Crypto Turmoil In South Korea: Exchanges Struggle To Survive

Cryptocurrencies in South Korea are in a kind of dismay. A research paper recently revealed that 97% of the crypto exchanges located inside the country are on the brink of collapsing and spiraling into bankruptcy. The paper blames low trading volume for these indicators, saying that the massive increase in competition in the region drives newly formed crypto startups into the ground while allowing top five exchanges to thrive on the now demand-rich market.

As an example, Prixbit, one of South Korea’s newest cryptocurrency exchanges has recently announced that it will be shutting down due to financial uncertainty in the company. There were no specifics named as the sole reason why the company was stopping its operations, but representatives did mention that there are more than one influencers.

In a press release, Prixbit representatives noted that due to pressure from past hack attacks, currency volatility, crypto winter, loans and etc. All of this translates into a very serious financial instability for a cryptocurrency exchange.The representatives have already mentioned that the refunding stage has begun, and will continue until every single customer is given their deposit back before the official closing of the company. It’s already known that exchange-native tokens such as PRX and GRX have been refunded already.

Overall, the whole South Korean crypto market looks bleak, which is why the announcement from Prixbit does not come across as strange.

What causes the decline in volume?

As already mentioned, not every South Korean crypto exchange is in danger of collapsing due to pressuring issues about trading volume. The top 5 performers are still quite alright — it’s the newly formed startups or 1-year-old exchanges that are starting to struggle. This can all be attributed to the large taxation and regulation policies that have been plaguing the South Korean crypto market since December 2018.

Several experts have commented that startups, in order to remain somehow profitable in their initial phases of operations, which are usually the deciding moments, tend to ramp up their commission rates, transaction fees and etc. Furthermore, very few of them have direct crypto purchasing abilities, which installs a big barrier between them and the beginners who don’t already have a large crypto portfolio they can move around various exchanges.

Large cryptocurrency exchanges can always lower their commission rates and transfer fees in order to push through an unfavorable crypto market phase, much like they did during the crypto winter. But when it comes to startups, there’s virtually nothing they can do to entice veterans to start trading with them besides leverage. And looking at how large exchanges like Binance and OKEx are starting to dominate the leveraged market as well, enticing campaigns become either unaffordable or not effective.

Other reasons include South Koreans trying to move their capital to offshore exchanges in order to somehow avoid unfavorable crypto taxation policies in the country as well as initiatives to centralize the market. Experts are saying that rising competition should weed out the underperformers while awarding the best companies possible, but at this point, it boils down to companies who manage to raise the most in their funding phases and can survive a year of losses.