Following a 54.6% year-over-year decline in first-half trading turnover, South Korea's five won-based cryptocurrency exchanges — which collectively represent one of the world's largest retail crypto trading markets — are restructuring their businesses around partnerships with banks and brokerages, institutional services, and regulatory compliance efforts under the Virtual Asset User Protection Act that took effect in July 2024.

South Korea's Crypto Market Contraction

Combined first-half turnover at Upbit, Bithumb, Coinone, Korbit, and Gopax reached $366.58 billion, a 54.6% drop from the same period a year earlier. From July 1 to 27, the five exchanges posted cumulative volume of approximately 17.3 trillion won, representing a 16.9% decline from the comparable period the previous month.

The crypto market has been losing ground to domestic equities for months. In July, the five exchanges averaged 597.8 billion won ($406.5 million) in daily turnover, equivalent to just 1.59% of the KOSPI stock market's daily average. That ratio stood above 11% in January before declining to roughly 6% in March and April, and approximately 2% in May.

For context, domestic crypto volume reportedly reached as high as 21 trillion won in a single day in November 2024, when traders anticipated crypto-friendly policies under a second Trump administration. South Korean retail investors have historically been among the most active crypto traders globally, and the so-called "kimchi premium" — where digital assets have at times traded at higher prices on Korean exchanges than on global platforms — has been a recurring feature of the market during periods of heightened demand.

Bitcoin's average daily price movement was 1.25% in the first half, while altcoins averaged 1.79% — both well below the KOSPI's 4.67%. Bitcoin traded within a narrow range of $60,000 to $63,000 during this period. Some retail investors redirected capital toward the stock market to participate in the rising KOSPI index.

Korbit sold 15 BTC and 60 ETH over ten days to raise approximately $11.6 million (1.6 billion KRW) in cash. Dunamu, the operator of Upbit, reported first-quarter revenue and operating profit declines of 55% and 78% year-over-year, respectively.

A director at Tiger Research characterized the current environment as a "second crypto winter," citing the sharp contraction in total crypto market capitalization and the absence of new project launches.

However, the downturn briefly reversed for 48 hours when the KOSPI shed as much as 864 trillion won in market value on July 28 and 29. The five exchanges traded $964.11 million on July 28, an 82.5% increase from the prior month's daily average, coinciding with a circuit breaker that halted a stock decline exceeding 10%. Upbit's USDT turnover reached 200.045 billion won on July 29, roughly double its Bitcoin volume.

Exchanges Turn to Banks and Brokerages

As volume thinned, liquidity concentrated among the largest exchanges. Upbit's July turnover fell 10% to approximately 11.7 trillion won, yet its market share rose from 62.3% to 67.4%. Bithumb's turnover dropped 26.6% to 4.7 trillion won, and its share slipped to 27.1%, widening the gap between the two leaders to 40.3 percentage points.

Upbit and Bithumb's combined share exceeded 90% in early July. A Kaiko report on the Korean market, authored by Presto Labs, found that the top two exchanges have historically handled nearly 96% of domestic volume.

Upbit leveraged its position by waiving fees on six stablecoins starting July 26, briefly pushing its USDT turnover to nearly 160 billion won — approximately four times Bithumb's.

The partnerships with traditional financial institutions build on existing regulatory infrastructure. Since January 2018, South Korea has required real-name verification for crypto trading, mandating that exchanges partner with banks to issue verified accounts — a system that has already shaped the competitive landscape by limiting the number of platforms able to offer won-denominated trading.

Coinone is seeking to diversify beyond token trading by adding a stock-trading tab to its app's home screen, routing users to Korea Investment & Securities' web platform. This marks the first product since the brokerage acquired a stake in May. Korea Investment & Securities and OKX Ventures each paid approximately 80 billion won for roughly 20% holdings, in a combined 160-billion-won deal that left founder Cha Myung-hoon's side with 30.4%.

Mirae Asset Consulting purchased 97.15% of Korbit, a deal the Fair Trade Commission cleared in part because Korbit's market share sits near 0.5%. Korbit plans to relaunch as DigitalX and expand into stablecoins, real-world assets, tokenized securities, and custody services, targeting corporate and institutional clients rather than retail traders. The move follows eight consecutive years of operating losses since 2018.

Uneven Paths Forward

Unlike Korbit, Bithumb held discussions with Kiwoom Securities, Kakao, Toss, and Meritz Securities regarding cooperation or investment, but none met Bithumb's terms on price, control, and structure. Any potential deal is further complicated by the tangled ownership structure involving Bithumb Holdings, Bidet, and T Scientific, along with unresolved issues including an FIU administrative lawsuit, a Bitcoin misdelivery sanction, and a pending VASP renewal. The renewal process, administered by the Korea Financial Intelligence Unit, requires exchanges to demonstrate ongoing compliance with anti-money laundering and investor protection obligations.

Gopax, the smallest exchange at approximately 0.1% market share, has prioritized recovery over growth. Streami appointed former AWS Korea executive Kim Na-young as chief and focused on resolving GoFi, a suspended deposit product with losses approaching 100 billion won following the collapse of FTX in 2022. Binance paid out approximately $70 million through September 2023, but no further payments have been made since. Regulators insist the repayment must be completed in full before Gopax can receive its VASP renewal. The exchange raised its won deposit rate from 1.30% to 1.50%, though this remains below Upbit's 2.1% and Bithumb's 2.2%.