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| A price chart of Bitcoin is displayed in a customer center of Bithumb in Seoul, Monday. Yonhap |
By Lee Min-hyung
The unexpected insolvency of the once-high-profile cryptocurrency exchange, FTX, comes as a wake-up call for its Korean counterparts to reduce their excessive reliance on trading commission profits and diversify their revenue structures.
This situation comes amid investors' growing skepticism about the entire industry, after some seemingly undefeatable market players collapsed in a flash. It took only a few days for FTX and the now-defunct Terra stablecoin to spiral out of control.
Korea's crypto exchanges have so far remained relatively free from such incidents, but they now face mounting pressure to find alternative stable revenue sources amid dwindling investor sentiment and yearlong market doldrums.
According to data from the nation's top four exchanges ― Upbit, Bithumb, Coinone and Korbit ― they reported double-digit earnings falls during the first half of 2022 from a year earlier. Upbit, the dominant market leader, generated an operating profit of 566.1 billion won between January and June, down by 69.7 percent from the previous year. Its sales also dropped by more than 60 percent, affected by the freezing market sentiment.
Other exchanges also faced a similar earnings shock. Bithumb, the second-largest exchange here, also reported a drastic earnings fall during the same period. The company chalked up merely 7.4 billion won in net profit in the first half of this year, down 98.7 percent from a year ago.
Depending on the external market situation, most exchanges' earnings are on a rollercoaster ride each year, as almost all of their sales come from users' crypto trading commissions.
They enjoyed a super rally last year when the crypto frenzy reached its peak amid the then-super low interest rates. But after the U.S. Fed started its unprecedentedly hawkish monetary policy from the first quarter of this year, investors' sentiment has since hit a low point.
But Korean exchanges run a lower risk of experiencing such an abrupt meltdown, as they do not issue their own cryptocurrencies, unlike their overseas counterparts, such as Binance and FTX.
"Most exchanges understand the importance of finding new revenue areas, in their bid to reduce management risk during this period of market doldrums, but given the infancy of the industry, it is hard for them to generate stable revenue streams in a short period of time ― other than the conventional commission revenues," an industry source said.
Dunamu, the operator of Upbit, realizes the urgent need to do so, and it has recently started its overseas non-fungible token (NFT) business by partnering with HYBE, a leading entertainment firm here.
But other exchanges are still far from generating tangible outcomes in the drive to find the next cash cow.
"Exchanges have expertise in blockchain-related businesses, so most of them have so far made fresh attempts in areas such as NFTs and the metaverse. However, investors' attention in what was once considered the next industrial paradigm rapidly lost steam in line with the bearish crypto market sentiment," the official said.
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