Korbit, a South Korean cryptocurrency exchange, has sold approximately 10.4 billion won (about $8.2 million) worth of Bitcoin and Ethereum over the past four months. This move comes as the exchange faces declining trading volumes and worsening profitability, prompting the need to secure operational funds.
According to a disclosure from the Digital Asset Exchange Alliance (DAXA) and Korbit on May 18, the sales occurred between February 5 and May 11. During this period, Korbit sold 25 Bitcoins from February 5 to March 31, followed by an additional 65 Bitcoins and 300 Ethereums from March 6 to May 11, totaling 10.471 billion won.
In both disclosures, Korbit stated that the purpose of the sales was to cover "operational costs such as labor expenses." DAXA guidelines restrict exchanges from selling their assets to three reasons: tax payments, operational cost coverage, and unavoidable liquidity crises.
Industry analysts believe that Korbit's declining profitability is a key factor behind the asset sales. Last year, the exchange recorded a net loss of 15.759 billion won, a stark contrast to a profit of 9.8 billion won the previous year. Notably, investment gains from cryptocurrencies plummeted from 34.4 billion won to a loss of 5 billion won, while valuation losses on cryptocurrencies also expanded, severely impacting its financial performance. Additionally, deposits and cash equivalents have decreased, increasing financial pressure.
The situation worsened with sanctions from the Financial Intelligence Unit (FIU). In December, Korbit was fined 2.73 billion won for violations related to anti-money laundering obligations and received an institutional warning. Korbit paid 2.18 billion won, reduced by 20%, within the legal deadline in January, which represents about 22% of its operating revenue of 9.761 billion won last year.
The combination of a larger-than-expected fine and deteriorating performance has heightened the need for operational funding, leading to the decision to liquidate its cryptocurrency holdings. However, Korbit has indicated that it does not plan any further sales in the near term and will focus on stabilizing operations with the funds secured from this sale.
Korbit's Struggles Reflect Broader Issues for Smaller Exchanges
Korbit's situation is not an isolated issue; many smaller cryptocurrency exchanges are also facing declining trading volumes and profitability. For instance, the operator of Gopax, Streami, reported a 46.1% drop in revenue last year, totaling 4.326 billion won. Coinone also saw its operating loss widen to 6.343 billion won compared to the previous year.The challenge is that a market rebound is not expected in the near term. With the recent surge in the domestic stock market, investor funds have shifted toward equities, leading to a decline in cryptocurrency trading volumes. Exchanges rely heavily on trading fees for revenue, so reduced trading activity directly impacts their financial results.
The influx of new investors has also slowed. According to a survey by the Financial Services Commission, the growth rate of users able to trade on won-based cryptocurrency exchanges was 21% in the first half of 2024, 25% in the second half, and 11% in the first half of last year, but it dropped significantly to 3% in the second half of last year.
Industry experts argue that diversifying revenue structures through regulatory reforms and attracting institutional funds is essential. Recently, the FIU has requested exchanges to submit readiness reports for the second phase of the "Corporate Participation Roadmap" to expand institutional and corporate investor participation in the cryptocurrency market.
An industry insider noted, "The specific timing and methods for expanding corporate participation are likely to emerge after the local elections, and there is a possibility that it will be pursued alongside discussions on the second phase of cryptocurrency legislation, so we are monitoring the situation closely."
* This article has been translated by AI.
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