As interest in cryptocurrency investments wanes, the foundation of domestic cryptocurrency exchanges is also weakening. The rise in the stock market has diverted investment demand, leading to signs of market contraction such as decreased trading participation and reduced deposits. Additionally, there are concerns about the competitiveness of domestic exchanges as some investment demand shifts overseas.
According to data submitted by the Financial Supervisory Service to Lee Jong-wook, a member of the National Assembly's Finance and Economy Planning Committee, the user engagement rate for the five largest domestic cryptocurrency exchanges (Upbit, Bithumb, Coinone, Korbit, and Gopax) was only 19.5% as of the end of June this year.
This figure represents the percentage of active users who completed customer verification (KYC) and participated in actual trading, a decline from 35.7% at the end of January last year. The number of users eligible for trading also fell from 11.56 million at the end of March to 11.15 million at the end of June, a decrease of over 400,000.
Customer funds held by exchanges are also decreasing. As of the end of the first quarter, Upbit's deposits amounted to 51.472 trillion won, an 11% decrease from 57.833 trillion won at the end of last year. Similarly, Bithumb saw its member deposits drop from 20.351 trillion won to 18.006 trillion won, a decline of 11.5% during the same period.
Industry analysts attribute the slowdown in trading activity in the cryptocurrency market to the ongoing strength of the domestic stock market, which has diverted some investment demand. They suggest that individual investors have shifted their focus to the domestic stock market amid the rising KOSPI index since last year.
There is also a continuing outflow of funds to overseas exchanges. In June, the net outflow of stablecoins from the five major domestic exchanges to overseas exchanges reached 2.7625 trillion won. After accounting for the 2.2022 trillion won that flowed into domestic exchanges from overseas, the net outflow amounted to 560.3 billion won. The net outflow for the second quarter was 1.6872 trillion won, surpassing the net purchases of overseas stocks by domestic investors, which totaled 1.6185 trillion won during the same period.
The stablecoins that have moved overseas are primarily used for trading various derivatives that are not available on domestic exchanges. Consequently, industry insiders believe that there is a need to establish a regulatory framework that can absorb the investment demand leaving for overseas markets back into the domestic market.
An industry representative stated, "Cryptocurrency derivatives, including perpetual futures, can enhance market price efficiency and serve as risk management tools for investors. To attract the current demand for derivatives concentrated in overseas exchanges back to the domestic market and enhance market competitiveness, discussions on related regulations are necessary."
* This article has been translated by AI.
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