virtual assets in the Coin market were all exclusive listings. It is explained that 36% of exclusive listing virtual assets had a market capitalization of less than 100 million KRW, exposing them to risks such as sharp price fluctuations and lack of liquidity.

Since the Luna incident, new trading support has been on a downward trend, decreasing from 95 cases in the first quarter to 59 in the second quarter this year. Trading suspensions increased from 62 to 85 cases, and the number of designated cautionary items rose from 92 to 114. Including duplicates, new trading support totaled 154 cases, trading suspensions 147 cases, and cautionary item designations 206 cases in the first half of this year.

Furthermore, the number of registered accounts is also declining. As of the end of June this year, the number of registered accounts, including duplicates across operators, was confirmed at 13.1 million, a 14% (2.15 million) decrease compared to the second half of last year. This is interpreted as an increase in accounts automatically withdrawn due to long-term dormancy. The Won market had 12.45 million accounts, far surpassing the Coin market's 640,000 accounts.

However, the number of users eligible for trading who have completed customer verification obligations increased by 24% (1.32 million) to 6.9 million. As most operators completed registration, they began fully implementing customer verification obligations under the Act on Reporting and Using Specified Financial Transaction Information, increasing the number of users eligible for trading. The largest age group among them was those in their 30s (31%), followed by those in their 40s (26%), 20s (24%), 50s (15%), and 60s (4%). By gender, males (68%) outnumbered females (32%).

Additionally, among users eligible for trading who have completed customer verification obligations, 73% (5.05 million) held less than 1 million KRW worth of cryptocurrency, an increase of 17 percentage points compared to the second half of last year. Conversely, the proportion holding more than 10 million KRW decreased by 8 percentage points to 7% (470,000 users).

This content was produced with the assistance of AI translation services.